The secret to understanding planned giving
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A brief review of planned giving concepts taken from the book Visual Planned Giving (2014)
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The secret to understanding planned giving
- 1. The Secret to Understanding Planned Giving Russell James, J.D., Ph.D., CFP® Professor Texas Tech University
- 2. The Secret to Understanding Planned Giving Part 1: The tools
- 3. Isn’t planned giving super-complicated?
- 4. Gift planning can do two things. Fundraisers should use it for two reasons. Financial advisors should use it for two reasons.
- 5. Gift planning can do two things • Lower taxes • Trade gift for income
- 6. If gift planning can only do two things, how can it get so complicated?
- 7. Trade for Income Charity-Backed CGA Immediate fixed $ payments for life/lives Immediate CGA Delayed fixed $ payments for life/lives Deferred CGA Donor Asset- Backed CRT Fixed $ payments for life or years CRAT Fixed % payments for life or years CRUT Capped at yearly income NICRUT With IOUs if income below fixed payment NIMCRUT Capped until event occurs Flip-CRUT Pool of Different Donors’ Assets PIF
- 8. Trade for Income Charity-Backed CGA Immediate fixed $ payments for life/lives Immediate CGA Delayed fixed $ payments for life/lives Deferred CGA Donor Asset- Backed CRT Fixed $ payments for life or years CRAT Fixed % payments for life or years CRUT Capped at yearly income NICRUT With IOUs if income below fixed payment NIMCRUT Capped until event occurs Flip-CRUT Pool of Different Donors’ Assets PIF
- 9. Lower Taxes Capital Gains Taxes Give appreciated property To charity in exchange for income CRAT, CRUT, CGA, PIF To charity Income Taxes Donor’s Deduction for current gift Deduction for committing to future transfer to charity PF, DAF, Grantor CLT, Remainder Deed Deduction for current gift in exchange for income CRAT, CRUT, CGA, PIF Heirs’ (retirement account charitable beneficiary) Estate Taxes Give to charity at death Will, CRT, CGA, Remainder Deed Fixed payments from assets to charity, excess growth to heirs estate tax free Non-Grantor CLT
- 10. Lower Taxes Capital Gains Taxes Give appreciated property To charity in exchange for income CRAT, CRUT, CGA, PIF To charity Income Taxes Donor’s Deduction for current gift Deduction for committing to future transfer to charity PF, DAF, Grantor CLT, Remainder Deed Deduction for current gift in exchange for income CRAT, CRUT, CGA, PIF Heirs’ (retirement account charitable beneficiary) Estate Taxes Give to charity at death Will, CRT, CGA, Remainder Deed Fixed payments from assets to charity, excess growth to heirs estate tax free Non-Grantor CLT
- 11. Lower Taxes Capital Gains Taxes Give appreciated property To charity in exchange for income CRAT, CRUT, CGA, PIF To charity Income Taxes Donor’s Deduction for current gift Deduction for committing to future transfer to charity PF, DAF, Grantor CLT, Remainder Deed Deduction for current gift in exchange for income CRAT, CRUT, CGA, PIF Heirs’ (retirement account charitable beneficiary) Estate Taxes Give to charity at death Will, CRT, CGA, Remainder Deed Fixed payments from assets to charity, excess growth to heirs estate tax free Non- Grantor CLT Trade for Income Charity-Backed CGA Immediate fixed $ payments for life/lives Immediate CGA Delayed fixed $ payments for life/lives Deferred CGA Donor Asset- Backed CRT Fixed $ payments for life or years CRAT Fixed % payments for life or years CRUT Capped at yearly income NICRUT With IOUs if income below fixed payment NIMCRUT Capped until event occurs Flip-CRUT Pool of Different Donors’ Assets PIF Yes, it can get complicated. But, it still only does two things.
- 12. The Secret to Understanding Planned Giving Part 1: The tools
- 13. The Secret to Understanding Planned Giving Part 2: Motivations for fundraisers
- 14. Gift planning can do two things • Lower taxes • Trade gift for income Fundraisers should use it for two reasons • If you are asking for cash, you are asking small • A donor says the magical phrase, “I wish I could do more, but …”
- 15. If you are asking for cash, you are asking small
- 16. Wealth is not held in cash. It is held in assets. If you are asking from the cash bucket, you are asking from the small bucket.
- 17. 99% 1% Financial assets held by families (U.S. Census 2007) Other financial assets (stocks, bonds, retirement accounts, life insurance, mutual funds) Cash: Checking, savings, money market deposit accounts, and similar
- 18. The magical phrase: “I wish I could do more, but …”
- 19. The magical phrase, “I wish I could do more, but …” • I have to save for retirement • I am on a fixed income • I don’t have the cash right now • Everything is tied up in the business/farm • Maybe I’ll leave a gift in my will • I only have so much money and I might live a really long time • Etc., etc., etc.…
- 20. The magical phrase: “I wish I could do more, but …” The magical response: “What if there was a way you could do both? Would you like to hear about that?”
- 21. A simple way to ask from the big bucket…
- 22. Donor Charity $100k Cash Donor Charity Income tax deduction ($100,000 x 39.6%) $39,600 + Avoid capital gains tax ($90,000 x 23.8%) $21,240 Income tax deduction ($100,000 x 39.6%) $39,600 $100k Stock
- 23. Donor Charity $100k low basis stock $100k cash immediately buy identical stock (100% basis) The charitable swap No “wash sale” rule because this is gain property, not loss property
- 24. Donor Charity $100k low basis stock $100k cash immediately buy identical stock (100% basis) A FREE tax benefit you lose every time you give cash
- 25. Donor Charities $100k cash The charitable swap for charities that want only cash Donor Advised Fund $ $ $ $100k low basis stock immediately buy identical stock (100% basis)
- 26. The Secret to Understanding Planned Giving Part 2: Motivations for fundraisers
- 27. The Secret to Understanding Planned Giving Part 3: Motivations for financial advisors
- 28. Gift planning can do two things • Lower taxes • Trade gift for income Financial advisors should use it for two reasons • To provide dramatic benefit to highly desirable clients • To increase (multi-generational) assets under management
- 29. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% $2.0 million < $3.5 million $3.5 million < $5.0 million $5.0 million < $10.0 million $10.0 million < $20.0 million $20.0 million or more Estates including charitable planning by estate size (IRS Statistics of Income 2008)
- 30. Selling and reinvesting a highly appreciated non-income producing asset Simple Sale $1,000,000 asset $1,000,000 gain (if zero basis) $288,000 tax (23.8% fed + 5% state) $722,000 left to invest Charitable Remainder Trust $1,000,000 asset $1,000,000 gain (if zero basis) $0 tax (CRT pays no tax) $1,000,000 left to invest & $100,000+ tax deduction
- 31. Tax-free growth environments • Growth inside a donor advised fund is tax free • Growth inside a charitable remainder trust is tax free (only distributions are taxed) • Growth inside a private foundation is tax limited (either 2% or 1% rate)
- 32. Multi-generational management Inheritance • Small pools after division by 1/n children and estate tax Private Foundation/DAF • Individual relationships with each heir • High maintenance / personal losses • Big pool with no division and no estate tax • Preexisting position as pool manager • Low maintenance/ charitable organization losses
- 33. Gift planning can do two things. Fundraisers should use it for two reasons. Financial advisors should use it for two reasons.