Presentation Transcript

1. Estate Planning with Charitable Giving: Leaving a Legacy September 20, 2011
2. What We Will Cover Values-based Planning The Estate Planning Spectrum (aka “The Control Continuum”) Selected Gift Planning Vehicles Legislation Relevant to Charitable Giving
3. Values-Based Planning Financial Independence(Self)
4. Values-Based Planning How much do you give to your family? What is enough? Do you have any special family needs? Who made a difference in your life? FamilyLegacy Financial Independence(Self)
5. Values-BasedPlanning How did you get where you are? What do you want your legacy to be? What would you like to do with your money that would be meaningful to you? Your Values Family Legacy Financial Independence(Self)
6. Gift Planning Spectrum Donor Advised Fund Charitable Lead Trust IRA/Qualified Retirement Plan Charitable Remainder Trust Bequest Outright Gift Maintain flexibility over assets (more control) Immediate partnership with WSU (less control) Retained Life Estate Life Insurance/ Annuities Charitable Gift Annuity Donor Managed Investment Account
7. Case Study #1 Arnie and Marie Chang are both WSU graduates, ages 80 and 83. Both are retired educators in the Tri-Cities. Arnie is a retired school superintendent and Marie is a retired middle school science teacher. They have been giving to WSU for 40 years total, with annual gift totals under $1,000 until recent years. Their lifetime giving total is $25,000. They mention that their friend, Tom Tuttle, was recently honored as a WSU Benefactor. They caution that they are not wealthy like Tom, but they love WSU and are glad to do what they can, they just wish it was more.
8. Case Study #1 (continued) Arnie and Marie shy away from the stock market but receive a comfortable income from Social Security, their pensions, and a modest investment portfolio. When thanked for giving over $1,000 each of these past few years, they say they aren’t sure they’ll get to that same level this year.
9. How a Charitable Gift Annuity Works A simple contract between the donor(s) and WSU Foundation At WSU Foundation, minimum gift is $25,000 In exchange for an irrevocable gift of cash or securities, the WSU Foundation pays the donor(s) a fixed sum per year for life May provide the donor(s) a charitable income tax deduction Payments are reliable, backed by the general resources of the WSU Foundation Usually paid quarterly Lifetime recognition (if desired)
10. How a Charitable Gift Annuity Works The rate of income paid depends on the age(s) of the annuitants. WSU Foundation follows the rates published by the American Council on Gift Annuities (http://www.acga-web.org/giftrates.html). In most cases, part of each payment is tax-free. If the donor gives appreciated assets, the donor will pay capital gains tax on only part of the appreciation spread out over many years. Qualifies for charitable income tax deduction and possibly reduced estate taxes. When the last annuitant dies, WSU Foundation uses the remainder for the WSU purpose specified by the donors in a Gift Use Agreement – such as scholarships for WSU Tri-Cities students and future educators in the STEM disciplines!
11. Can a Donor Set Up a Charitable Gift Annuity Now and Delay Receiving Income? Yes. This is a “deferred” CGA and may work particularly well for donors who are “younger” (read: mid-fifties and sixties). Also works for donors who anticipate losing an existing income stream. They fund the CGA now and designate the time in the future (at least one year) when income payments are to begin. Deduction and payment rates are higher than for an immediate payment CGA.
12. Case Study #2 Ms. Sanchez is a 56 year-old graduate of Washington State University. She wishes to sell the closely held company she built up in Kennewick in a tax-efficient manner. As an undergraduate, Ms. Sanchez worked shelving books in the library to help pay her tuition.
13. Sale of Ms. Sanchez’s Corporation Ms. Sanchez’s Corporation $5 million stock Mr. Gray’s $2.5 Million Sanchez’s remaining $4 M stock CRT funded with $1 M stock $4 million dollars (less capital gains tax) Ms. Sanchez $1.7 million to WSU Tri-Cities Library Excellence Fund
14. A Smart Solution for Ms. Sanchez Establish a CRT funded with $1 million of her company stock PRIOR to the sale of the company. As initial trustee of the CRT, Ms. Sanchez maintains control over sale transaction. Receives current income tax deduction of 350,000 Avoids capital gains tax of $150,000 Receives 5% of annual value of trust once stock is sold At Ms. Sanchez’s passing, a projected$1.7 million becomes available to create the Sanchez Library Excellence Fund
15. Charitable Remainder Unitrust – Customizable! Can be funded with a variety of asset types, including cash, securities (e.g., marketable and closely-held), real estate, artwork and collectibles) At WSU Foundation, minimum gift $100,000. Irrevocable and income subject to market fluctuation, so the donor must have some risk tolerance and sufficient other assets for security needs Can provide income to the donor or to others the donor designates
16. Charitable Remainder Unitrust – Customizable! (continued) May provide a charitable income tax deduction Can reduce estate taxes by removing assets from the donor’s estate When the last donor dies, WSU Foundation uses the remainder for the WSU purpose specified by the donors in a Gift Use Agreement.
17. Case Study #3 Sara DuVin, PhD is an 80 year old retired WSU Tri-Cities faculty member who was widowed several years ago. Sara is comfortable financially, living somewhat frugally on her retirement income and an inheritance from her husband. Sara has a house in Kennewick and likes to winter at the condo she owns in California. She enjoys fine wine and wants to support the Viticulture and Enology program at WSU Tri-Cities.
18. Retained Life Estate General Target Audience: Age 75+ No children, or family not living nearby Desire to simplify estate for family to administer May have more than one residence, or residence plus farm WSU (or other charity) may already be in estate plan
19. Retained Life Estate Deed to WSUF Gift of Residence WSU Foundation Residence Donor Right to live on property for life Responsible for taxes, insurance, and maintenance, etc. Charitable income tax deduction May reduce estate taxes and/or probate costs Lifetime recognition Make a substantial gift for WSU Tri-Cities!
20. Case Study #4 John is a WSU alumnus and he and his wife, Sally, are in their late 70s. Ten years ago, shortly after John retired, they began making annual gifts for a scholarship for students attending WSU Tri-Cities and majoring in engineering. They have two grown children each of whom is married with children. They did not want to include WSUF in their estate plans at the time of John's retirement because they wanted to be certain their grandchildren would be able to attend college. John and Sally receive annual reports on the recipients of their scholarship and the value of their endowment. They see the rising cost of attendance and wish they could do more via scholarships.
21. Bequests: Wills andRevocable Living Trusts Simple way to make a future gift to WSUF If choose to endow, continues donor’s annual gift in perpetuity Flexible – can be changed as donor’s goals change Donor retains control during his or her lifetime Can reduce estate tax Can create or add to a family legacy
22. Alternatives to Bequests:Beneficiary Designations IRAs and/or other retirement plan assets United States Savings Bonds Life insurance policies Brokerage accounts/bank accounts Can be all, a percentage, or a contingent designation
23. Twice-Taxed Assets (IRD Assets) IRD – Income in Respect of a Decedent Examples of IRD assets: Qualified retirement plan income [IRA, SEP, 401(k), 403(b), pension, profit sharing] U.S. savings bonds Installment contracts
24. IRD Assets (continued) These are assets that are income taxable to the donor’s heirs, at their rates, regardless of the size of the estate. BUT … If IRD assets are left to charity, the gift avoids possible double taxation: qualifies for the unlimited estate tax charitable deduction, and the tax-exempt charity (such as the WSU Foundation) will not have to pay income tax on the gift! The “IRA Charitable Rollover” opportunity has been renewed by Congress for 2011 Age 70 ½ + Transferred directly from the IRA to qualified 501(c)(3) charity Donor pays no income tax, receives no deduction

25. Taxes and Legislation

    In December 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010: Through 2012 the federal estate tax applies only to estates of $5 million or more ($10 million per married couple); top rate of 35% Heirs receive a “stepped up basis” for assets they inherit (to fair market value as of the date of death) However, the state of Washington has an estate tax that applies to estates of $2 million or more (varies by state) There is no estate tax, regardless of the size of the estate, if the entire estate is given to charity!

26. More about Taxes and Legislation…

    The Gift Tax has been reunified with the estate tax ($5M total during life and/or at death) through 2012 Generation Skipping Transfer Taxes are in addition to any gift or estate tax due, and apply when the transfer is to grandchildren, great-grandchildren and beyond. $5M lifetime exemption through 2012 Federal income tax rates range from 10% to 35% through 2012
27. And More … When an appreciated asset is sold, capital gains tax (usually 15%; higher for collectibles and some real estate) must be paid on the difference between the seller’s basis and the sale price – but not when given outright to a charity EXCEPTION: The “home capital gains tax exclusion” on the sale of a primary residence has a cap of $250,000 (single) or $500,000 (couple) Caveat: Charitable deductions are not always available to donors (non-itemizers, certain income levels)
28. Questions? Sharon L. Morgan, JD Senior Associate Director, Gift Planning Washington State University Foundation P.O. Box 641925 Pullman, WA 99164-1925 morgans@wsu.edu 509.432.5449 – cell   509.335.1379 – direct 800.448.2978 – toll free 509.335.8419 – fax
29. Thank you! This information is not intended to be a interpreted or relied upon as legal, tax, or financial advice.   The WSU Foundation does not engage in the marketing of services pertaining to individualized advice about estate distribution documents.  Before entering into a planned gift with any charity, the donor should seek professional legal, tax and financial advice.  This information cannot be relied upon as professional advice adequate in scope and content to avoid the imposition of penalties under the Internal Revenue Code.