giving in the current environment dr. eddie thompson ceo and founder [email protected]
TRANSCRIPT
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We will explore the type of gifts donors are making in this difficult economy
Agenda:
1. A few fundamental concepts
2. Four types of gifts
3. Six examples
4. Trends, tools and conclusions
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• Three types of gifts• Three types of donors• Two sources of assets• Three questions • Four giving techniques
A Few Fundamental Concepts:
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Capital
Three Types of Gifts
Annual
Planned
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Three Types of Donors
• About 70% Give Out Of Habit
• About 23% Give Based On Emotion
• About 7% Are Strategic Donors
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Where are we Looking for Gifts?
Annual Planned
Discretionary Income
Net Worth
?
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…that must be answered for and by Strategic Donors!!
Three Questions…
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Do I have enough to live on for the rest of my life?
How would most donors answer today?
# 1—My Needs
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How much shouldI leave my heirs?
Not only how much, but WHEN should they get it!
# 2—Heirs’ Needs
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EstateHeirs
Executor
Inheritance ?Inheritance ?How Much & When?How Much & When?
$?
# 2—Heirs’ Needs
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# 3—Social Capital
When your executor writes a large check from your estate would you
rather it go to the IRS or to my favorite charities?
Which would your donors pick?
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Total Wealth
FinancialIndependence
Inheritancefor Heirs
CharitableGifts
Self Directed
Tax
GovernmentDirected
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Many of their donors no longer have the disposable income that they once had and/or are concerned that they may no longer have the resources that they need to maintain their lifestyle.
Now to the issues at hand:
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• "If a number of my donors don't feel like they can write me check, but they still want to give, what other ways to give are available to them?"
• There are many answers to that question, but
here are a few that fit in the current economic environment:
An Important Question:
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• Gifts of net worth• Testamentary gifts• Gifts that provide income• Gifts that also fulfill estate planning
objectives
4 Types of gifts donor are making:
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• Less cash, but still same charitable intent.
• Investment assets, real estate, etc. may
allow the donor to do more now than they realize is possible
1. Gifts from Net Worth
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• While many donors are worried about making a current major gift because they are uncertain about their own future, the idea of making a testamentary gift may make perfect sense.
• Such a gift comes from "what's left" and does not impact the donors current use of the assets.
2. Testamentary Gifts
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• Bequests• Testamentary Trusts• PODs• IRDs• Insurance
Types of Testamentary Gifts
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• What are they?
• Are they taxable in an estate?
• Doctors / Professionals / Others and IRDs
• A plan that works almost every time!
IRDsIRAs, 401ks, 403bs, etc
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Estate3,800,000
($2,000,000 in IRAs)
* Actual future value of estate and gift may be higher or lower at time of death.** Income Tax calculated at a 28% rate*** Future Values discounted at 3.5% for inflation to arrive at present values
Remaining Assets$1,615,000
Current Planning*Heirs $ 2,890,000Charities $ 0Taxes $ 910,000
Heirs$3,340,000
Taxes$185,000 ET
Taxes$185,000
IRDs toTestamentary Charitable Remainder Trust
TCRUT$2,000,000(7% ROI)
Recommended PlanHeirs $ 3,340,000Charities $ 2,896,000Taxes $ 185,000
Charity$2,896,000
5% payoutFor 20 yearsAfter Tax Total**$1,725,000
Present Value ofRecommended Plan***Heirs $ 3,340,000Charities $ 2,855,000Taxes $ 185,000
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• Charitable Gift Annuities may be just what they are looking for while also allowing them to fulfill their charitable intent
• CD rates are very low
• Concern about ROI on traditional investments
3. Gifts that provide income for the donor
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Betty’s story83 woman with farm land
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• She has a good income• He wants to make sure she has enough to
retire on• Each year he funds a deferred CGA with
$50,000• These CGAs would begin paying out when
she is 60.
62 year old client with a 36 year old wife
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Retired docTwo houses
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While the current economic environment has caused many problems, it has also created some unique opportunities..
4. Gifts that also fulfill estate objectives
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Flashback to Chemistry Class
28
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An Estate Planner’s Version
29
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Trend
100%
20%Outright
40%Annual
40%Lump
Heirs
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Trends In Charitable Estate Planning
40%
Lump
100%
20%Outright
40%Annual
Heirs
TCRUT TCLA/UT
Charity
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The Mechanics of a Trust
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• Donors wants to give at his death $1,000,000 to each of his four children
• He does not want to leave them money outright
• He has directions in his Will to establish four CGAs at $1,000,000 each for his four children
Gifting To ChildrenCGAs
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Retirement Accounts
Heirs$6,450,000
After Planning:Heirs $6,450,000Charity $2,400,000Taxes $450,000*
Before Planning:Heirs $7,200,000Charity $0Taxes $2,100,000(potential immediate income and estate taxes)
Credit ShelterTrust
$3,500,000
Charity$2,400,000
Death of the first spouse
Death of the surviving spouse
Passes to Heirsfree of tax
Other Assets $2,375,000Life Insurance $4,525,000Retirement Accts. $2,400,000__ Total Estate $9,300,000
Health, Education.Maintenance,Support
Estate Plan
Taxes$450,000
$9,300,000
Surviving SpouseOutright
$5,800,000
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• One such opportunity is the ability of wealthier individuals to pass assets to their heirs while they are living at a lower cost because of the current depressed values.
• Many wealthier donors are looking for ways to leverage the current low values, and arrangements like a Charitable Lead Trust may be just what they are looking for.
• The Lead Trust creates a charitable deduction the donor can use to move an even greater value of assets to his or her heirs free of tax.
• When combined with the current low interest rates that allow for larger deductions and historically high tax exemptions, this may be the best time in history to utilize such arrangements.
• Such arrangements also provide for immediate annual gifts to charity that help fulfill the donor's desire to give
Lead Trusts
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Trends In Estate Planning
100%
20%Outright
40%Annual
40%Lump
Heirs
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Wife$30,000,000
Death of 2nd Spouse
Husband’s Heirs$2,460,000
Example of TCLT if Husband Dies First
Tax$140,000
Husband$2,600,000
ILIT$10,000,000
Tom’s DSUEA - $2,400,000
Wife’s Heirs$15,290,000
Tax$4,710,000
State Tax - $1,600,000Fed Tax - $3,110,000
TCLTs$20,000,000
Charity$15,000,000
5 yrs.
10 yrs.
15 yrs.
20
yrs
.
6% payout6% return
Wife’s Heirs$20,000,000
Death of 1st Spouse
ILIT$10,000,000
Wife’s Heirs$30,000,000
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Trends In Charitable Estate Planning
40%
Lump
100%
20%Outright
40%Annual
Heirs
TCRUT TCLA/UT
Charity
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Putting it all together
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$18,000,000
* Actual future value of estate and gift may be higher or lower at time of death.
Heirs$24,145,000
$1,500,000
Credit Shelter Trust(No State Gap Trust)
$16,050,000
Surviving Spouse
Current PlanHeirs $12,975,000Charities $ 525,000Taxes $ 7,400,000
Taxes$4,100,000
QPRT$2,800,000
ILIT100,000
Charity$75,000
Heirs$775,000
Charity
$450,000
GST TrustTo Heirs
$3,000,000
Foundation$5,800,000
Family Trusts$35,000,000
Lead Trust$9,600,000
20 years5% to Charity
Remainder to Heirs $17,470,000
Recommended PlanHeirs $24,145,000Charities $10,125,000Taxes $ 4,100,000
Present Value of PlanHeirs $11,175,000Charities $ 5,625,000Taxes $ 4,100,000
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$54,500,000
Current PlanHeirs $21,700,000Charities $19,730,000Taxes $13,220,000Option 1*Heirs $43,760,000Charities $46,890,000Taxes $ 5,260,000
* Actual future value of estate and gift may be higher or lower at time of death.
MaritalDeduction$2,800,000
5 ye
ars
10 y
ears
Incometo
Charity
15 y
ears
20 y
ears
Heirs
SpecificBequests
$3,550,000
CharitableBequests
$10,300,000
CLTs$12,950,000
CRT$20,000,000
Charity
Incometo
Heirs
20 y
ears
Present Value of Plan**Heirs $24,500,000Charities $25,360,000 Taxes $ 5,260,000
** Present Value is discounted at 6%
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• Put their needs first• Help them achieve their objectives and
goals• Show a better use of social capital• Give them time to think about it• Trust them!
Introducing new concepts to donors:
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Charitable Estate Planning
1. Goal is to create the best plan for the donor2. Educates donors about how a gift fits into
their objectives3. Based on values of donor4. Typically results in larger gifts
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• Do you think donors give so they can get a charitable deduction?
• Do you think donors would rather give to local charities than to the IRS
• Do you think tax considerations impact the technique a donor may use to achieve their charitable intent?
Do taxes considerations impact giving?