habitual - thompson & associates...death of 2nd spouse ira to a crt surviving spouse death of...
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Give Out of Habit70%
Give Based on Emotion23%
Are Strategic Donors7%
Habitual
Strategic
Emotional
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o People of all ages, but especially individuals 60-80
o Singles and Couples without children
o Singles and Couples with successful children
o Individuals who are fearful to leave a large inheritance to their heirs
o Individuals who do not believe their heirs need a large inheritance
o Business owners
o Anyone with appreciated assets
o Anyone with tax-deferred assets
o Anyone with a large estate (more than ET Exemption)
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o 23 Churches, average of 25 planning units per church, median estate size is $800,000
o When introduced to the concept of planned giving and then shown how they can do it within their objectives and assets, there is a dramatic shift in participation
o Less than 5% of participants with a current plan had included a charitable gift in their plan before The Carpenter’s Plan
o 88% of participants included a charitable gift in their plan after The Carpenter’s Plan
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o About 70% give out of habit
o About 23% give based on emotion
o About 7% are strategic donors
o Taking care of your heirs
o Connecting lifetime values with end of life decisions
o Directing social capital
o Heirs
o Taxes
o Charity
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1. Taking care of your heirs
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3
Financial Independence
FamilyLegacy
Gift Tax
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1. Taking care of your heirs
2. Connecting lifetime values with end of life decisions
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If you had to give away
a large sum of money,
what would you do?
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1. Taking care of your heirs
2. Connecting lifetime values with end of life decisions
3. Directing social capital
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Heirs Taxes Charity
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1. Marital deduction
2. Estate tax exemption
3. Charitable deduction
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An “estate” is everything an individual owns:
o Home
o Other real estate
o Bank accounts
o Investments
o Retirement benefits
o IRAs
o Insurance policies
o Personal effects
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o Estate tax
o Gift tax
o Generation skipping tax
o Income tax
o Liquidity
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o $11,400,000 estate/gift tax exemption
o Indexed for inflation
o 40% marginal estate tax rate
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Power of Attorney for Health, Power of Attorney for Property, Living Will
Last Will & Testament Revocable Living Trust
A/B Trust PlanningILIT
Advanced Noncharitable Tools(e.g., FLPs, GRATs, QPRTs, etc.)
CRTs, CLTs, FamilyFoundations, etc.
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o Gift of appreciated asset
o Bargain sale
o Bequests
o Gift of an IRA
o Life estate
o Charitable Gift Annuity
o Charitable Remainder Trusts
o Charitable Lead Trusts
o Living Lead Trusts
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Property$200,000
($100,000 Basis)
Gift to Charity$200,000
Property to Charity
Income Tax Deduction of $200,000 may save $74,000*.
Gift to charity. Bypass of Capital Gain may save
$23,800*.Charity
$200,000
*assumes highest capital gains tax bracket of 23.8% and income tax bracket of 37%
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The Charitable IRA Rollover is back in 2019:
A Qualified Charitable Distribution from an
IRA, owned by someone over 70½ to a
charity is not included as income and is not
counted as an itemized deduction.
…And it is "permanent"
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A sale of property by the donor to the Charity for a price less than Fair Market Value.
The donor receives a charitable deduction for the difference between FMV and the sales price and bypasses the Capital Gains Tax on the portion of gain attributed to the gift.
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Property$200,000
($100,000 Basis)
Sale Portion$151,329 Net Benefit
Cash to Donor $151,329Less: $18,008Plus: $18,008Net: $151,329
Net to donor is cash benefit plus net taxes saved or $151,329. Donor reduces taxes by $23,800 and makes $48,671 gift
Long-term capital gain is the difference between sale price and basis allocated to sale. Tax of $18,008 on gain is offset by charitable income tax deduction.
Property sold at bargain price to charity, income tax deduction saves $18,008. Captial gain bypass on gift portion may save $5,792.
Charity$48,671
*assumes highest capital gains tax bracket of 23.8% and income tax bracket of 37%
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A provision in a will where a charitable organization receives assets at the time of a donors’ death.
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o Fixed Amount
o Specific Property
o Percent of Residuary
o Contingent
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o Bypass Income Tax
o Bypass Estate Tax
o Part or All of IRA
o Beneficiary Designation
IRA
Charity
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$500,000
Heirs Government
$485,000
$500,000
Death of 2nd Spouse
Gift of an IRA
Surviving Spouse
Death of 1st Spouse
Retired CoupleHouse = $200,000Investment Accts - $150,000IRA’s = $50,000Life Insurance = $100,000
Total Estate
Income Tax onRetirement Accounts
Before Planning:Heirs $ 485,000
Charity $ 0Taxes $ 15,000
$15,000
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$500,000
Heirs Government
$0
$500,000
Death of 2nd Spouse
Gift of an IRA
Surviving Spouse
Death of 1st Spouse
Retired CoupleHouse = $200,000Investment Accts - $150,000IRA’s = $50,000Life Insurance = $100,000
Total Estate
Charity
Income Tax onRetirement Accounts
RetirementAccounts
$50,000
After Planning:Heirs $ 450,000Charity $ 50,000Taxes $ 0
Before Planning:Heirs $ 485,000Charity $ 0Taxes $ 15,000
$450,000 $50,000
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An agreement established by the donor transferring a deed of real property to a charitable organization while reserving for themselves the right to live on or use the property for life. Charitable deduction are limited to properties that are either personal residence or farms.
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John Jones 75 Mary Jones 70
Home or Farm$200,000
Deed to Charity$200,000
After two lives, property to charity.
Income tax ded. of $109,588.
Deed to charity. Right to use property.
Charity$200,000
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A legal contract between the donor and the charitable organization, where the donor exchanges cash, stock, or other assets for an agreed-upon income for life.
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John Jones 82 Mary Jones 80
6.4% AnnuityProperty$200,000
($100,000 Basis)
Gift to Charity$200,000
Charity has remaining property.
Annuity of $12,800 for two lives. Tax-free amount $2,484. Effective payout rate of 9.4%
Gift to charity. Partial bypass $100,000 gain may save $10,493. Income tax deduction of $88,175 may save
$32,625.
Two LivesCharity
*assumes highest capital gains tax bracket of 23.8% and income tax bracket of 37%
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o Testamentary
o Living
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Used by donors to transfer assets to a trust, which then goes to the charitable organization after the death of the last beneficiary. The donor retains a fixed or variable income for life.
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Charitable Remainder Unitrust% based on annual value of corpusChanges annually
Charitable Remainder Annuity Fixed amount% of original corpusNever changes
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o Straight
o NICRUT (Net Income)
o NIMCRUT (Net Income & Makeup Provision)
o Flip trust (NIMCRUT or NICRUT to Straight)
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$1,300,000Farm
CRUT$1,300,000
Charity
$588,000 Deduction
Avoid Cap Gains Tax
No Estate Tax on CRUT
Past Gross Income:$47,000
7,80036,00012,000
$102,800
Current Gross Income:
$47,00090,00012,000
$149,000$90,000/Yr.
For the rest of her life
81 Single Woman$2.4 Million Estate, Low on Cash
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$3,000,000
Heirs Government
$2,700,000
$3,000,000
Death of 2nd Spouse
IRA to a CRT
Surviving Spouse
Death of 1st Spouse
Retired CoupleHouse = $500,000Other Assets - $500,000IRA’s = $1,000,000Life Insurance = $1,000,000
Total Estate
Charity
Income Tax onRetirement Accounts
After Planning:Heirs $ 2,700,000Charity $ 1,000,000Taxes $ 0
Before Planning:Heirs $ 2,700,000Charity $ 0Taxes $ 300,000
$300,000
CRUT$1,000,000
5%20 Years
$50,000/Year($35,000 after tax)
$700,000 Total
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$3,000,000
Heirs Government
$0
$3,000,000
Death of 2nd Spouse
IRA to a CRT
Surviving Spouse
Death of 1st Spouse
Retired CoupleHouse = $500,000Other Assets - $500,000IRA’s = $1,000,000Life Insurance = $1,000,000
Total Estate
Charity
Income Tax onRetirement Accounts
After Planning:Heirs $ 2,700,000Charity $ 1,000,000Taxes $ 0
Before Planning:Heirs $ 2,700,000Charity $ 0Taxes $ 300,000
$2,000,000
CRUT$1,000,000
5%20 Years
$50,000/Year($35,000 after tax)
$700,000 Total
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Established by a donor transferring assets to a trust which provides income to a nonprofit for a period of years. At the end of that period, the trust assets revert either to the donor or to someone else the donor designates.
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o Grantor Vs. Nongrantor
o Living Vs. Testamentary
o Income to Charity
o Remainder to Family
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o High Gift Tax and GST Exemption allows Grantors to gift large assets to family with no immediate tax
o Low Applicable Federal Rate (AFR) allows for large gift tax deductions for Charitable Lead Trusts
o Large GST exemption allows the grantor to exempt the assets from transfer taxes for multiple generations
o Only applies to a few wealthy people, but the impact could be huge!
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Original Property$15,000,000
Original Property$15,000,000
Property Growth$20,101,435Term of 6 Years
Value $20,101,435Taxes $3,568,574
Family $16,532,861
Trust Principal$15,000,000Term of 6 years
Principal to Family$15,000,000
Charity - $4,500,000
Retain Asset vs. Charitable Lead Annuity Trust5% Annual Growth of Assets, 5% Annual Payment to Charity from CLT
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* Future Values discounted at 3.5% for inflation to arrive at Present Value
Current PlanningHeirs $27,400,000Charities $ 0Taxes $ 3,600,000
Death of First Spouse
Death of Surviving Spouse
CLT PlanHeirs $31,000,000Charities $12,500,000Taxes $ 0
$31,000,000
10 y
ears
Incometo
Charity
15
ye
ars
CLTs$20,000,000
Surviving Spouse $20,000,000
Credit Shelter Trust$11,000,000
Heirs$31,000,000 $12,500,000
Present Value of Plan*
Heirs $24,251,742Charities $ 9,640,367Taxes $ 0
$5,000,000
$5,000,000
5% payout5% return
Testamentary Charitable Lead Trust
20
ye
ars
5y
ea
rs
$5,000,000
$5,000,000
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Nashville, Tennessee
www.ceplanninginstitute.org