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Charitable Estate Plans Using SRI Investments: Stewardship in Practice

Charitable Estate Plans Using SRI Investments: Stewardship in Practice. Bill Hartman MMA Trust Co. SRI in The Rockies October 18, 2002. Stewardship Planning What Is It?.

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Charitable Estate Plans Using SRI Investments: Stewardship in Practice

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  1. Charitable Estate Plans Using SRI Investments: Stewardship in Practice Bill Hartman MMA Trust Co. SRI in The Rockies October 18, 2002

  2. Stewardship Planning What Is It? • Identify what is important to you and your family. • Plan according to your faith and values. • Share values across generations. • Incorporate SRI investments in life and testamentary plans: extends the good.

  3. Stewardship Planning Important Questions • How much is enough for descendants ? • Is it too early or too late for leaving an inheritance ? • How can I “give back” from my accumulated wealth ? • How can accumulated wealth celebrate my life and witness ? • Can my estate plan include SRI-invested charitable tools ?

  4. The road less traveled….an opportunity • Choosing the “enriching journey” over the “toll road” often takes just a bit more planning. • You already offer your client this choice; you can offer more through their estate planning.

  5. Traditional Approaches to Estate Planning • “Nothing more than a series of unpleasant business decisions to minimize the damage.” • May ignore the income needs of the donor/subject. • Based on the net worth statement and “beating the tax man”.

  6. What you can’t keep What you can keep Family’s Net Worth

  7. $ $ Estate, Income, GSTTax Heirs I R S Social Capital Personal Capital

  8. $ $ $ $ Charity Heirs I R S I R S Charity Charity Heirs Personal Capital Social Capital

  9. Change in Unified Credit in EGTRRA 2001 vs. 1997 Law I.e. “the vanishing repeal” Year Applicable Exclusion Amount ‘97 TFRA ‘01 EGTRRA 2001 $675,000 $675,000 2002-3 $700,000 $1,000,000 2004-5 $700,000 $1,500,000 2006-7-8 $1,000,000 $2,000,000 2009 $1,000,000 $3,500,000 2010 Unlimited 2011 $1,000,000

  10. Federal Income Tax on IRAs distributions 1993 = $ 13 billion to IRS 1998 = $ 55 billion 2001 = $100 billion

  11. Case Study of Jonas and Mary Leatherman” • Good retirement income flow; supplement desired • Three children • Want to provide for children and charity • Jonas is 68 and Mary is 66 • Total estate: $4,000,000

  12. Qual.Plan $1,000,000 Farm Land $1,000,000 Other Assets: $2,000,000 First Death $3,000,000 Spouse Estate $1,000,000 Bypass Trust* Second Death • Trust document (will) recommends Trustee invest corpus in SRI assets $850,000I R S $2,990,000 Family

  13. Leatherman Family: Appreciated Farm Real Estate • Desire to sell farm land and home. • Need some cash to purchase new home. • Very low basis in the property. • Desire to minimize taxes on disposal

  14. Substantial appreciation results in over $161,000 in Capital Gain Tax on sale $1,000,000 Sale Price $ 192,000 Cost Basis $ 808,000 x 20% =$161,000

  15. Solution: Leatherman Family Charitable Remainder Uni-Trust • Gift 60% undivided fractional interest to charitable remainder uni-trust • 40% sold outright for cash • Zero-Tax sale • (Family recommends) trustee invest solely in SRI assets after sale

  16. $1,000,000 Farm Property $192,000 Cost Basis Zero Tax Sale of Property 60% Leatherman Family Charitable Rem. Uni-Trust $600,000 40% Cash to Leathermans $400,000 $245,000 Tax Deduction* x 27% Tax Bracket $66,150 Tax Savings *Subject to 30% AGI deduction limit $400,000 76,800 Adjusted Basis $323,200 Capital Tax Gain x 20% Capital Gains Rate $ 64,640 Capital Gains Tax

  17. Benefits to Family and Charity of a Zero Tax Sale of Real Estate • Gift to Charity: Current year $600,000 • Estimated*$875,000 at death • Annual income from Trust: • at 5% per year $ 30,000, Year 1 • (with 23 year life expectancy) $766,000 through life • Cash Available from Farm Proceeds $400,000 • Tax Paid on Sale: $ - 0 – • Trust Corpus Invested in SRI assets (mutual funds and individual issues.) * 23 year life expectancy, 2% annual average growth of trust

  18. The charitable beneficiaries of the Leatherman Family Uni-trust: Projected Share Community Library: 25% ($218,750) Church: 25% ($218,750) College: 25% ($218,750) Land Preservation Fund: 25% ($218,750)

  19. $595,967 I R S $2,732,538 Family $1,000,000 Asset Transfer Farm Land $1,000,000 Sale of Assets & CRT $600,000 Gift $248,860 Deduction Investment/ Purchase new home $400,000 First Death Second Death $719,500 I R S $2,280,500 Family $600,000 Charity

  20. Qualified Retirement Plans: Gifts That Keep on Giving • Jonas and Mary have accumulated over $1,000,000 of qualified retirement plan assets. • Current plan: direct plan assets at death of surviving spouse to children. • Children are in high income tax brackets and do not need income. • Desire to have assets and benefits assist with education and environment. • What are the options?

  21. Life Insurance Contract * IRS $0 Child 1 $333,333 Child 2 $333,333 Child 3 $333,334 * Assume paid by non-IRA assets or reinvested Required Minimum Distribution Qualified Plan Value $1,000,000 100% bequest Leatherman Family Endowment $1,000,000

  22. Asset Transfer $3, 192,248 Family Farm Land Qualified Plan $1,000,000 Asset Replacement Trust $1,000,000 Sale of Assets & CRT Income Annual Gifts of Premium Deduction First Death $1,000,000 IRA Second Death $1,000,000 By Beneficiary Designation $136,257 I R S (includes effect of CRUT) Family Endowment Fund $1,000,000 + income $2,144,000 Family

  23. Leatherman Family Endowment • Qualified Plan Assets are directed to endowment. • Trustee instructed to invest solely in SRI funds and assets. • Distribution directed by Leathermans: • Income annually to charities directed by Leatherman children. • Up to 5% of principal annually to local high school scholarship for student in life sciences or environmental curriculum. • Corpus after 20 years to college scholarship fund.

  24. Multiple IRAs IRA Two IRA Three IRA One Bequest to Children Gift to Endowment Fund Children: Beneficiaries Gift to Charity

  25. Donor Benefits: Financial • Creates income sources • Eliminates or reduces tax burden • Income/capital gain • Estate, gift • Increases inheritance for family • Returns and performance of investments improved • Helps favorite charities and causes grow and thrive

  26. Donor Benefits: Values • Assets speak to values for family and others: • Redirects social capital • Investments of charitable gift plans continue with SRI difference. • Creates legacy of stewardship that keeps on giving. • Direct participation in philanthropy. • Increased personal significance.

  27. Bill Hartman, Trust Advisor MMA Trust Co. 201 E. Oregon Rd., Ste 103 Lititz, PA 17543 Email: bill.hartman@mmapartners.org Phone: 800-494-6622 MMA Trust Co./ Mennonite Foundation Rod D. Diller, CEO 1110 No. Main St. Goshen IN 46527 Web: www.mma-online.org Phone: 800-348-7468 Contact Information

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