Charitable PeaceHealth Southwest Medical Center Foundation … · 2015-11-12 · PeaceHealth Southwest Medical Center Foundation White Paper Charitable life Income Fund. PeaceHealth

2PeaceHealth Southwest Medical Center Foundation360-514-3160 (CLIF 001 • 041112)

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PeaceHealth Southwest Medical Center Foundation White Paper

Charitable life Income Fund

PeaceHealth Southwest Medical Center FoundationPeaceHealth Southwest Medical Center Foundation

table of contentsA POWERFUL FUNDRAISING TOOL

2 What is the CLIF?

2 CLIF vs. PIF

3 Hospital Fundraising

4 A Brief History of the CLIF

4 The CLIF at PeaceHealth

HOW IT WORKS

5 Creating the PeaceHealth CLIF

5 Giving/Receiving/Transferring

BENEFITS

6 Benefits to PeaceHealth

6 Benefits to Donors

SIGNING UP

8 Eligibility

8 Working on Many Levels

9 Donor Gift Illustrations

CONCLUSION

12 Meaningful Fundraising

12 More Information and Contacts


2PeaceHealth Southwest Medical Center Foundation

powerful fundraising tool

WHAT IS THE CLIF?

The PeaceHealth CLIF is a type of Pooled Income Fund (PIF). A PIF is a trust that is established and maintained by a nonprofit organization. Donor contributions to the fund are pooled for investment purposes and donors are assigned "units of participation" based on their pro-rata contributions. The fund's net investment income is distributed to fund participants quarterly, according to their units of participation. One or two income beneficiaries receive distributions for their lifetime, after which time their units transfer to the charity.

Donors to the CLIF may qualify for charitable income, gift and estate tax deductions, and may be able to claim depreciation deductions. Contributors may also be able to avoid recognition of capital gain on the transfer of appreciated property.

CLIF VS PIF

The PeaceHealth Charitable Life Income Fund is backed by real estate assets. Although the CLIF is closely related to traditional pooled income funds and has even been described by some as a “real estate pooled income fund,” it is likely to provide greater tax and income benefits than traditional PIFs. Most PIFs are backed by market assets and their performance reflects the ups and downs of the market. Real estate PIFs like the PeaceHealth CLIF are less subject to fluctuations. CLIF donors also benefit by receiving a pass-through of a portion of the depreciation expense of the real estate in the fund, making part of the CLIF income tax-free.

The PeaceHealth Charitable Life Income Fund (CLIF) is a powerful

fundraising tool that successfully finances hospital capital projects. It offers

a gift planning strategy for donors that also benefits PeaceHealth regions

and contributes to the health of the community. Somewhat complex in

nature, the PeaceHealth CLIF is worth understanding as it offers significant

advantages for PeaceHealth regions in today’s economy.



HOSPITAL FUNDRAISING

Hospitals rely primarily on three sources of revenue: fees for service, loans and donations. In today’s tough economic climate, philanthropy is becoming more and more important for hospitals.

The CLIF provides an opportunity to benefit donors and hospitals as well as the community. In addition to the emotional satisfaction that comes from knowing that donations are being put to work immediately in support of community health, donors also receive guaranteed income and tax benefits. From the hospital’s perspective there’s almost no more cost-effective form of financing capital projects, with the exception of cash donations (see table 1).

CURRENT CLIF PROJECT

Donors to the Charitable Life income Fund in 2012 will help purchase a 64-Slice CT Scanner for the emergency department. This technology can quickly diagnose heart attacks and strokes, enabling immediate life-saving interventions. Rapid diagnosis and treatment often mean the

difference between life and death, full recovery or disability. Your gift will help the Pacific Northwest's busiest emergency deparment save hundreds of lives each year.


CashCLIF Bond Loan

Hospital Funding/CostTypes of Giving/Cost

TABLE 1

Although less cost-effective than an outright cash gift, a CLIF is about two thirds the cost of a municipal

bond and roughly half the cost of a bank loan


A BRIEF HISTORY OF THE CLIF

The pooled income fund dates back to the 1980s when it was successfully used by Yale University to finance dormitories during a time of extremely high interest rates. Both then and now, PIFs have proven to be a cost-effective means of financing capital projects for nonprofit organizations.

In the past, some PIFs experienced negative publicity due to poor portfolio management. PIFs have since enjoyed several decades of successful

operation. They have been used by dozens of nonprofit organizations, ranging from the American Heart Association to the American Red Cross.

Today, the PeaceHealth CLIF is backed by real estate assets. Although it works on a similar formula as most other PIFs, it is less subject to market fluctuations and likely to provide greater tax and income benefits than a traditional pooled income fund.

THE CLIF AT PEACEHEALTH

In 2005, PeaceHealth introduced the CLIF, a specialized real estate pooled income fund that was designed to support the organization’s long-term needs and provide a growing stream of fixed income to donors. The $30 million fund invested in medical office buildings and other real estate on PeaceHealth hospital campuses that make a difference in the lives of patients. Projects supported by PeaceHealth CLIF gifts included St. Joseph Cancer Center in Bellingham, Washington, and the Sacred Heart Medical Center at RiverBend in Springfield, Oregon.


“The Charitable Life Income Fund

(CLIF) enables PeaceHealth

Southwest Medical Center

to invest in high-impact,

sophisticated medical

technology. Not only will this

technology save lives, it will help

the hospital attract and retain

the highest caliber physicians.

The CLIF is a true win-win for the

hospital and for our donors who

will receive a secure revenue

stream for life. That's why I

invested!”

n Joseph M. Kortum, President and Chief Executive Officer, Columbia Network


how it worksCREATING THE PEACEHEALTH CLIF

A CLIF operates much like a charitable mutual fund. To establish a PeaceHealth Regional CLIF, PeaceHealth begins by setting up a specialized regional real estate pooled income fund. The region sells a medical office building or other essential real estate on a PeaceHealth campus to that fund, and the fund issues a promissory note for the value of the building(s), agreeing to pay monthly interest to the region. The region then leases the building(s) back from the fund for a pre-approved amount for an extended lease term. The lease payments received by the CLIF cover interest on the note, payments to donors, funded depreciation and management costs.

The total value of the CLIF is calculated quarterly to determine the value of CLIF units offered to new contributors, based on the fair market value of the property. The building is the asset securing the trust.

GIVING/RECEIVING/TRANSFERRING

The CLIF is opened up to donors, who receive units based on the size of their contributions. Donors may transfer cash, appreciated stock or readily marketable real estate to the fund to invest in one or more of these CLIF units. Donors’ charitable contributions are pooled and invested together into the CLIF building assets. The donation proceeds, in turn, pay down the CLIF’s promissory note(s) to the region.

Contributors to the CLIF receive all net income of the fund. Payments are made on a quarterly basis and are made for life to one or two income beneficiaries. Upon the death of the surviving beneficiary, ownership in the beneficiary’s shares transfer to PeaceHealth.



benefitsBENEFITS TO PEACEHEALTH

The CLIF provides PeaceHealth regions with a means of leveraging the equity that is tied up in medical real estate. It provides long-term stability by investing in capital improvements that will allow facilities to keep up with growing demand and health care trends. The PeaceHealth CLIF has proven popular with donors and has inspired additional donations through word-of-mouth advertising.

The key benefit for PeaceHealth Southwest is the fact that funds raised through the CLIF are less costly than debt financing. PeaceHealth

also controls the trusts, and a depreciation fund provides for capital improvements of CLIF property. Ownership gradually passes back to the region that issues the fund.

BENEFITS TO DONORS

The PeaceHealth CLIF benefits donors by offering a quarterly income for life, the opportunity to avoid capital gains taxes and the chance to enjoy charitable income tax savings. Donors are able to diversify their investment risks and minimize investment overhead.


Regional Income

1. Region sells building(s) to CLIF.

2. CLIF pays interest on promissory

note to region.

3. Donor investments pay down promissory note.


Expected Returns Contributors to the PeaceHealth CLIF receive all of the fund's net income, which is targeted at 6% but may rise due to a Consumer Price Index (CPI) inflator (capped at 1.5% per year starting in 2015). Donors may receive a pass-through of a portion of the depreciation expense of the building, further reducing their income taxes and raising the actual rate of tax-adjusted return.

Tax Benefits The CLIF is ideal for people with highly appreciated assets who may be looking for a secure, growing source of cash flow. When assets are contributed into the fund, donors may recognize no gain or loss. The CLIF can enable donors to avoid all capital gains taxes on assets contributed and creates an immediate partial charitable tax deduction, doubling the tax benefit.

The CLIF is not subject to income tax for several reasons. First, pooled income funds are required to distribute all net income (defined as interest, dividends, rents and royalties) and a fund receives an unlimited deduction for all income so distributed. Second, all long-term capital gains produced by a CLIF are allocated to principal. Because it is earmarked for charity, such amounts are also exempt from taxation.

IRS rules regarding depreciable assets within a CLIF that invests in depreciable property also benefit fund donors. The CLIF is required to establish a funded depreciation reserve according to generally accepted accounting principals (GAAP) to protect the charitable remainder. Depreciation deductions in excess of the reserve

fund are allocated to income beneficiaries and shelter some of the CLIF income distributed from taxation.

Other Benefits The net rental income produced and distributed by the CLIF is considered by the IRS to be passive income. This therefore allows income beneficiaries with passive losses from other real estate investments to offset such losses for tax purposes against any remaining taxable income from the CLIF.

Comparison to Other Gift Vehicles The PeaceHealth CLIF is similar to Charitable Remainder Trusts and Charitable Gift Annuities, but has some key differences in terms of benefits to the donors. Unlike these two other options, the CLIF may avoid all capital gains and there is a potential increase in income as CPI increases. Unlike fixed annuities, the CLIF invests in real estate and offers a steady and growing income.

The PeaceHealth CLIF is likely to offer greater benefits than most other pooled income funds and provides advantages over other trusts. For example, Charitable Remainder Unitrusts (CRTs) have been a popular means of donating appreciated assets without having to pay capital gains taxes. Although recommended by many financial advisors, CRTs are still generally less beneficial than the CLIF. When comparing a CRT to the CLIF, a similar contribution to a CLIF yields a larger charitable tax deduction, a larger family benefit (with asset replacement life insurance) and a fixed income (a CRT income is variable and subject to market fluctuations).



signing upELIGIBILITY

To be eligible for the PeaceHealth Regional CLIF, beneficiaries must have been born in 1952 or earlier and donors must be willing to make a charitable contribution of $10,000 or more.

WORKING ON MANY LEVELS

The PeaceHealth CLIF strategy works for many different kinds of donors in many different financial situations. Many have found it to be a successful gift planning strategy.


“For the first time, our Foundation

has the opportunity to fund

life-saving technology AND offer

life income to donors. Imagine

the peace of mind of knowing

you have a predictable income

stream while you're helping

save lives. What a gift the

new CT scanner will be for our

community including your friends,

neighbors and possibly family

members. If you or loved ones

have spent hours in a hospital

emergency room dreading a

life-threatening diagnosis, you

will understand why this project

matters so much.”

n Jean Rahn, Executive Director, PeaceHealth Southwest Medical Center Foundation

“There are lots of charitable

gift plans out there. When we

worked with the Foundation,

they explained the CLIF and

we saw an opportunity to make

the largest gift we’ve ever been

able to make. We could do it

because the CLIF provided us

with income benefits and still

allowed us to see our donation

working immediately. We receive

a quarterly income and realize

major tax savings, while also

donating to a cause that’s close

to our hearts. To receive these

benefits and help to meet the

health needs of people in our

own community is great for

everyone.”

n Anonymous CLIF Donor


donor gift illustrations*

CASH GIFTS

Rafael and AdellaSeveral years ago, Rafael and Adella launched a local Hispanic newspaper. It quickly grew in circulation and eventually became a regional newspaper and website that was the only resource of its kind. The bilingual newspaper covered local events of interest to the Hispanic community, and included a popular quarterly health section.

Although they were still many years away from retiring, Rafael and Adella were beginning to think that they'd someday like to give back to the community that had supported them. The newspaper had begun as a four-page event guide for the PeaceHealth Hispanic Health Fair and quickly grew into a weekly publication. The newspaper now was a title sponsor of the event and Rafael and Adella had long been believers in PeaceHealth’s mission of supporting the health and well-being of the community.

Although the future of the newspaper looked bright, dramatic changes were occurring in the newspaper industry. The couple was reasonably certain their publication would continue to thrive, but they wanted to ensure that they would continue to earn an income in retirement. The CLIF was the investment best-suited to Rafael and Adella's desire to continue earning money while giving back to the community.

The DonationThe pair turned 60 within two months of one another, making them just eligible to participate in the fund. They made a substantial cash donation to the Washington Region CLIF.

The ResultsRafael and Adella chose the CLIF because they made their donation at a relatively young age. The couple would be able to watch their charitable dollars immediately support new projects such as a proposed rural health care center that would benefit the Hispanic community, and they’d be able to see their money support community health programs for years to come. Additionally, they would earn a modest income stream to subsidize their retirement and the fund could even provide tax breaks, depending on what the couple’s real estate investments ended up looking like in the decades to come.

Ben and SheilaBen started a real estate practice in the early 1980s. His wife Sheila joined the business after the couple’s children grew up and left home. They did very well for themselves and bought a number of properties that they owned outright. Their oldest son, Peyton, joined the team and took over ownership of the firm.

Ben and Sheila wanted to be sure their two other children would be taken care of and decided to transfer their income-producing real estate to them. Years later, having acquired a substantial cash cushion from their income-producing properties, the couple decided they had adequately provided for their children. They wanted to make a donation.


*Note: Examples are fictional potential scenarios that illustrate how CLIF contributions can meet donors’ objectives. CLIF contributions can only be applied to approved capital projects.


CASH GIFTS (Continued)

Because Peyton had been born prematurely and spent the first two months of his life at Sacred Heart Medical Center, Ben and Sheila wanted to say thank you to the hospital where their family life began. For weeks after Peyton’s birth, it had been touch and go for the tiny newborn, but thanks to the dedicated doctors and nurses, Peyton made it through and grew into the successful businessman he is today.

The DonationThe pair made a substantial cash donation to the Oregon Region CLIF.

The ResultsBen and Sheila continued to earn a healthy income on those donated funds without the stress of having to manage any real estate. The region received a transformational gift to fund new equipment in the Sacred Heart Neonatal Unit.

REAL ESTATE GIFTS

Henry and SallyHenry and Sally had both been retired from city government for 15 years. They never had children, and after developing cancer, Sally’s mother moved in with the couple toward the end of her life. Thanks to PeaceHealth hospice workers who came to their home every day, Sally's mother was able to stay at home during her final months.

After Sally’s mother passed away, Henry and Sally began looking into donating to PeaceHealth. Years earlier the couple had bought several

single-family homes as investment properties. Henry was managing all of the properties himself. When they retired, in order to simplify the management, they sold all the properties, completed a 1031 exchange and converted them into a small apartment building. As Henry got older, they realized that the burden of managing the property was more than he wanted to deal with.

The DonationThe couple donated the apartment building, a readily marketable piece of real estate, to the PeaceHealth Oregon Region CLIF. Their donation helped fund an approved capital project for their region, a planned expansion of the Sacred Heart Hospice.

The ResultsHenry and Sally were able to transition out of the real estate market without paying capital gains taxes and still earned an income on the equity they had gained from the apartment building. While the property was listed for sale, the CLIF received the rental income from the property to cover the income obligation to these donors until the property sold. A month after the sale transaction closed, the Region’s CFO received $1.3 million from the proceeds as payment on the note that was owed to the region, designated to the hospice capital campaign.




REAL ESTATE GIFTS (Continued)

Abe and EdnaAfter working at PeaceHealth for 25 and 23 years respectively, Abe and Edna were thinking about retirement. They were both anesthesiologists and had met when Edna moved to Eugene to work for PeaceHealth 23 years ago. They had long been donors to the organization.

Abe and Edna had faithfully contributed to the hospital retirement plan, but were concerned about their income being substantially reduced once they both stopped working. The couple owned a 90-acre piece of farmable property on the outskirts of town that was previously leased but had not been farmed for some years. Due to growth in the area, the zoning on the property had recently been changed to industrial, making it much more desirable for commercial uses.

The DonationAbe and Edna donated the property to PeaceHealth and asked that their donation be used to fund any future capital projects in their region.

The ResultsThe couple was able to begin earning a 6% return. Previously, the land had provided little or no return. The CLIF administrator had already lined up a buyer prior to taking ownership and sold the property within two months to a solar manufacturing plant that had been looking for land in the area. The money from the sale was transferred to the region and helped fund the construction of a new organ procurement center.

STOCK GIFTS

Don and MaryTen years ago, Don suffered a massive heart attack on the golf course. Luckily, his golf partner happened to be a physician who worked for PeaceHealth. The doctor administered CPR until the paramedics arrived and whisked Don off to Sacred Heart Medical Center. The doctor’s swift action, combined with a quadruple bypass, saved Don’s life.

Recently Don retired after 27 years with a Fortune 100 company. During that time he had received annual bonuses in the form of stock options. The company stocks did not pay dividends. Don and his wife, Mary, had dreamed of travelling extensively once they retired. Don looked into cashing in some of his stock to finance their travel, and realized he would face a substantial tax bill. Also, he did not want to leave his money tied up in stock, because the market had been so volatile lately.

The DonationDon and Mary gave shares of the low-yielding, appreciated stock to the PeaceHealth CLIF.

The ResultsThe stock was converted into an income stream that funded the couple’s numerous global adventures. The CLIF sold the stock immediately and the regional CFO was able to determine which capital projects the funds would support.


conclusionMEANINGFUL FUNDRAISING

The PeaceHealth CLIF is a popular and powerful charitable gift planning strategy that has proven to be a highly effective means of financing hospital capital projects. It offers a new source of capital for PeaceHealth regions and provides donors with an attractive and growing stream of fixed income for life.

By paying careful attention to tax laws, the PeaceHealth CLIF is more cost-effective than other forms of giving – both for donors and PeaceHealth regions alike. It resonates with donors as a wise investment decision that also supports PeaceHealth’s mission of contributing to community health.

MORE INFORMATION AND CONTACTS

For further detailed information on the CLIFs, see the CLIF Offering Summary, available upon request.

ContactJean RahnExecutive Director, PeaceHealth Southwest Medical Center FoundationPO Box 1600Vancouver, WA [email protected]

www.swmedicalcenter.org/foundation www.givetopeacehealth.org


Documents

Charitable PeaceHealth Southwest Medical Center Foundation … · 2015-11-12 · PeaceHealth Southwest Medical Center Foundation White Paper Charitable life Income Fund. PeaceHealth