11/9/15. Introduction. Agenda. Fine-Tune the Approach, Strategy, and Implementation of Charitable Giving to Maximize Donor Potential.

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1 Fine-Tune the,, and of Charitable Giving to Maximize Donor Potential Jessica Johnson & Chad Halbur Introduction Agenda Case Studies Introduction 1

2 How does someone begin to consider charitable giving? 1 2 Motivation Triggers Motivation Tax Legacy Guilt 2

3 Motivation Tax Legacy General tax savings: year in, year out Rather give to a cause than the IRS Part of a larger tax strategy Guilt Motivation Tax Legacy Confronted with sickness or disease Forced to acknowledge mortality End of life planning Charitable intentions Guilt Motivation Tax Legacy Overwhelmed by blessings Conditioned to share Driven to validate or excuse success Guilt 3

4 Triggers An Ask Large Tax Gain ing Retirement Triggers An Ask Large Tax Gain ing Retirement Sometimes it is just this simple Annual giving budget Special projects or causes that a client is passionate about Know when your donors have a higher ability to give Triggers An Ask Large Tax Gain Sale of a low-cost-basis stock at a large gain Sale of business Exercise of stock options ing Retirement 4

5 Triggers An Ask Large Tax Gain ing Retirement Final working-year before retirement Last years of high income Larger gift may improve overall tax burden Giving differently in retirement (Time vs. Money) More of a fixed budget in retirement How does someone begin to consider charitable giving? Motivation Tax Legacy Guilt Triggers An Ask Large Tax Gain ing Retirement Reassuring Potential Donors What does a potential donor need to hear from you? 5

6 Reassuring Potential Donors Explain how you can provide a good strategy and a good personal outcome. Do I have enough? I want to give back. Reassuring Potential Donors Ensure that you will be good stewards of the financial resources. 6

7 Determining a Development staff should ask several important questions up front during the initial discussions with the potential donor. With this information, advisors can critically assess the structure and form of the charitable gift that will work best for the donor. Determining a Timing Form of the Gift Donor Involvement Other Considerations Timing Does the donor want to make this gift now, at death, or both? Will anyone else be contributing to this gift or fund (e.g., spouse or third party)? Is the donor relying on this gift to offset income in this tax year or in the next few years? 7

8 Form of the Gift What type of property is the donor planning to contribute? Is this a type of gift that fits within your organization s gift acceptance policy? What is the donor s tax cost basis in the property? Does the donor want to receive anything in exchange or provide another individual with an interest in the gift? Who owns the property being contributed? Donor Involvement Does the donor want to have continued involvement in how these funds will be used? Does the donor want to impose restrictions on how the gift will be used? Does the donor want recognition for making this gift? If so, what are his or her expectations? Other Considerations Does the donor have a particular charity or charities in mind? Is your organization one of many possible recipients? What is the donor s relationship with your charity? Did you approach the donor about making this gift? How sophisticated is the donor? How likely is it that he or she will understand the gift structure? 8

9 Other Considerations What are the tax consequences of making the gift? Will the gift qualify for the income, gift, or estate tax charitable deduction? Are there special substantiation rules to discuss with the donor? Determining a STRATEGY Gifting Tools to Use with Outright gift of Cash (Bequest) Gift of Securities (appreciated Securities) Qualified IRA Charitable Distribution Gift Annuity Gifts to Donor Advised Funds Charitable Trust Charitable Foundation 9

10 Aspects of Successful Clearly Sweat the Details Avoid Pitfalls Know Your Stuff Aspects of Successful Important to communicate with the donor before the gift occurs Have a clear understanding of the donor s intentions Confirm restrictions Set reasonable expectations Is your organization willing to comply with the restriction? Is it possible to honor the proposed use? 10

11 Aspects of Successful After the donation, communication is still very important The donee organization should keep the donor informed In case of dispute, both donor and donee have a better chance of remaining amicable with clear and regular correspondence Bitterness and hardening can result from a simple lack of communication Aspects of Successful Screen for problem gifts Is the donor proposing a very detailed or unusual use of the gift? Does it appear that the donor expects some kind of control over or ongoing say in the charity s use of the gift? Does the donor have a vision that the gift will be used to conduct a program whose outlines are vague or hard to understand? Is the donor in poor health or otherwise vulnerable? Aspects of Successful Review restrictions. Does a proposed restriction: Impose an undue burden on the charity? Involve unlawful discrimination? Otherwise violate federal or state law? Create obligations on the charity that are inconsistent with the charity s mission and/or ethical standards? Prevent or impede the charity from seeking other gifts? Pose a risk of generating adverse publicity for the charity? 11

12 Aspects of Successful Have a plan for disputes with donors A good outcome: Is best for the charity Maintains positive donor relationships Comes at a reasonable cost Contact an attorney before agreeing to concessions Concessions may not be legally appropriate Know the law regarding modification or release of restrictions on gifts Aspects of Successful The charity should abide by a gift acceptance policy and review that policy regularly to ensure it remains relevant. A charity should accept a restricted gift only if it is subject to a carefully drafted gift instrument. Aspects of Successful Understand the basics of administering a charitable gift in advance. Recognize self-dealing. The prohibition against self-dealing applies to private foundations, charitable remainder trusts and charitable lead trust, but not to public charities. The self-dealing rules prevent these entities from engaging in certain activities with disqualified persons. 12

13 Aspects of Successful Administering Charitable Trusts: The terms of a charitable trust must qualify under the tax code or the trustee must reform them to qualify. This underscores the importance of having a knowledgeable attorney involved in the creation of the charitable trust. When investing trust assets, the trustee should consider the interests of the charities versus the interests of the non-charitable beneficiaries, and consider the tax nature of the trust. Aspects of Successful Administering Charitable Trusts: Understand trust accountings and proper tax reporting. The trustee must calculate distributions appropriately with correct proration. The valuation of hard to value assets is governed by the tax code. Case Studies 13

14 Case Studies Tax-deferred Retirement Account Utilizing a CRAT and a CRUT Funding a Private Foundation with a CLAT Introduction Questions Jessica Johnson jessica.johnson@gpmlaw.com Chad Halbur chalbur@cornerstonetrust.net