PLANNING IN CHARITABLE GIVING, PART 1 & PART 2 First Run Broadcast: August 19 & 20, 2014 Live Replay: March 26 & 27, 2015 1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes) Charitable giving can be a major portion of clients estate planning and introduce a vast set of complex planning considerations for their attorneys. Charitable giving may be motivated less by a desire for potential tax savings and more by a desire to leave a certain legacy and make an impact on the lives of individuals and/or a community. At the same time, clients may want to retain some measure of control during their lifetimes over the property they are donating and retain income from the property. Though there is a vast array of vehicles and planning techniques to achieve these goals, working through the alternatives can be daunting. This program will provide you with a practical guide to the range of charitable giving vehicles and planning techniques to achieve client goals, the tax and non-tax tradeoffs and limitations of each, and integrating charitable giving with overall estate plans. Day 1 March 26, 2015: Charitable giving vehicles and techniques & advantages and disadvantages of each Integrating charitable giving into overall estate plans Use of Charitable Remainder Trusts and Charitable Lead Trusts to achieve client goals Donating life insurance policies and proceeds and related trust issues How to restructure restricted charitable gifts Tax pitfalls of charitable giving Post-mortem charitable giving techniques Day 2 March 27, 2015: Advantages and disadvantages of using private foundations, supporting organizations, and donor-advised funds Structuring funds to provide maximum flexibility to the endowment and satisfy donor demands for control Donating illiquid and difficult-to-value assets to charity real estate, interests in closely held businesses, works of art Review of faith-based giving initiatives and related legal issues Understanding venture philanthropy and its planning and drafting issues Speaker: David T. Leibell is Senior Wealth Strategist at UBS Private Wealth Management in New York City, where he provides clients comprehensive strategies to assist in the preservation, transfer and management of wealth. He also serves as an internal resource for UBS clients on all issues related to tax, estate planning, philanthropy and wealth planning. He is chairman of the Family Business Committee for Trusts and Estates Magazine and is listed in The Best Lawyers in America for two practice areas Trusts and Estates and Charities/Non Profits. Before joining UBS, he was a partner in the Private Client Services Department of Wiggin and Dana, LLP in
Greenwich, Connecticut. Mr. Leibell received his B.A. from Trinity College and his J.D. from Fordham Law School.
VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # E-Mail Address Planning in Charitable Giving, Part 1 Teleseminar March 26, 2015 1:00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER March 19, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:
VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # E-Mail Address Planning in Charitable Giving, Part 2 Teleseminar March 27, 2015 1:00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER March 20, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:
Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: March 26, 2015 Seminar Title: Planning in Charitable Giving, Part 1 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: March 27, 2015 Seminar Title: Planning in Charitable Giving, Part 2 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
Charitable Giving in Estate Planning, Part 1 & Part 2 David T. Leibell UBS Private Wealth Management New York City (o) (212) 821-7063 david.leibell@ubs.com 2470144
AGENDA Overview of Charitable Giving Rules Private Foundations and their Alternatives Charitable Remainder Trusts Charitable Lead Trusts Integrating Charitable Giving Into The Estate Plan 2
TAX INCENTIVES FOR CHARITABLE GIVING Tax Code Encourages Charitable Giving Income, Gift and Estate Tax Deductions Tax Incentives More Favorable For: Lifetime gifts vs. testamentary gifts Public charity gifts vs. private foundation gifts Appreciated property gifts vs. cash gifts 3
INCOME TAX CHARITABLE Transfer Must: DEDUCTION Be made to a qualified charity Be a contribution and not a payment for goods or services Be made in chase or other qualified property Not exceed a specific percentage of donor s AGI Donor Must Itemize 4
ORGANIZATIONS TO WHICH CONTRIBUTIONS ARE DEDUCTIBLE Public Charities Traditional charities, such as churches, colleges, hospitals Supporting organizations, community foundations and donor advised funds Private Foundations Family and corporate foundations Private operating foundations (deductible at public charity rates ) 5
AGI LIMITATIONS Public Charity Donees Cash: up to 50% of AGI LTCG property: up to 30% of AGI Private Foundation Donees Cash: up to 30% of AGI LTCG property: up to 20% AGI 5-year Carry forward for Unused Deduction 6
FAIR MARKET VALUE VS. BASIS DEDUCTION LIMITATION Public Charity Donees General rule: fair market value deduction Tangible personal property: fair market value deduction only for related use property Private Foundation Donees General rule: deduction limited to basis Exceptions: Private operating foundation donees Qualified appreciated stock 7
QUALIFIED APPRECIATED STOCK Definition: Publicly traded securities For which market quotations are available On an established securities market Exception Limited if Donor Contributes More than 10% of All Outstanding Stock of Corporation Exception to the Exception Rule 144 stock and thinly traded securities (OTC) not qualified appreciated stock 8
CHARITABLE DEDUCTION RULES Public Charity Private Foundation Cash FMV/50% AGI FMV/30% AGI Appreciated Marketable Securities FMV/30% AGI FMV/20% AGI Real Estate FMV/30% AGI Basis/20% AGI Closely-Held Business FMV/30% AGI Basis/20% AGI Tangible Personal Property FMV (for related Basis/20% AGI use only)/30%agi Ordinary Income Property Basis/50% AGI Basis/20% AGI 9
TRANSFERS THAT QUALIFY FOR CHARITABLE DEDUCTION Since 1969 Tax Act Only Certain Contributions are Deductible Outright Gifts are Generally Deductible Including gifts of undivided fractional or percentage interests in property Retained Interest Gifts Only Deductible if in Specific Form Remainder interest in personal residence or farm Conservation easement Pooled income fund Charitable lead trust Charitable remainder trust Charitable gift annuities 10
Spectrum of Donor Control Least Control Greatest Control Unrestricted Gift to Public Charity Restricted Gift to Public Charity Supporting Organization Donor Advised Fund Private Foundation 11
PRIVATE FAMILY FOUNDATION Default status Greatest Donor Control Can be in Trust or Corporate 3 Typical Characteristics: Single source of funding Make grants rather than operate programs Grants and administrative expenses paid from endowment Subject to Chapter 42 Excise Tax Rules Unavoidable: tax on net investment income Avoidable: self-dealing, failure to distribute income, excess business holdings, jeopardy investments and taxable expenditure 5% Mandatory Annual Distributions 12
SUPPORTING ORGANIZATION Status based on relationship with one or more public charities Can be in Trust or Corporate Form Type 3 supporting organization operated in connection with: Closest to private foundation Sharing of control Extremely cumbersome rules Intense IRS and Congressional scrutiny 13
DONOR ADVISED FUNDS Sponsored by: Community Foundations; Jewish Federations; Commercial Gift Funds; Religious Organizations and Universities Donor or designee can make non-binding grant recommendations Recommendations: Can be overruled by sponsoring charity Limited to public charities No Trust Necessary 14
CHARITABLE REMAINDER TRUST Irrevocable trust FUNDAMENTALS Income stream payable to one or more noncharitable beneficiaries For life or for a fixed term Remainder interest payable to charity. 15
CRT FUNDAMENTALS CONTINUED: TAX AND FINANCIAL ADVANTAGES Trust pays no income tax Tax-free diversification vehicle Grantor gets estate, gift and income tax deductions Increased cash flow Income deferral (NIMCRUT) Funding with illiquid assets (FLIPCRUT) 16
CONCENTRATED STOCK POSITION DIVERSIFICATION: WHAT ARE THE ALTERNATIVES? Sell and Reinvest Charitable Remainder Trust Financial Products Collars Exchange Funds Forward Contracts 17
CONCENTRATED STOCK POSITION DIVERSIFICATION: EXAMPLE Grantor and spouse, both age 65, in 35% income tax bracket Grantor owns appreciated stock: FMV is $1,000,000 Tax basis is $100,000 Produces no dividends Grantor wants to diversify to reduce market risk Grantor wants increased cash flow 18
SELL AND REINVEST (NO CRT) Fair market Value of Stock $1,000,000 Capital Gains Tax $ 135,000 Net Proceeds From Sale $ 865,000 Annual Income From Proceeds $ 51,900 if invested at 6% Benefits: Diversification, Increased Cash Flow Negatives: Payment of Capital Gains Tax 19
DIVERSIFICATION WITH 6% STANDARD CRUT Capital Gains Tax $ 0 Net proceeds From Sale $ 1,000,000 First Year s CRUT Payout $ 60,000 Income Tax Deduction $ 100,000 Income From Tax Savings $ 2,100 ($100,000 x.35 x.06) Total First Year Income $ 62,100 Increase in Income With CRUT $ 10,200 20
BENEFITS AND RISKS OF DIVERSIFYING WITH THE CRUT Benefits: Diversification Avoidance of Federal and State Capital Gains Tax Income Tax Charitable Deduction Increased Cash Flow Negatives: Choosing Wrong Payout Percentage Loss of Access to Trust Principal Children Do Not Receive Trust Remainder (Consider Life Insurance) Economic Benefits Achieved 21
CHARITABLE LEAD TRUSTS What is a Charitable Lead Trust? How Does It Benefit Client, Family and Charity? Uses of Lead Trusts After 2001 Tax Act Testamentary Planning Income Tax Deferral for Grantor in Extra high Income Year Satisfaction of Charitable Pledge Beware Self-Dealing Problem 22
INTEGRATING CHARITABLE GIVING WITH THE ESTATE PLAN Lifetime Versus Testamentary Best Funding Assets During Lifetime At Death Charitable Lid Business Succession Planning Using Charitable Vehicles The Ascertainability Issue 23