Planned Giving Demystified Dec 2012

Nutter McClennen & Fish LLPSeaport West155 Seaport BoulevardBoston, Massachusetts 02210Telephone 617.439.2000

www.nutter.com

PLANNED GIVING DEMYSTIFIED

Julia Satti Cosentino, Esq.

Nutter Charitable Advisors

December 2012

2Nutter McClennen & Fish LLP • www.nutter.com

The first planned giving specialist?

“To give away money is an easy matter and in any man’s power. But to decide to whom to give it, and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.”

ARISTOTLE “ETHICS”


Traditional focus of planned giving specialists

1/ “The Future of Charitable Gift Planning: A Report of the NCPG [Nat’l. Committee on Planned Giving] Strategic Directions Taskforce”, Journal of Gift Planning, Volume II, Number 2, p. 52 (June 2007)

• HOW should the gift be made?• WHEN should the gift be made?• With WHAT asset should the gift be made?1/


Success stories

According to an Internal Revenue Service analysis, there are:• 93,828 Charitable Remainder Unitrusts with total

assets of $86.9 billion• 15,862 Charitable Remainder Annuity Trusts with total

assets of $7.1 billion• 6,617 Charitable Lead Trusts with total assets of $20.9

billion• 1,402 Pooled Income Funds with total assets of $1.3

billion


Trends to watch

Traditional planned gifts may be perceived as less valuable to some charities and/or donors• trend is toward hiring just a major gifts officer and then

hoping for the best in terms of planned giving• trend is toward younger donors, and many older

donors as well, making more large cash gifts• private foundations, supporting organizations and

donor advised funds are proliferating as record numbers of donors are implementing gift structures that increase their active involvement2/

____________________

2/ NCPG Taskforce Report


NCPG Taskforce Report

A number of planned gifts are thwarted or not pursued due to lack of knowledge by major gifts officers and professional advisors.


• Charitable Devise• Charitable Gift Annuity• Charitable Remainder Trust• Charitable Lead Trust• Other vehicles• Tips and resources• Quiz• Q and A

Agenda


• Structure– Will or Trust (codicil or trust amendment)– Vested or Contingent– Period of estate administration

– Massachusetts Uniform Probate Code (“MUPC”), enacted March 31, 2012

– Informal probate: Notice is given to charitable devisees and the Attorney General at least 7 days before filing with probate court

– Formal probate: Notice is given to charitable devisees and the Attorney General after filing with court and upon receiving citation

Charitable Devise


•Benefits to Donor– Revocable – Financial impact is in the future– Estate tax deduction

•Considerations for Charity– Lack of certainty– Timing– Restrictions– Involvement of Attorney General’s office

Charitable Bequest (continued)


Charitable Gift Annuity

• Structure– Contract – Donor irrevocably transfers assets to Charity

in exchange for agreement by Charity to pay fixed amount periodically to Donor or Designee(s) for life

– General obligation of Charity backed by all of its assets


Charitable Gift Annuity (continued)

• Benefits to Donor– Immediate income tax deduction– Predictable payments continue for life – Annuity payments may be part ordinary

income, part capital gain income and part tax-free return of principal

– Contract is simple


Charitable Gift Annuity (continued)

• Considerations for Charity– Contract is simple– What gift annuity rate?– Risks surrounding gift annuity pool– Tax filings– Out-of-state donors


Deferred Charitable Gift Annuity

- Immediate income tax deduction

- Payments of fixed amount begin in the future

- Typically a higher annuity rate and a larger charitable deduction the longer the deferral period


Charitable Remainder Annuity Trust

• Structure – Trust instrument– Donor irrevocably transfers assets to

trustees to hold in segregated trust account– Trust terms provide for trustees to pay fixed

amount periodically to beneficiary(ies) for life or term of years

– Annuity amount determined at inception– On termination, remainder to Charity


Charitable Remainder Annuity Trust (continued)

• Benefits to Donor– Immediate income tax deduction– Predictable payments continue for life or

term of years– Choice of trustee– Trust is separately administered – No upfront capital gain tax on transfer of

appreciated assets to trust or at time of sale of those assets by trustee

– Annuity payments taxable to beneficiaries under four-tier system

– Selection of Charity can be changed


Charitable Remainder Annuity Trust (continued)

• Considerations for Charity (and Trustee)– Acceptance of trustee office– Lifetime or testamentary– Length of annuity interest– Funding assets– Trust terms (spendthrift provision, limited

power of amendment)– Tax filings


Charitable Remainder Unitrust

• Structure– Trust instrument– Donor irrevocably transfers assets to

trustees to hold in segregated trust account– Trust terms provide for trustees to pay fixed

percentage to beneficiary(ies) for life or term of years

– Unitrust amount determined each year– On termination, remainder to Charity


Charitable Remainder Unitrust (continued)

• VariationsSTAN – CRUTNI – CRUTNIM – CRUTFLIP – CRUT



• Benefits to Donor– Immediate income tax deduction– Additional gifts are permitted– Payments may grow as value of trust’s

principal grows– Payment options– Choice of trustee– Trust is separately administered– No upfront capital gain tax on transfer of

appreciated assets to trust or at time of sale of those assets by trustee



•Benefits to Donor (continued)– Suited for temporarily illiquid asset or

portfolio of growth securities– Unitrust payments taxable to

beneficiaries under four-tier system– Selection of Charity can be changed



• Considerations for Charity (and Trustee)– Acceptance of trustee office– Lifetime or testamentary– Length of unitrust interest – Funding assets– Trust terms (spendthrift provision,

limited power of amendment)– Tax filings


Charitable Lead Trust

• Structure– Trust instrument– Donor irrevocably transfers assets to

trustees to hold in segregated trust account

– Trust terms provide for trustees to pay fixed amount (annuity) or fixed percentage (unitrust) to Charity for life of individual(s) or a term of years

– On termination, remainder to beneficiary(ies)

– Grantor versus non-grantor


Charitable Lead trust (continued)

• Benefits to Donor– Grantor CLT: Immediate income tax

deduction, but future tax obligation– Non-grantor CLT: federal gift tax

deduction on transfer AND on termination, any appreciation that has accumulated during trust term will pass to beneficiaries free of gift or estate tax

– CLUT if GST concern


Charitable Lead Trust (continued)

• Considerations for Charity (and Trustee)– Non-grantor CLT: trust pays income tax

on trust income in excess of annual payment obligation AND trustee takes donor’s basis and trust is taxable on net gains realized (testamentary = stepped up basis)

– Tax filings


Other Vehicles for Benefitting Charity

• Pooled income fund

• Bargain sale

• Beneficiary designation

• Health and Education Exclusion Trusts (HEETs)


Tips and Resources

• Determining the rate

• Projecting the numbers *

• Spotting the issues*

• Drafting the proposed documents*

• Holding the assets

• Filing the returns

*Independent counsel for donor


Quiz Time

FACTS: Donor wants to give, but is afraid of commitment; wants a revocable arrangement that could help Charity in the future, but does not impact current cash flow or asset picture

PROPOSAL: BEQUEST


Quiz Time

FACTS: Donor with portfolio of appreciated stock, as well as charitable goals, who wants to benefit Charity while retaining a predictable income stream, and insists on simplicity.

PROPOSAL: CHARITABLE GIFT ANNUITY


Quiz Time

FACTS: Donor with low-basis real estate and charitable goals, who wants real estate sold and proceeds reinvested in a portfolio of securities that would produce an income stream, but does not want immediate reduction on account of capital gain tax.

PROPOSAL: FLIP - CRUT


Quiz Time

FACTS: Donor who is in the midst of a high earnings period and wants a charitable gift that will provide for a steady stream of income in the future when she reaches retirement age (and expects to have less taxable income).

PROPOSAL: DEFERRED CHARITABLE GIFT ANNUITY


Quiz Time

FACTS: Donor with a mix of income producing and appreciating assets who was already considering starting a program of annual charitable giving, but is now also thinking about how best to pass assets onto his children and grandchildren

PROPOSAL: NON-GRANTOR CHARITABLE LEAD UNITRUST


The End

Any questions?

Documents

Planned Giving Demystified Dec 2012