Leveraging Planned Giving to Maximize Donor Support Judy Sager Director of Gift Planning Massachusetts Institute of Technology Introduction PG Donor Profile Gift Vehicles Clues Today s Topics Discussion Questions Gift Options in a Fluctuating Market Conclusion 2 1
3 How current laws are influencing philanthropy. Nobody knows what might happen in 2013 with estate, gift and GST taxes. Obama s Act allows a $5m exemption amount and lowers the maximum tax rate from 45% to 35% for all three taxes for 2012. The increased exemption provides an unprecedented opportunity to move substantial amounts of wealth out of the taxable estate. 4 2
What the possible impact of this? Potentially, makes more money available for charities. The wealthy now have more flexibility and perhaps more money to give away. It is a good time to reach out to our more affluent donors. People have this window in which they are trying to figure out how to transfer assets. 5 Planned Giving Donor Profile 75% are ages 70 78, 25% over age 78= gift annuity and bequest donors Philanthropic intent Seeking greater income stream Holds appreciated assets, cash, Real estate, Retirement funds Outright gift is not likely initially No children or children are not in need of inheritance 6 3
Other characteristics of Planned giving donors Marital status married once or widowed Income and Wealth Inherited wealth generally don t give away principal since it is family money. They donate income only. Created wealth need a lot of education about philanthropy but make great planned giving donors. Entrepreneurs. Modest income some wealth retired school teacher or engineer. Live frugally. Bought house for $35k now worth $3.5m. Good income, some wealth. Make $1m p/yr, net worth $12 18m. Problem is gift from income not principal. 7 Why Certain Gift Vehicles Prevail in a Fluctuating Market? Bequests Gift Annuity Deferred Gift Annuity Trusts 8 4
Bequests Bequests are the beginning of a planned giving discussion. Revocable. Legacy. Plant the seed at age 50, the discussion of bequest and/or trust is perfect. The discussion may come up if the donor is hesitant about considering an outright gift but they are over 50. Bob, have you and your wife done any estate planning? Have you considered including MIT in those provisions? If so, what do you hope to do with your bequest? 9 Gift Annuity Pays a fixed annual income for life based on ageand and number ofbeneficiaries beneficiaries. Payments are guaranteed by the charity. Payments can be partially tax free. Income tax deduction for a portion of the gift. Best funded with cash, or stocks. 10 5
Deferred Annuity An annuity that defers payment to the beneficiary. The longer the deferral, the more income is received at the time of the payout. Guaranteed future income for life. Partial income tax deduction in the year the gift is made. Best funded with cash or stocks. 11 Trusts Provide more flexibility in investments, payout and management. Unitrusts and annuity trusts. Unitrusts payouts= 5% of the annual fair market value. Partial income tax deduction. Age and beneficiaries just impact the tax deduction. Best funded with stocks, illiquid assets, real estate. 12 6
Clues to listen for with a potential planned giving prospect If you hear, I d like to make a gift, but my assets do not produce enough income. all my stocks are in one company. I am invested in real estate. I am planning for retirement. all I have is my pension. I have no children. all my money is in the family business. 13 Probing Questions for Planned Gifts and Bequests What have been the most meaningful experiences in your life? What people and experiences have shaped your views and ideals? 14 7
Probing Questions for Planned Gifts What are the priorities of you and your family? How important to you is giving back? How important to you is passing on the values of giving to your children? How do you do this? 15 What about the wife? Who makes the financial decisions in the family? Who makes the philanthropic decisions? How are those decisions made? 16 8
What about the kids? Do the kids have a say in the family s philanthropic p decision making? Which child influences the others and how? Are the kids involved in philanthropy themselves? What have the kids accomplished in life? Family dynamics is key to philanthropy and often to planned giving. 17 Gift Options in a fluctuating market Retirement assets Mutual funds Publically traded stocks Proceeds from a lawsuit Inherited property Real estate tt Restricted stock 18 9
Retirement Assets Jane Pugh is an active 85 year old donor and volunteer who wants to gift $50k to WGBH in support of the wonderful programming. She comes to you to ask how she can do this during life in a planned gift and at death? 19 Retirement Funds Two ways to gift retirement assets: Withdraw IRA money and pay the income tax for each dollar taken out and then gift the money to WGBH to set up a planned gift. Bequeath the IRA at death directly to the charity with no income tax consequences. Billions of dollars sit in overfunded retirement funds that could be gifted. 20 10
Mutual Funds Darrell Bothers lives in VA and holds a number of mutual funds at Vanguard that have depreciated dby 30% since he first bought them 8 years ago. He wants to make a gift of $100K to The Nature conservancy to establish a gift annuity for himself and his wife. He comes to you and asks how can he make this gift happen? 21 Public Stock Gerry Motley lives in Los Gatos, CA and has heard about MIT s Endowment. He is interested in setting up a trust at MIT. He wants to give you some of his Apple stock that he has held for decades but it is down in value since August ($170p/share) and he thinks he should wait till it hits $200p/share before he gives any away. What could Gerry do now with his gifting? 22 11
Cash proceeds in a lawsuit Dr. Hart (age 75) just settled a medical malpractice lawsuit. The net proceeds from the suit provide him with $100k in cash. He wants to shelter the money from his income to avoid paying more income tax. How can he gift the proceeds to the Boston Symphony through a planned gift and get a tax deduction? 23 Inherited Property Carolyn Wang (age 60) inherited Microsoft stock worth $100k from her uncle s estate. Her father bought the stock for $100 in 1983. She comes to you at the Museum of Fine Arts and wants to gift that stock into a trust at the museum so that she will get income for life and a tax deduction. 24 12
Real Estate Sam McNulty owned a condo in Cambridge while he was a student at BU. He bought the condo in the 1980 s for $75K. His next door neighbor just sold the same condo for $420K. Sam comes to you and wants to gift the condo to BU since he now lives in Louisiana but only if you will sell it with his broker and for nothing less than $400K. You know that condos are only selling in the area for $375k. What can you do? He also wants to ultimately split the gift between BU and Sweet Briar College where his wife graduated. Sam wants the proceeds of the real estate to go into a trust at Boston University it provided d it gives him enough annual income? Can you take the gift? Sam forgot to tell you that he has a $50k mortgage on he condo. Can he still make the gift of real estate into a crut? 25 Real Estate Housing values remain strong in some areas around the country including Massachusetts. Even during a weak economy, people keep buying houses. For manydonors, their homesmaymay represent their most valuable asset. Tap into this wealth. Many donors are exploring real estate gifts discussions for residential and commercial properties. p Exclusion: $250K and $500K. 26 13
Restricted Stock Don James is President of a small private company that is just about to go public. Don holds large shares of the company s restricted stock that he wants to gift to Pomona College to establish a crut in the endowment. He wants to avoid the capital gains taxes on his stocks. Can he do this and if so, how? 27 Conclusion Planned giving is part of family philanthropy. It is another tool for all of you to use. A planned gift can help the donor think of a much larger gift. More donors are interested in blended gifts. 28 14