Post on 17-Dec-2015
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Today’s Objectives
Provide an update on charitable giving trends
Review income tax planning strategies
Review estate planning strategies
Discuss the benefits of donor-advised funds
Learn about Fidelity Charitable Services® Advisor Resources
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Growth in Charitable Giving
Source: Giving USA 2007
Growth in Charitable Giving($ Billions)
$23$32
$55
$83
$105
$139
$238
$295
$0
$50
$100
$150
$200
$250
$300
$350
1971 1976 1981 1986 1991 1996 2001 2006 2007
$306.4
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Charitable Assets in Structured Giving Vehicles
Only 15% of HNW households use structured giving vehicles.1
But, 52% of HNW individuals show an interest in discussing charitable planning with an advisor.2
455.6
106.5
44.617.8 19.2
0
50
100
150
200
250
300
350
400
450
500
PrivateFoundation
Charitable Trusts CommunityFoundations
CorporateFoundations
Donor-AdvisedFunds
1HNW defined as households with $2MM+ in investable assets (all assets except primary residence, closely held business partnerships, restricted stock, vested/unvested options, insurance and annuities, defined contribution assets)
22004 Fidelity Study on Wealth and Advice.
3 Includes community foundation donor-advised fund assets. Charitable gift annuities are not included in the IRS Statistics of Income, Bulletin – Winter 2007
Sources: The Foundation Center’s Foundation Yearbook, June 2007; Chronicle of Philanthropy, May 2007; IRS Statistics of Income, Bulletin – Winter 2007
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Sources of Charitable Giving
Source: AAFRC Trust for Philanthropy/Giving USA 2008
2007 Sources of Charitable Giving($ Billions)
Individuals$229.30
Corporations$15.69
Foundations$38.52
Bequests$23.15
74.8%
12.6%
5.1%7.6%
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Legislative Environment
442962.1.0
Pension Protection Act of 2006 contains several important charitable provisions (August ’06)
The law includes:• A statutory definition of “Donor Advised Fund” as part of the Internal Revenue Code
• Charitable IRA Rollover provision to certain qualified charities for taxpayers over 70½
• Special substantiation and deductibility rules for certain charitable contributions
• An extension of rules surrounding “excess business holdings” in donor advised funds
U.S. Treasury results from the review of DAFs is due in late 2007
Increased scrutiny around taxation of carried interest
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Selecting the Right Giving Solution
* Charitable Lead Trusts are not considered here.** Sponsoring Charities for DAF programs will generally assess administrative fees.***Fidelity Charitable Gift Fund Pooled Income Fund**** Certain minimum account activity requirements generally apply.
Donor-recommended distributions and investments must be approved by sponsoring charity’s board
Create a legacy of giving
Generally, choice of anonymity or recognition on grants
Deduction limitation 50/30 (federal)
Generally does not include excise taxes
Typically no annual distribution is required at account level****
No start-up fees**
Donor-Advised Fund
Control over distributions and investment management (CRT only)
Create a legacy of giving
Capital gains tax avoided or deferred
Income taxes to non-charitable beneficiaries
Provides income stream to non-charitable beneficiaries
PIF***: No start up fee CRT: Legal expenses to draft
documents, plus additional fees
Split Interest (PIF/CRT*)
Control over grants and investment management
Create a legacy of giving
Foundation information is publicly available via IRS Form 990-PF and www.grantsmart.org
Deduction limitation 30/20 (federal)
Excise taxes
5% annual distribution for charitable purpose required
Start-up fees
Private Foundation
Choice to name PIF or CRT as you wish
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Private Foundation or Donor-Advised Fund?
Donor-Advised Fund
Private FoundationQuestions to Ask
1. Do you have $1 million or more to contribute?
2. Do you want control over the investments?
4. Want to hire family to oversee your philanthropy?
3. Do you want control over grantmaking?
7. Do you want the option to remain anonymous on grants?
6. Do you want the largest tax deduction possible?
5. Are you looking for simplicity?
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Regulatory Considerations
*For assets other than cash, deductions assume that the property has been held at least 12 months; if held less than one year, then deduction is generally limited to cost basis.
Self-dealing and Excess business holdings rules apply (IRC Sec. 4943)
20% of AGI; generallylimited to cost basis
30% of AGI; generally deductible at FMV
If shares are subject to Rule 144, it would continue to apply after those shares are donated
20% of AGI; generally deductible at FMV
30% of AGI; generallydeductible at FMV
30% of AGI
50% of AGI
Key RegulationsALLOWABLE DEDUCTION*TYPE OF ASSET
CASH
Private Foundation
Charity with DAF program
OTHER SECURITIES
Private Foundation
Charity with DAF program
PUBLIC SECURITIES
Private Foundation
Charity with DAF program
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Regulatory Considerations (cont.)
*For assets other than cash, deductions assume that the property has been held at least 12 months; if held less than one year, then deduction is generally limited to cost basis.
Rule against self-dealing20% of AGI; generally limited to cost basis
30% of AGI; generally deductible at FMV
Rule against self-dealing; excess business holdings rule
20% of AGI; generally limited to cost basis
30% of AGI; generally deductible at FMV
Key RegulationsALLOWABLE DEDUCTION*TYPE OF ASSET
REAL ESTATE
Private foundation
Charity with DAF program
PRIVATE COMPANY STOCK
Private foundation
Charity with DAF program
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Considerations for Administrating Private Foundations
Monitor income and expenditures
Assist in monitoring, calculating, and distributing 5% annually
Verify the IRC Section 501(c)(3) status of potential grant recipients
Issue grant checks
Coordinate preparation of foundation’s federal return
Compliance monitoring
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Assets and Funding Considerations for a Private Foundation
Tax deduction may be limited to cost basis for some assets, not fair market value (FMV)
Foundation may need to liquidate assets to distribute required 5% of the FMV of its investments each year
Self-dealing transactions
Jeopardy investments
Excess business holdings
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Unwinding a Private Foundation?
Time to unwind a Private Foundation?
Are the administrative responsibilities of your foundation too burdensome?
Would you prefer to remain anonymous on grants?
Are you bothered by constant solicitations for charitable grants?
Do family members disagree about grantmaking priorities?
Do you worry about who will run your foundation in the future?
Ways to unwind a Private Foundation?
Distribute assets into more than one entity
Merge or consolidate with another private foundation
Distribute assets to a public charity, such as one with a donor-advised fund program
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What is a Donor-Advised Fund?
DAFs have been around since the 1930’s, but witnessed significant growth starting in the 1990’s
One can make an irrevocable contribution to a charity with a DAF program and be eligible for an immediate tax deduction, advise how their contributions are invested, and recommend grants from their DAF to their favorite charities, often with the option of remaining anonymous
A DAF allows your client to combine the most favorable tax benefits with the flexibility to support their favorite charities on their own timetable
In the last decade, many people have discovered that with a DAF, they are able to better support their favorite charities
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How to Establish a Donor-Advised Fund
All donors may be eligible for an immediate tax deduction for their irrevocable contributions.
Step 1
Step 2
Step 3
Step 4
Charity accepts additional contributions from donor and 3rd-party contributors for allocation to the DAF.
Donor establishes DAF with contribution to charity.Donor names DAF and designates Account Holders, who have recommendation privileges over the DAF.
Account Holders recommend grants to qualified charities.
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Benefits of Donor-Advised Funds
Potential immediate federal income tax deduction*
Usually no tax on appreciation of donated capital gain property
Ability to support multiple charities from the proceeds of the sale of a single block of stock
Flexibility to recommend charitable grants on donor’s own timetable (often subject to minimum grant activity requirements)
Financial benefits
* You may need to itemize deductions and certain other limits may apply
Personal benefits
Consolidate charitable giving
Instill a spirit of giving in future generations
Build a charitable legacy by naming successors to assumeprivileges over the DAF
Enable more support to charities
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Complement to a Private Foundation
Helps to groom children to run a private foundation – teaches them about philanthropy
Maximizes charitable tax deductions
Fund private foundation up to the limit
and
Contribute to a public charity with a DAF program for the difference between the deduction limits of the two
Advantages of public charity with a DAF program:
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Combining DAFs with Split-Interest Giving Vehicles
Client/Donor
Donates Assets
Pays Income
Charitable Remainder Trust (CRT)
Public Charity with
DAF program
Distributes Remainder
Pays lifetime income from assets back to client and/or other income beneficiary(ies)
At donor’s death, distributes remaining assets to charity with DAF program
Becomes eligible to take a partial tax deduction
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Why Charitable Planning for Your Practice?
Helps advisors:
Deepen client relationships
Differentiate your practice from others
Become involved in legacy planning, which potentially leads to new relationships with future generations
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Contributing Special Assets to Charities
Private C-Corp Shares
Private S-Corp Shares
Certain LLC and limited partnership interests
Residential Real Estate
Other Real Estate
Cash Value of Life Insurance
Art & Collectibles
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Situation: Married couple
$100,000 of long-term appreciated securities Cost basis: $40k; unrealized long-term gains: $60k
Strategy: Contribute securities directly to charity rather than selling them first
Sell securities & donate net cash proceeds to charity ($91,000) or Contribute securities to the Gift Fund ($100,000)
Benefits: Less in taxes, more in charitable contributions
With a direct donation to the charity, the donor’s federal income taxes are reduced by an additional $12,150 and the charity receives $9,000 more
Save More Taxes, Do More Good: Hypothetical Case Study
* Assumes all realized gains are subject to the maximum federal long-term capital gain tax rate of 15%. Does not take into account any state or local taxes.**Availability of certain federal income tax deductions may depend on whether you itemize deductions. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis.This is a hypothetical example for illustrative purposes only. State and local taxes, the federal alternative minimum-tax and limitations to itemized deductions applicable to taxpayers in higher-income brackets are not taken into account.
Current Fair Market Value of Securities
Federal Long-term Capital Gains Tax Paid* (15%)Assumes cost basis of $40,000, and long-term capital gains of $60,000
Charitable Contribution/Charitable Deduction**
Value of Charitable Deduction
Less Capital Gain Taxes Paid* (Assumes donor was in the 35% federal income tax bracket)
Sell securities & donate net cash
proceeds to charity
$100,000
$9,000
$91,000
$22,850
Contributesecurities to
the Gift Fund
With a direct donation to the charity, the donor’s federal income taxes are
reduced by an additional $12,150 and the charity receives $9,000 more
$100,000
$0
$100,000
$35,000
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Charitable Venture Capitalist: Hypothetical Case Study
Situation:
Venture capitalist with portfolio of non-publicly traded stock
Shares in S-Corps, Private C-Corps, and interests in limited partnerships
Wants to give to a variety of charities, but does not have much cash to give at this time
Strategy:
Contribute assets to a public charity with a DAF program
Benefits:
Recommend grants from a single DAF
Eligible for a tax deduction for the fair market value of the contribution as determined by an appraisal
Avoid tax on gain from the sale of the donated property since the property, at the time of the sale and thereafter, is the asset of the charity and not that of the donor.
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Why Donate Real Estate?
Key potential benefits for donors:
Avoid capital gains tax on unrealized appreciation
Deduct fair market value of the property
Carry forward deduction for up to five years if client’s contribution exceeds limit on
charitable deductions
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Ready to Retire: Hypothetical Case Study
Situation: Married couple; age 70; AGI: $6 million Recently sold family business; wants to sell
home and retire
Strategy: Clients contribute home to a charity with a
DAF program Charity sells the property for $3 million Charity allocates the proceeds to four DAFs of
$750,000 each - one for each adult child
Benefits: Tax deduction for donation Avoids capital gains tax Enable more support to charities
Client contribution of $3 million to charity
DAF with $750K for child #2
DAF with $750K for child #3
DAF with $750K for child #4
DAF with $750K for child #1
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Contributions of Private Company Stock: Hypothetical Case Study
Situation:
Client wants to contribute stock of a privately held company.
Client is philanthropically inclined, but some of the charities they want to support do not have the resources or experience to accept or efficiently liquidate private company stock.
Strategy:
Client contributes privately held stock to a charity with a DAF program
In order to claim tax deduction of $5K or more for a contribution of a non-publicly traded asset, donors must obtain qualified appraisal.
Benefits:
Tax deduction for donation
Avoids capital gains tax
Enable more support to charities
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Why Make Charitable Giving Part of an Estate Plan?
Clients want to:
Continue charitable donations beyond death
Make their wishes known
Specify the most tax-efficient assets to donate
Reduce taxes for heirs
Specify one or more charities as beneficiaries in their will or trust in case family members pre-decease them
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Estate Planning Benefits of Gifts to Charities with DAF Programs
Clients can:
Decrease estate taxes by reducing size of the taxable estate by contributing to charity with a DAF during their lifetime or by making a bequest to a charity with a DAF
Teach heirs about philanthropy by giving family members recommendation privileges on DAF
Get flexibility in planning for a charitable legacy
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Leaving a Charitable Legacy
If donors name a charity with a DAF as:
• A Primary beneficiary
•A Contingent beneficiary
•Charitable beneficiary in a split-interest trust established at death
They will benefit fromthese advantages:
•Name a DAF as beneficiary and no need to decide today which causes the contribution will ultimately support
•At death, gift to the charity with a DAF program, family members or advisors can recommend which charities to support
Naming a Charity with a DAF Program as Beneficiary in a Will
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Which Assets to Consider Gifting at Death
Non-qualified stock options
Restricted stock
Installment sale notes
Retirement plan assets
IRD*-Producing Assets:
*Income in respect of the decedent
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Tax Benefits of Giving IRD Assets to Charity
Benefits to the charity:
The charity is not required to pay taxes on IRD
Benefits to the decedent:
Decedent’s estate can take a charitable deduction for the assets
donated to charity
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Disclosures
Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Fidelity does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Availability of certain federal income tax deductions may depend on whether you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis. Consult an attorney or tax advisor regarding your specific legal or tax situation.
Fidelity makes no warranties with regard to the information provided or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, the information furnished herein.
Fidelity Charitable Services, Fidelity Private Foundation Services®, and the pyramid logo are registered service marks of FMR LLC.
The Fidelity® Charitable Gift FundSM (“Gift Fund”) is an independent public charity with a donor-advised fund program. Various Fidelity companies provide non-discretionary investment management and administrative services to the Gift Fund. Charitable Gift Fund and the Charitable Gift Fund logo are service marks, and Giving Account® is a registered service mark, of the Trustees of the Fidelity Investments® Charitable Gift Fund. Fidelity and Fidelity Investments are registered service marks of FMR LLC, used by the Gift Fund under license.
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