Giving In The Current Environment

Dr. Eddie ThompsonCEO and Foundereddie@ceplan.comwww.ceplan.com

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

• Three types of gifts• Three types of donors• Two sources of assets• Three questions • Four giving techniques

A Few Fundamental Concepts:

Capital

Three Types of Gifts

Annual

Planned

Three Types of Donors

• About 70% Give Out Of Habit

• About 23% Give Based On Emotion

• About 7% Are Strategic Donors

Where are we Looking for Gifts?

Annual Planned

Discretionary Income

Net Worth

?

…that must be answered for and by Strategic Donors!!

Three Questions…

Do I have enough to live on for the rest of my life?

How would most donors answer today?

# 1—My Needs

How much shouldI leave my heirs?

Not only how much, but WHEN should they get it!

# 2—Heirs’ Needs

EstateHeirs

Executor

Inheritance ?Inheritance ?How Much & When?How Much & When?

$?

# 2—Heirs’ Needs

# 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?

Total Wealth

FinancialIndependence

Inheritancefor Heirs

CharitableGifts

Self Directed

Tax

GovernmentDirected

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:

• "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:

• Gifts of net worth• Testamentary gifts• Gifts that provide income• Gifts that also fulfill estate planning

objectives

4 Types of gifts donor are making:

• 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

• 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

• Bequests• Testamentary Trusts• PODs• IRDs• Insurance

Types of Testamentary Gifts

• 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

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

• 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

Betty’s story83 woman with farm land

• 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

Retired docTwo houses

While the current economic environment has caused many problems, it has also created some unique opportunities..

4. Gifts that also fulfill estate objectives

Flashback to Chemistry Class

28

An Estate Planner’s Version

29

Trend

100%

20%Outright

40%Annual

40%Lump

Heirs

Trends In Charitable Estate Planning

40%

Lump

100%

20%Outright

40%Annual

Heirs

TCRUT TCLA/UT

Charity

The Mechanics of a Trust

• 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

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

• 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

Trends In Estate Planning

100%

20%Outright

40%Annual

40%Lump

Heirs

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

Trends In Charitable Estate Planning

40%

Lump

100%

20%Outright

40%Annual

Heirs

TCRUT TCLA/UT

Charity

Putting it all together

$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

$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%

• 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:

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

• 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?

Questions?Dr. Eddie Thompson

CEO and Foundereddie@ceplan.comwww.ceplan.com