The Secret to Understanding
Planned Giving
Russell James, J.D., Ph.D., CFP®ProfessorTexas Tech University
The Secret to Understanding
Planned Giving
Part 1: The tools
Isn’t planned giving super-complicated?
Gift planning can do two things.
Fundraisers should use it for two reasons.
Financial advisors should use it for tworeasons.
Gift planning can do two things
• Lower taxes
• Trade gift for income
If gift planning can only do two things, how can it
get so complicated?
Trade for Income
Charity-BackedCGA
Immediate fixed $ payments for
life/livesImmediate CGA
Delayed fixed $ payments for
life/livesDeferred CGA
Donor Asset-Backed
CRT
Fixed $ payments for life or years
CRAT
Fixed % payments for life or years
CRUT
Capped at yearly income
NICRUT
With IOUs if income below fixed payment
NIMCRUT
Capped until event occurs
Flip-CRUT
Pool of Different Donors’ Assets
PIF
Trade for Income
Charity-BackedCGA
Immediate fixed $ payments for
life/livesImmediate CGA
Delayed fixed $ payments for
life/livesDeferred CGA
Donor Asset-Backed
CRT
Fixed $ payments for life or years
CRAT
Fixed % payments for life or years
CRUT
Capped at yearly income
NICRUT
With IOUs if income below fixed payment
NIMCRUT
Capped until event occurs
Flip-CRUT
Pool of Different Donors’ Assets
PIF
Lower Taxes
Capital Gains Taxes
Give appreciated
property
To charity in exchange for
incomeCRAT, CRUT, CGA, PIF
To charity
Income Taxes
Donor’s
Deduction for current gift
Deduction for committing to future transfer to charity
PF, DAF, Grantor CLT, Remainder Deed
Deduction for current gift in exchange for income
CRAT, CRUT, CGA, PIF
Heirs’ (retirement account
charitable beneficiary)
Estate Taxes
Give to charity at deathWill, CRT, CGA,
Remainder Deed
Fixed payments from
assets to charity, excess growth to heirs estate tax free
Non-Grantor CLT
Lower Taxes
Capital Gains Taxes
Give appreciated
property
To charity in exchange for
incomeCRAT, CRUT, CGA, PIF
To charity
Income Taxes
Donor’s
Deduction for current gift
Deduction for committing to future transfer to charity
PF, DAF, Grantor CLT, Remainder Deed
Deduction for current gift in exchange for income
CRAT, CRUT, CGA, PIF
Heirs’ (retirement account
charitable beneficiary)
Estate Taxes
Give to charity at deathWill, CRT, CGA,
Remainder Deed
Fixed payments from
assets to charity, excess growth to heirs estate tax free
Non-Grantor CLT
Lower Taxes
Capital Gains Taxes
Give appreciated
property
To charity in exchange
for incomeCRAT, CRUT,
CGA, PIF
To charity
Income Taxes
Donor’s
Deduction for current gift
Deduction for committing to future transfer to charity
PF, DAF, Grantor CLT, Remainder Deed
Deduction for current gift in exchange for income
CRAT, CRUT, CGA, PIF
Heirs’ (retirement account
charitable beneficiary)
Estate Taxes
Give to charity at
deathWill, CRT,
CGA, Remainder
Deed
Fixed payments
from assets to charity,
excess growth to
heirs estate tax free
Non-Grantor CLT
Trade for Income
Charity-BackedCGA
Immediate fixed $ payments for
life/livesImmediate CGA
Delayed fixed $ payments for
life/livesDeferred CGA
Donor Asset-Backed
CRT
Fixed $ payments for life or years
CRAT
Fixed % payments for life
or yearsCRUT
Capped at yearly incomeNICRUT
With IOUs if income below fixed payment
NIMCRUT
Capped until event occurs
Flip-CRUT
Pool of Different Donors’ Assets
PIF
Yes, it can get complicated.
But, it still only does two things.
The Secret to Understanding
Planned Giving
Part 1: The tools
The Secret to Understanding
Planned Giving
Part 2: Motivations for fundraisers
Gift planning can do two things
• Lower taxes
• Trade gift for income
Fundraisers should use it for two reasons
• If you are asking for cash, you are asking small
• A donor says the magical phrase, “I wish I could do more, but …”
If you are asking for cash, you are asking
small
Wealth is not held in cash. It is held in assets.
If you are asking from the cash bucket, you are asking from the small bucket.
99%
1% Financial assets held by families (U.S. Census 2007)
Other financial assets (stocks, bonds, retirement accounts, life insurance, mutual funds)
Cash: Checking, savings, money market deposit accounts, and similar
The magical phrase:
“I wish I could do more, but …”
The magical phrase, “I wish I could do more, but …”• I have to save for retirement• I am on a fixed income• I don’t have the cash right
now• Everything is tied up in the
business/farm• Maybe I’ll leave a gift in my
will• I only have so much money
and I might live a really long time
• Etc., etc., etc.…
The magical phrase:
“I wish I could do more, but …”
The magical response:
“What if there was a way you could do both?
Would you like to hear about that?”
A simple way to ask from the big bucket…
Donor Charity$100k Cash
Donor Charity
Income tax deduction ($100,000 x 39.6%)
$39,600+
Avoid capital gains tax($90,000 x 23.8%)
$21,240
Income tax deduction ($100,000 x 39.6%)
$39,600
$100k Stock
Donor Charity$100k low basis stock
$100kcash
immediately buy identical stock(100% basis)
The charitable swap
No “wash sale” rule because this is gain property, not loss
property
Donor Charity$100k low basis stock
$100kcash
immediately buy identical stock(100% basis)
A FREE tax benefit you lose every time you give cash
Donor
Charities
$100kcash
The charitable swap for charities that want only cash
Donor Advised
Fund
$
$
$
$100k low basis stock
immediately buy identical stock(100% basis)
The Secret to Understanding
Planned Giving
Part 2: Motivations for fundraisers
The Secret to Understanding
Planned Giving
Part 3: Motivations for financial advisors
Gift planning can do two things
• Lower taxes
• Trade gift for income
Financial advisors should use it for two reasons• To provide dramatic benefit to
highly desirable clients
• To increase (multi-generational) assets under management
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$2.0 million <$3.5 million
$3.5 million <$5.0 million
$5.0 million <$10.0 million
$10.0 million <$20.0 million
$20.0 million ormore
Estates including charitable planning by estate size
(IRS Statistics of Income 2008)
Selling and reinvesting a highly appreciated non-income producing asset
Simple Sale
$1,000,000 asset$1,000,000 gain (if zero basis)
$288,000 tax (23.8% fed + 5% state)
$722,000 left to invest
Charitable Remainder Trust
$1,000,000 asset$1,000,000 gain (if zero basis)
$0 tax (CRT pays no tax)
$1,000,000 left to invest& $100,000+ tax deduction
Tax-free growth environments• Growth inside a donor
advised fund is tax free
• Growth inside a charitable remainder trust is tax free (only distributions are taxed)
• Growth inside a private foundation is tax limited (either 2% or 1% rate)
Multi-generational management
Inheritance• Small pools after
division by 1/n children and estate tax
Private Foundation/DAF
• Individual relationships with each heir
• High maintenance / personal losses
• Big pool with no division and no estate tax
• Preexisting position as pool manager
• Low maintenance/ charitable organization losses
Gift planning can do two things.
Fundraisers should use it for two reasons.
Financial advisors should use it for tworeasons.
The secret to understanding
planned giving
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