Estate and Gift Planning One Year After The Cliff

1. How to Help Your Donors Help Your Organization James C Provenza Attorney and Consultant James C Provenza, PC A member of Single Source Advancement Network jprovenza@provenzalaw.com Estate and Gift Planning One Year After The Cliff

2. On January 2, 2013 Congress passed the American Taxpayer Relief Act Most taxpayers saw an increase in taxes Social security tax cut expired. Capital gains rate went up for higher income taxpayers Top ordinary income bracket increased for high earners Background

3. The $5 million estate and gift tax exemption was made permanent It is indexed for inflation Current exemption is $5.34 million The top rate was raised to 40% The Illinois exemption is now at $4 million Federal Estate Taxes

4. New 39.6% bracket for households with taxable income over $450,000 or single taxpayers over $400,000 Permanent AMT patch Personal exemption phase out for higher income taxpayers Income Tax Changes

5. Taxpayers in the 39.6% bracket will be in the 20% capital gains tax bracket Dividends will also be subject to the 20% rate Obamacare introduced a new tax on investors. Some taxpayers will be subject to a 3.8% Medicare surtax. Investor Tax changes

6. 2001 exemption is at $675,000 Law started raising exemptions No estate tax in 2010 Estate planning started its decline Some background

7. Use of traditional wills and trusts has fallen off by 80% in the past 10-12 years Result is many under-employed estate planners Fact has implications for gift planners Current State of Estate Planning

8. Estate tax exemption is “permanent” at $5.34 million Is indexed for inflation Eliminates 99.7% of the population Other reasons? Why the decline?

9. Legislation pending to extend and make permanent the Charitable IRA rollover Extenders bill introduced to extend 50+ expired miscellaneous tax provisions Current legislative developments

10. The State of Illinois has a plan for you It may not be what you want What are the important reasons to have a plan? If you don’t have an estate plan?

11. Supporter can lend up to $250,000 interest free for an unlimited period of time Deduction when/if forgiven Must document the loan! When would it make sense? Donor loan to your organization

12. Can transfer ownership or name charity as beneficiary If transfer ownership, get deduction for cash surrender value. Get additional deduction when pay premiums on policy GIFT OF LIFE INSURANCE

13. Must hold asset one year or more Can deduct up to 30% of donor’s adjusted gross income Eliminates capital gain tax GIFT OF APPRECIATED PROPERTY

14. Unitrust-assets revalued annually Annuity trust-valued once when assets transferred to trust Pay income to one or two income beneficiaries Income is 5% to 50% of value of assets 10% of value (at starting date) must go to charity CHARITABLE REMAINDER TRUST

15. Contract between charity and donor Donor gets a guaranteed lifetime income Donors like its simplicity GIFT ANNUITY

16. Operates much like a beneficiary designation Can be used for CD’s, securities and other investments Advantages and disadvantages? Transfer on Death Instruments

17. Donor can live in home for specified period, usually for life Charity gets home after donor’s death Donor gets deduction for value of the life interest Deduction calculated similarly to a CRT Need a written agreement about responsibilities Remainder interest in a home or residence

18. Name charity as beneficiary of IRA, etc. No income tax payable on amount to charity More income tax efficient than paying to individuals Donor must change beneficiary designation GIFT OF RETIREMENT PLAN

19. From the Illinois State Bar Association list serve: Client with no wife or children wishes to leave a remainder interest in a home to a religious organization. Lawyer asks: How do I proceed? What do considerations do I have to think about? Advantages and disadvantages? Case #1

20. Donor goes to her lawyer to insert a bequest into her will for a local organization. Lawyer declines and suggests that she name the organization as a Transfer on Death beneficiary on a CD. Why would the lawyer respond as he did? What are advantages and disadvantages of a TOD gift? Case #2

21. Donor is reluctant to make a gift. Fears his deduction will be limited by the 3% reduction How do you respond? Case # 3

22. Donors give because they support your mission Tax consequences are important, but they don’t drive the gift Stay focused Remember Why Donors Give

23. You work in a competitive environment You need to put forward your strongest case Too many organizations don’t invest the time Have a Compelling Case for Support

24. The battle over “Revenue Growth” will continue in Washington Obama still proposes to cap the charitable deduction at 28%. Deduction appears safe for 2014 Could be a more serious disincentive to giving Diversify Your Income Stream

25. Annual Giving Planned Gifts Endowment For profit enterprise Grants Sponsorships Diversify Your Income Stream

26. With the weak economy, high gas prices, and tax increases, annual giving will continue to be flat People don’t have cash, or are playing it close to the vest. Planned gifts, especially alternatives to bequests, offer a good alternative. Keep Marketing