PLANNED GIVING PROGRAM. 1. Protocol

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1 UNIVERSITY OF NORTHERN BRITISH COLUMBIA Policies and Procedures SUBJECT: PLANNED GIVING PROGRAM 1. Protocol University of Northern British Columbia is authorized to encourage donors to make both outright and deferred gifts. The types of deferred gifts to be offered include bequests, reinsured gift annuities, gifts of residual interests, charitable remainder trusts, gifts of life insurance policies and proceeds, and such other gift arrangements as the Board of Governors may from time to time approve. All programs, solicitation plans, and activities shall be subject to the supervision and review of the Office of University Development. UNBC reserves the right to decline gifts that are deemed to not be in the best interests of the university. 2. Policies 2.1 The policy of UNBC is to inform, serve, guide or otherwise assist donors who wish to support UNBC's activities, but never under any circumstance to pressure or unduly persuade. 2.2 Persons acting on behalf of UNBC shall in all cases encourage the donor to discuss the proposed gift with independent legal and/or tax advisors of the donor's choice so as to ensure that the donor receives a full and accurate explanation of all aspects of the proposed charitable gift. 2.3 The Office of University Development is authorized to negotiate planned gift agreements with prospective donors, following program guidelines approved by the Board. Legal and accounting advice will be used as required All planned giving agreements that might require execution by UNBC shall first be reviewed and approved as to form by UNBC's legal counsel. Where substantially the same agreement is used repeatedly, only the prototype requires approval. 2.5 The following planned gifts must be reviewed and approved by the Acceptance Committee. Before acceptance, relevant information about the gift shall be ascertained, including a copy of any appraisal secured by the donor. UNBC also reserves the right to secure its own appraisal. a) Outright gifts of real estate, shares in privately-owned companies, tangible personal property, limited partnership interests, and other property interests not readily negotiable. b) Residual interest gifts. c) Charitable remainder trusts. 2.6 Outright gifts of cash, publicly-traded securities, life insurance, and reinsured gift annuities do not require approval by the acceptance committee. Any gift, however, shall be referred to the Acceptance Committee if it is made subject to any condition or restriction. 2.7 UNBC, or the Foundation will serve as trustee of charitable remainder trusts at the request of the donor. If they prefer, donors may also select a trust institution, or other qualified trustee to manage the trust. Development Board of Governors Page 1 Motion: 2000BP05/27.03

2 2.8 The following guidelines are established to assure that planned gifts accepted by UNBC will be cost effective. 3. University Guidelines 3.1 Bequests Bequests have historically been the most important kind of deferred gift, and they have contributed significantly to the building of institutional endowments. The encouragement of bequests will be one of the highest priorities of UNBC. Sample bequest language for restricted and unrestricted gifts, including endowments, will be made available to donors and their lawyers to ensure that the bequest is properly designated. Donors will also be invited to provide information about their bequest provision and, if they are willing, to send a copy of that section of their will naming UNBC. During the probate of estates containing a bequest to UNBC and during the post-death administration of trusts containing provisions benefiting UNBC, the director of planned giving (or other officer so designated), in consultation with UNBC's legal counsel, shall represent UNBC in all dealings with the lawyer and executor of the estate. 3.2 Outright Gifts An outright gift refers to a contribution of cash or property in which the donor retains no interest and which can be used currently by UNBC. 3.3 Life Insurance?) UNBC will accept an outright gift of any amount, though gifts to establish a named endowment must meet the minimum funding requirements set by the Board.??) UNBC welcomes outright gifts of property as well as cash, but all property other than publicly-traded securities and life insurance policies must meet the policies and guidelines of the Planned Giving Program before they can be received.???) A donor may complete a gift in a single transaction or make a pledge to be paid over a specified period of time and is mutually acceptable to both the donor and UNBC. Next to making a bequest in a Will, life insurance is probably the most common way in which an individual may choose to make a planned gift. There are a number of ways that this can be done with each method having its own advantages. Page 2

3 When UNBC receives the absolute assignment for a new or existing life insurance policy the university may issue a charitable donation receipt for the value of the policy assigned and for the amounts of the premiums paid after the date of assignment. The benefit to the individual donor is quite clear. Since the university has charitable status and the values inside a life insurance policy will build on a tax sheltered basis, there may be value to the donor to make a single, lump sum or a limited number of payments to prepay the policy. Policies which are set up to be paid on an annual or automatic monthly bank withdrawal will also be acceptable. At the earlier date of the policy becoming paid up,(2) or the date of final disposition (death or endowment) the university will provide recognition at the level of the face amount paid. Acceptance is based on review of the Acceptance Committee. Examples: For a male, non smoker for $100,000 face amount and a 5% earnings assumption: Age Approximate Minimum Years Annual Payments For Payment 45 $1, $2, $3, $4, $3, ?) Provided the policy has been absolutely assigned to the donee and the donee has become the registered beneficiary (refer to IT244R3 or later updated bulletin)??) Paid up means that either a confirmation from the life insurance company that the policy requires no further premium payments for the face amount in question or that the university determines through whatever tests it may deem appropriate from time to time that there is enough money in reserve to completely pay premiums for the rest of the insured s life. There are risks associated with the acceptance of a life insurance policy such as non-payment of premiums and frivolous applications and we want to be sure to minimize those risks. As well, there are a great number of different types of policies for sale in the marketplace and many different levels of people marketing them. To ensure we minimize our administration and maximize our position relative with clients, the following guidelines for the marketing and accepting of gifts of life insurance will be implemented. Unless the policy is paid up, our guidelines indicate a minimum policy size of $25, with planned premiums terms of preferably five years, but not to exceed 10 years. Where the contract is termed participating the future values and prepayment period be determined using the company s current dividend scale less at least ½%. Page 3

4 Where the policy is a universal or interest sensitive contract that the yield assumptions used be no greater than the current 30 year Canada Long bond rate less ½%. We will accept life insurance policies which are either designed to endow for the face amount at some future date or which are whole life contracts where whole life is determined to be an age equal to or greater than age 100. E.g.: Level Term to 100, life paid up at age 65 or 85. UNBC must reserve the right to refuse any policy presented as a gift. When ownership is irrevocably assigned to UNBC, the donor is entitled to a gift receipt for the net cash surrender value (if any) and for any premiums subsequently paid. 3.4 Gifts of Real Estate Gifts of real estate may be made in various ways: outright, residual interest in the property, or to fund a charitable remainder trust. The following guidelines pertain to gifts of real estate in general. Where real estate is transferred to a charitable remainder trust, additional requirements of the trustee must be met.?) The donor shall secure a qualified appraisal of the property.??) Unless UNBC has reason to believe this appraisal does not reflect the property's true value, a gift receipt will be issued for the appraised value (or present value of the residual interest computed on the appraised value in the case of residual interest gifts). However, UNBC reserves the right to secure its own appraisal and issue a gift receipt based on it.???) UNBC shall determine if the donor has clear title to the property.?v) UNBC shall review other factors, including zoning restrictions, marketability, current use and cash flow and risk to ascertain that acceptance of the gift would be in the best interests of UNBC. UNBC shall ordinarily conduct an environmental assessment, which may include an environmental audit, and accept the property only if (a) it contains no toxic substances, or (b) they are removed or (c) other remedies taken assuring that UNBC assumes no liability whatsoever. 3.5 The Gift Annuity A Charitable Gift Annuity combines the donor s gift to the university with an annuity. The university purchases the annuity through a licensed insurance company on behalf of the donor. Guaranteed annuity payments will continue throughout the donor s lifetime, unaffected by changes in the economy or interest rates. If the donor wishes, the annuity can be written to cover the donor and spouse through both lifetimes. Page 4

5 The exact amount of the annuity payments will depend on the donor s age(s), the size of the contribution, and the annuity rates in effect at the time of the gift. Depending on the donor s age, a portion of the annuity payments will be tax-free. Older individuals will receive entirely tax-free payments plus a donation receipt. Because of these tax benefits the donor may be able to increase their cash flow while making a charitable gift. The portion of the contribution not required for the annuity will be used by UNBC as the donor directs. The benefits to the donor include guaranteed payments for life. In many cases these payments will be larger than what would be received if the same money was invested in a GIC or any other fixed income investment. All or the major portion of the annuity payments will be taxfree. Assets in excess of the amount required for the issuance/purchase of the annuity are retained by UNBC or UNBC Foundation and used for purposes specified by the donor and acceptable to UNBC. Determination of the gift receipt and taxation of annuity payments will be in accordance with the Income Tax Act of Canada. i) Preference to be given to administering reinsured gift annuities over self-insured annuities. ii) The minimum amount UNBC will accept for a reinsured gift annuity is $100, Exceptions will be made on a case by case basis. iii) The cost of the commercial annuity should generally not exceed 70-75% of the assets transferred in order to result in a significant gift to UNBC. iv) The donor may designate the purpose of the gift (amount retained) subject to the consent of UNBC. One option is for UNBC to invest the gift (minimum of ten years) until it accumulates to an amount sufficient for a named endowment. v) The commercial insurance company shall be selected and the terms of the annuity contract negotiated by UNBC s Chief Financial Officer or by another person or persons to whom this responsibility is delegated by the Board. Only highly rated companies shall be selected to reinsure an annuity obligation. vi) Charitable gift annuity rates offered must comply with Income Tax Act Regulations. vii) Charitable gift annuities may also be term certain. 3.6 Charitable Remainder Trusts The charitable remainder trust is a form of a residual interest gift. The donor ("settlor") transfers property to a trustee (external to the university, but approved by the university) who holds and manages it. If the property is income-producing, the net income will be paid to the donor and/or other named beneficiary. When the trust terminates (either at the death of the beneficiary(ies) or after a term of years), the trust remainder is distributed to UNBC. The trust must be irrevocable, transferred into UNBC s name (in trust) and the value must be determined or Page 5

6 determinable. There can be no encroachment over the capital. If these conditions are met, a gift receipt for the present value of the residual interest will be issued by UNBC. Charitable Remainder Trusts are to be administered externally unless exceptional circumstances prevail. i) A charitable remainder trust may be funded with cash, securities or real estate. If real estate is to be contributed and UNBC is the trustee, the real estate shall first be subject to a thorough review as described in the guideline pertaining to real estate (#6 below). ii) iii) Where UNBC is trustee, it is recommended that the minimum trust size be $50, and that beneficiaries be at least 50 years of age. The acceptance committee, however, has discretion to make an exception to these recommendations in special circumstances. If the donor selects an outside trustee, the trust may be funded with any property of any value that is acceptable to the trustee. The trust agreement shall be either drafted by or reviewed by the donor's own legal counsel. UNBC may make prototype agreements available to the donor's legal advisor, but shall execute no agreement until that person has determined that the trust agreement is in the proper form and that the gift is appropriate for the donor's situation. 3.7 Gifts of Shares in Privately-Owned Companies and Other Business Interests A significant amount of the wealth in this country is invested in privately held corporations and limited partnerships. Many individuals have chosen to support charities such as UNBC by making gifts of preferred shares in their private corporation or interests in their partnerships. There are a number of very exciting tax benefits resulting from this type of gift, and future monetization (redemption) of the shares can be arranged in a variety of ways that are beneficial to the donor, the donor s family, the donor s company and UNBC. b. Guidelines i) To be considered for acceptance, partnership interests must not subject UNBC to cash calls or other liability and must not have adverse tax consequences to UNBC. ii) Privately owned shares may be accepted if they will not subject UNBC to penalties and can likely be sold in the future to the corporation, other stockholders, or to others interested in acquiring the corporation. iii) The fair market value of the shares must be ascertained through the use of an independent and accredited evaluation service. iv) An acceptable dividend or interest rate paid annually to UNBC on all shares held must be settled and agreed upon as part of the gift package. v) UNBC will articulate eventual designation of the gift and type of donor recognition. Page 6

7 vi) The amount to be paid to UNBC upon redemption of the share or repurchase of the partnership interest and a timeline for such redemption or purchase must be settled and agreed upon as part of the gift package. vii) The shares will be redeemable at the option of the university. It is agreed that together, the university and the donor will abide by the schedule negotiated with the donor. 4. GLOSSARY OF TERMS AND DEFINITIONS Adjusted Cost Base (or basis): the amount paid for property, increased by capital improvements and decreased by depreciation. Annuity: a contracted right to receive payments of a specific amount at stated intervals for life, or for a term of years, in consideration of a transfer of cash or other assets. Appreciated property: property, such as securities, real estate, and artworks, whose current fair market value exceeds the purchase price. Beneficiary: the person or organization that receives a bequest under a will, death benefits from a life insurance policy, or payments from a trust. Bequeath: to leave property to a beneficiary by means of a will. Bequest: a gift of property through a will to a particular beneficiary. Also called a legacy. Capital: with reference to a trust, the cash principal upon which income is earned. Cash Surrender value: the cash paid by an insurance company to the owner of a policy when the policy is terminated prior to the death of the insured. Certified cultural property: an artwork, artefact, or structure that, if approved by the Canadian cultural Export Review Board, qualifies for a special tax treatment when donated to a qualified charity. Charitable gift annuity: a fixed sum of money paid by a charity, at certain intervals, for the life of the annuitant(s), or for a term of years, in exchange for a donation of cash or other property. Charitable remainder trust: an irrevocable trust that pays income to one or more individual beneficiaries for life or a term of years, and then distributes the remaining assets to one or more charities. Death benefit: the amount payable by an insurance company to the beneficiary(ies) at the death of the insured. Deferred gift: any charitable gift arrangement where the charity s use of the asset is delayed to some future time. Endowment: a principal sum, permanently set aside and invested by a charity, with only the income used for charitable purposes. Estate: everything that a person owns or has an interest in. Page 7

8 Fair market value: the price at which a fully informed seller, who is under no compulsion to sell, would be willing to sell an asset to a fully informed buyer, who is under the compulsion to buy. Gift-in-kind: a gift of property other than cash (e.g. a gift of securities, real estate, or art). Gift plus annuity: another name for a reinsured gift annuity. Interest free loan: a loan, sometimes made to a charity, on which the lender receives no interest. Irrevocable trust: a trust that cannot be terminated or changed by the person creating it. Legacy: a designation of property under a will. Also called a bequest. Monetize: to redeem for cash. Present gift: a gift which is available for the charity to use now. Present value: the sum of money which, if invested at a certain rate of compound interest, will accumulate to a certain value by a specified date. In the case of a charitable remainder trust or a gift of a residual interest, the amount for which a donation receipt may be issued. Probate: the court-supervised process of validating a will and administering an estate in accordance with the terms of the will. Remainder interest: the right to receive the remaining property when a trust terminates. Redemption: to recover by expenditure of effort or by stipulated payment. To discharge an obligation or commitment. Retraction: withdraw or revoke a statement, term or condition. Residual bequest: a testamentary gift of all or a percentage of what remains of the estate after paying other bequests and expenses. Residual interest: the right to receive property when the rights of one or more persons to use the property have expired. Revocable trust: a trust that can be terminated or changed by the person creating it. Specific bequest: a testamentary gift of a specific amount of money or of particular property. Trust: an arrangement under which an individual (the settlor) transfers property to a person or institution (the trustee) to be managed for the benefit of one or more beneficiaries. Universal life insurance: a combination of yearly renewable term insurance and a tax-deferred investment account. It pays a death benefit and builds up cash value, but the amount of cash value depends on the performance of investments that have been selected. Whole life insurance: a policy that remains in force for the entire life of the insured so long as premiums (usually level) are paid. A whole life insurance policy builds up cash value. Page 8

9 Will: a legal declaration of how a person s property is to be distributed at death. 5. Marketing: (Life Insurance) We need to recognize that various individuals, as they become aware of the ability to donate a life insurance policy or purchase an annuity will approach the university directly or through their life insurance agent. If they come to us directly, we will refer them to a short list of qualified agents. If they come through their own agent: a) we can deal directly with the agent, or b) require that the agent work through one of our short list of selected, qualified agents Our short list of agents can be geographic. We should identify and select life-licensed individuals who are from various communities where we are strongly represented in the province. We require that these people complete a training program that we put on in and for the arena of planned giving. We will want to ensure that they understand the philosophy we are presenting. These people should hold at least one of the designations of C.L.U., CFP, CH.F.C., RFP and they will have some exclusivity for a determined time of 2-5 years given that we jointly meet our goals. The insurance companies will compensate these people for the sales of these products directly. No compensation need or should be paid by UNBC to these people. If another agent wishes to sell a policy to their own clients and that policy is to be gifted to the university, they may do so. The policy and its documentation must be reviewed by one of our designated people who will receive a split of 10-25% total first year compensation to recognize their work. Any of these types of life insurance gifts are acceptable to UNBC. In the event a policy is contributed on which premiums remain to be paid, UNBC will pay the premiums provided the donor makes equivalent contributions for the purpose of payment of the premiums. Page 9