Planned Giving 201. Presented by Christy Eckoff, JD, LL.M. Director of Gift Planning

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1 Planned Giving 201 Presented by Christy Eckoff, JD, LL.M. Director of Gift Planning

2 The Community Foundation for Greater Atlanta Bullet Mission information here To be the most trusted resource for growing philanthropy to improve communities throughout the Atlanta region. Goals Engage our Community Strengthen the Region s Nonprofits Advance Public Will Practice Organizational Excellence

3 The Community Foundation for Greater Atlanta Bullet History/background information here Founded in 1951 Among top 12 community foundations in country - Assets $793 million Raised $102 million in 2012; $83 million in grants Over 900 funds, 700 of which are donor advised Charitable transfers of assets cash, real estate, stock Complex gifts Serve metro Atlanta region and 23 counties surrounding city.

4 2010 Tax Act and 2013 Fiscal Cliff Agreement Income Tax Temporary 2 year extension of 2010 ordinary income tax rates maximum tax rate of 35% 2013 Maximum tax rate of 39.6% for individuals making $400k or more or households making $450k or more Payroll Tax Temporary 2% reduction in withholding Gone IRA Charitable Rollover Extended to cover 2010 and in effect 2013 in effect 4

5 Capital Gains Tax Temporary 2 year extension of 15% maximum long-term capital gains tax rate % maximum long-tern capital gains tax rate (includes 3.8% Healthcare Act surtax) Dividends Temporary 2 year extension of 15% maximum long-term capital gains tax rate % maximum long-tern capital gains tax rate (includes 3.8% Healthcare Act surtax)

6 Transfer Tax Law Applicable Exclusion Amount: $5.25 million Gift Tax Exemption: $5.25 million Generation Skipping Tax Exemption: $5.25 million Estate, GST & Gift Tax Rates: % maximum rate % maximum rate Basis Step-Up OR Step-down Deduction for state death taxes Annual Exclusion: $13,000 6

7 Summary of Impact Before 2013 Most married couples needed to review estate plan Any person with an estate over $5 million should update their estate plans and taking action to leverage these changes Certainty??? Why do they have to go to their estate planning attorney? Life changes 7

8 2013 Opportunities Appreciated Stock Return of the CRT CLT IRA Charitable Rollover HSA Account Beneficiary Designations S corp stock Life events triggering planned gifts as opposed to uncertainty and taxes DOMA

9 Appreciated Stock Capital Bullet Gains information Tax rates here have gone from 15% to 23.8% for high net worth taxpayers Income tax rates have gone from 35% to 39.6%

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11 Return of the CRT Assets Bullet have information appreciated here stocks up home prices up Interest rates still low Need for stable income

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15 Conclusion: Capital gains deferred of $238,000 Over $43,400 of up front tax savings Annual life payment to donors End of life gift to charity

16 Charitable Lead Trust LOW Bullet 7520 information Rate here LOW INTEREST RATES CLATs work well in a low interest rate environment because if the trust s investment performance exceeds the so-called 7520 Rate (an interest rate published monthly by the IRS), then the excess earnings and growth at the end of the term pass to the remainder beneficiaries tax free. The lower the 7520 Rate, the larger the potential gift to the family.

17 Trust Type: Term Transfer Date: 1/ Rate: 1.00% FMV of Trust: $1,000,000 Growth of Trust: 8.00% Percentage Payout: 5.000% Term: 10

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19 IRA Charitable Rollover Bullet The IRA information charitable here rollover allows tax-free distributions of up to $100,000 per taxpayer, per taxable year to an eligible charitable organization from an IRA held by individuals age 70 1/2 or older. Because the distribution goes directly to a qualified charity, the amount will not be counted as income and will not be subject to income tax. CANNOT GIVE TO DAF or PRIVATE FOUNDATION- gift annuity, CRT or CLT

20 Life Events It Bullet is all about information life events here Know your donor DO NOT GET DISTRACTED FROM YOUR DONORS

21 DOMA When Bullet US information Supreme here Court struck down a key portion of the Defense of Marriage Act it created some significant changes for same-sex couples Effects gift planning in a major way

22 DOMA Key Bullet cases information here Windsor v. United States Cozen O Connor, P.C. v. Tobits Obergefell v. Kasich Law of celebration rule Revenue Ruling Live in GA Go to MD to get married For tax, ERISA, IRA and other federal purposes MD marriage is valid no matter where couple lives

23 DOMA Law Bullet of celebration information rule here Revenue Ruling Live in GA Go to MD to get married For federal income and federal estate tax, ERISA, IRA and other federal purposes MD marriage is valid no matter where couple lives

24 What does this all mean? If Bullet validly information married one here state but live in GA File married filing jointly for federal tax purposes File single for state tax purposes Married for federal estate tax purposes; single for state estate tax purposes Married for retirement plan administration Married for IRA purposes can rollover spouse s IRA into their own IRA and not have an inherited IRA (no not have to take distributions at transfer

25 What does this all mean? Talk Bullet to your information same-sex here couple donors They have to do some major estate and tax planning to do in the next year UNCERTAINTY..

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27 $66-million Bequest Medical Bullet information College of Georgia here Foundation (Augusta) has received a bequest of $66-million from J. Harold Harrison to establish a fellows fund named after him to endow faculty chairs and student scholarships. Dr. Harrison was a cardiovascular surgeon who retired as chief of surgery at St. Joseph's Hospital of Atlanta. He was also a cattle farmer. Dr. Harrison graduated from the college in 1948 and was a former chairman of the foundation's board. He died in June 2012.

28 When to think planned gift Between ages of Within 10 years of retirement Life altering event Divorce or remarriage Death of spouse or child Inheritance from parents Need for parents or special needs children for specialized, on-going care 28

29 When to think planned gift Cash poor Wants to leverage gift Assets have depreciated greatly or appreciated greatly Want to do something, but are afraid to give up cash 29

30 Yes, but.. When to think about a planned gift? I wish I could give, but. I have young kids or grandkids to think of I have kids in college I take care of my parents I don t have the liquidity I can make more than your endowment makes I need money for retirement Other reasons 30

31 How to be a success Concentrate on bequests and beneficiary designations! Have a designation mechanism. 31

32 Gifts by Beneficiary Designation Gift made at death Ability to change or revoke at any time for any reason Very simple

33 Retirement Plans 33

34 Income in Respect of a Decedent (IRD) Includes Bullet information any assets, income here or other payments that would have been ordinary income for the donor if he or she received them while living The donor s estate must treat these as taxable income at death. IRD assets may be taxed twice at death income tax and estate tax estate pays estate tax 40% max beneficiary pays income tax 39.6% max

35 IRD Assets Deferred capital gain as installment sale Accrued interest on savings bonds Commissions earned but not received at death Remaining payments from lottery winnings Unused vacation pay Grain in storage, harvested fruit, bales of hay Unpaid fees from services provided by donor Payments to a survivor annuitant from a joint/survivor commercial annuity Profit sharing plans Deferred compensation Nonqualified stock options IRS/Retirement plans

36 IRA/Qualified Plan Gifts Charity is the beneficiary of the IRA/Qualified Plan IRA/Qualified Plan passes directly to the charity free of federal income tax and/or federal estate tax. Estate receives a charitable deduction 36

37 Example 75 Bullet year old information widow with here 8 million in assets $1 million traditional IRA (all pre-tax monies) $3 million real estate $4 million long-term appreciated stock Leave to grandkids or leave to charity???

38 Example Based Bullet on information worst case here scenario where she dies in 2013 and grandkids withdraw all the IRA assets in 2013; estate worth $8 million $5,250,000 exempt from federal estate tax (basic exclusion) $2,750,000 taxed at 40% Assume children are married filing jointly AGI of $960,000 including $500,000 from IRA

39 IRA portion of each grandchild IRA to charity Amount of IRA $500,000 $1 million Less: Income tax on IRA withdrawal (39.6% X $500,000) Less: Estate tax on inherited IRA* (assumes proportionately paid from IRA and securities) Income tax deduction for federal estate tax, permitted under I.R.C. Sec. 691(c) (the "IRD deduction") adjusted for limitations on itemized deductions: $198,000 $0 $130,000 $0 $180,200** n/a Plus: Value of tax savings of "IRD deduction" (39.6% X $180,200) Value of each grandchild's portion of IRA after federal income and estate taxes $71,359 n/a $243,259 n/a Total available to give to charity $486,518 $1 million

40 Life Insurance If a cash value policy, can be an outright gift. Donor receives immediate charitable tax deduction Charity can either: Cash it in Keep policy in force until death of insured 40

41 Life Insurance Can also be used as wealth replacement Fund a life insurance policy with a gift annuity or charitable lead trust 41

42 Payable on Death Accounts Totten Bullet Trusts information here CDs Bank accounts Savings accounts Brokerage Accounts (some) Credit Union accounts

43 Payable on Death Accounts In Bullet Georgia information here Cannot have a POD account go to a corporation, even a charitable corporation Mauer case Have donor give another asset

44 Charitable Fund Designations Donor-advised Bullet information funds here Commercial firms Lump-sum grants to specified charities At TCF Set up an endowment-type fund for a charity or charities Common Good Fund Lump-sum payments Unlimited succession

45 References Bullet Christy information Eckoff here (404) The Complete Guide to Planned Giving, Debra Ashton American Council on Gift Annuities Georgia Planned Giving Council Planned Giving Design Center Planned Giving Today Partnership for Philanthropic Planning 45

46 References The Complete Guide to Planned Giving, Deborah Ashton American Council on Gift Annuities Georgia Planned Giving Council Planned Giving Design Center Planned Giving Today Partnership for Philanthropic Planning 46