Giving In The Current Environment
Dr. Eddie ThompsonCEO and [email protected]
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 [email protected]
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