Transcript No Slide Title

Charitable Giving
Basics & Beyond
Manulife Financial and the block design are registered service marks of The Manufacturers Life Insurance
Company and are used by it and its affiliates including Manuilfe Financial Corporation. All rights reserved.
This material may not be used or copied with the public. MLI0123018782.
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Charitable Giving
What Are We Going to Discuss?
• Charitable giving basics.
• Overview of the tools & techniques
of charitable planning.
• Pointers on how to develop your
charitable planning practice.
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Charitable Giving
Basics
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Charitable Giving Basics
Benefits to Donor
• Satisfaction and recognition.
• Substantial tax advantages.
• Probate avoidance or
simplification.
• You decide what to do with your
social capital, not Uncle Sam.
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Charitable Giving Basics
Donor Profile
• Looking beyond basic
planning.
• Income versus growth focus.
• Prefers own judgment over
Uncle Sam’s.
• Charitably minded??
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Charitable Giving Basics
Donee Types
• Public charity.
• Private foundation.
• Special issue - community
foundations & donor advised
funds.
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Charitable Giving Basics
Public Charity
Donor
•
(e.g. United Way, UNICEF)
Advantages.
–
–
–
–
•
Public Charity
Operating Costs
(payroll, rent)
Economies of scale.
Administration ends following gift.
Wide variety of choices.
Maximum tax advantages.
Disadvantages.
– Scandal, bureaucracy and waste.
– Usually cannot direct specific use of
funds.
Famine
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Monsoon
War
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Charitable Giving Basics
Private Foundation
• Advantages.
– Direct control of funds kept in
family.
– Secure community position for
family for generations.
– Provide employment for family
members.
• Disadvantages.
– Deduction limitation may make
it less tax advantageous.
– Ongoing responsibility and
administration.
Board of Trustees
Donor
Family members
Associates
Jones Family Foundation
Famine
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Monsoon
War
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Charitable Giving Basics
Donor Advised Fund
Donor
Community Foundation
• Community Foundation.
– Taxed as a public charity.
– Board usually composed of local figures.
• Advised Fund.
Jones
Advised
Monsoon
War
– Unrestricted component fund.
– Donor can make non-binding “suggestions”
or “recommendations.”
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The Tools &
Techniques of
Charitable Giving
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The Tools & Techniques of Charitable Giving
Structuring the Charitable Gift
•
•
•
•
Outright gift.
Charitable Remainder Trust (CRT).
Charitable Lead Trust (CLT).
Charitable Gift Annuity (CGA).
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The Tools & Techniques of Charitable Giving
Outright Gifts
•
•
•
•
•
Quick & simple.
No set-up costs (unlike charitable trusts).
No worry about partial interest problems.
No ongoing administration.
All rights to income or remainder interest
surrendered.
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The Tools & Techniques of Charitable Giving
Outright Gifts-Gift of Life Insurance
•Naming charity as beneficiary.
•Transfer policy to charity.
•Contribute cash to charity to fund
premiums.
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The Tools & Techniques of Charitable Giving
Outright Gifts-Gift of Life Insurance
Naming Charity as Beneficiary.
Donor
Charity
Policy
(Beneficiary)
(Owner)
Advantages
Disadvantages
• Donor retains control.
• No income tax deduction.
• Charitable beneficiary can be
changed.
• No lifetime charitable
recognition.
• Full estate tax deduction.
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The Tools & Techniques of Charitable Giving
Outright Gifts-Gift of Life Insurance
Transferring Policy to Charity.
Donor
Charity
Policy
(New Owner)
(Owner)
Advantages
• Current income tax deduction.
Disadvantages
• Periodic deductions for future
premiums.
• Lack of flexibility.
• Proceeds avoid estate tax.
• Charity controls policy.
• Lifetime recognition.
• Insurable interest issue avoided.
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The Tools & Techniques of Charitable Giving
Outright Gifts-Gift of Life Insurance
Gift of Cash to Fund Premiums.
Donor
Charity
Cash
(Owner & Beneficiary
of Policy)
Policy
Advantages
Disadvantages
• Income tax deduction.
• No control over policy.
• Proceeds not subject to estate tax.
• Potential insurable interest
problem.
• Lifetime recognition.
• Charity has no obligation to
maintain policy. 16
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• No obligation to continue payments.
The Win-Win
Estate Planning
Option
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
TRUE OR FALSE
Charitable Remainder Trusts:
LOTS OF SIZZLE.
VERY FEW INSURANCE
SALES?
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
FALSE!
Wrong client.
• Wealthy.
• Diversified assets.
• The “perfect asset” client.
Wrong referral sources.
• Technical area.
• Find the “nests.”
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
• What is a Charitable Remainder Trust
(CRT)?
• Irrevocable trust.
• Benefit of some named charity(ies).
• Tax exempt entity.
• Life or lives or term not to exceed 20
years.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
• Benefits of the CRT.
• Substantial income and estate tax benefits.
• Capital gains tax deferral.
• Charitable income tax deduction.
• Estate tax reduction.
• Income stream retained for life.
• Increase yield on assets.
• Convert unproductive assets into productive assets.
• Provide substantial benefit to charity.
• Substantial insurance sale in many cases.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Basic Form.
1. Asset
Mom
&
Dad
3. Remainder
Interest
Charitable
Remainder
2. Retained
Trust
Charity
Interest
1. Capital gains tax avoidance.
2. Charitable income tax deduction.
3. Taxable estate reduced by asset value.
4. Income stream retained for life, lives or term.
5. Increased yield on assets.
6. Charity receives substantial contribution.
7. Two types: CRAT & CRUT.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
CRUTS and CRATS.
• Charitable Remainder Uni-Trust (CRUT).
• Retained interest-stated as percentage.
• Annual revaluation.
• Exposure to asset value fluctuations.
• Inflation protected.
• Can contribute additional assets.
• Charitable Remainder Annuity Trust (CRAT).
• Retained interest-fixed annuity amount.
• No annual revaluation.
• No inflation hedge, but less danger when asset value drops.
• No additional contributions.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together.
Pat & Carol Grogan:
– Ages 76 & 77.
– $10,000,000 in bank stock ($100,000 basis and 2% annual
yield).
– 15 kids and grandkids.
Choices:
– Keep stock until death.
– Sell stock and re-invest.
– Transfer stock to a CRT and replace with insurance.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
Pat & Carol Keep Stock Until Death
• 2 % yield.
• Estate tax of approximately $4,775,800
• Kids will receive stock at stepped-up
basis.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
Pat & Carol Sell Stock & Re-Invest
• Will likely be able to increase yield.
• $9,900,000 capital gain.
• Substantial principal reduction.
• Estate tax will still be waiting.
• Kids will receive stepped-up basis in
replacement assets.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
Pat & Carol Transfer Stock to a CRT and Replace With
Insurance.
• CRAT.
• $700,000/year retained interest.
• $3,051,800 deductible remainder
interest.
• $249,300 annual premium on
$10,000,000 SUL policy.
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
The Grogan Plan - Step #1: The CRT Transfer
3. $3,051,800
remainder
Interest
1. $10,000,000
bank stock
Pat
&
Carol
Charitable
Remainder
Trust
Charity
2. $700,000 annual
annuity income.
Looks great, but what is missing?
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
Pat
&
Carol
1. $10,000,000 Bank
stock.
2. $700,000 annual
annuity income.
$249,300
annual
premium
Grogan
Irrevocable
Insurance
Trust
3. $3,051,800 remainder
Interest
Charitable
Remainder
Trust
Charity
The Grogan Plan - Step #2: Wealth Replacement
$10,000,000 insurance proceeds
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Grogan
Heirs
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Putting the CRT Transaction Together
What Did We Accomplish?
• $3,051,800 income tax deduction.
• Increase pre-tax cash flow (plus cash flow increases resulting from the
income tax deduction).
• Avoid recognition of $9,900,000 gain.
• Remove $10,000,000 from taxable estate ($4,775,800 estate tax savings).
• Transfer $10,000,000 to kids and grandkids, estate tax free through a
wealth replacement irrevocable insurance trust.
• Provide multi-million dollar gift to charity.
• Generated a $10,000,000 insurance sale!
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The Tools & Techniques of Charitable Giving
The Charitable Remainder Trust
Retirement Planning and the CRT.
•Net Income Make-Up CRUT (NIMCRUT).
•CRT to provide future supplemental
income.
•Initial focus-asset growth.
•Subsequent focus-income.
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The Tools & Techniques of Charitable Giving
The Charitable Lead Trust
Mom
&
Dad
• Low-yield appreciated
property
Charitable
Lead
Trust
• Discounted gift
•Irrevocable trust.
Heirs
• At-death remainder
• Retained income stream
•2 types (“CLUT” or “CLAT”).
•Term, life or lives.
•Private and/or public charity(s) as
beneficiary(s).
•Immediate income tax deduction.
•Increase cash flow from assets.
•Avoid capital gains tax.
•Discounted value for gift tax purposes.
Charity
•Substantial benefit received by charity.
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The Tools & Techniques of Charitable Giving
The Charitable Gift Annuity
•Income stream
Mom
&
Dad
• Low-yield appreciated
property
Manulife
Annuity
Charity
• Use increased
cash flow to fund
gifts to trust
Irrevocable
Wealth
Replacement
Trust
• Annuity
Re-insurance
Manulife
SUL
• Outright gift to charity.
• Tax-free
death benefit
• Donor receives a promise to pay.
• Term, life or lives.
• Immediate income tax deduction.
• Increase cash flow from assets.
Heirs
• Avoid capital gains tax.
• Substantial benefit received by charity.
• Regulatory challenges.
• Insurance opportunities.
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Charitable Giving
The End
Manulife Financial and the block design are registered service marks and trademarks of The
Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife
Financial Corporation. This material is for informational purposes only. For more detailed
information please contact your advisor. Manulife Financial or any of its agents, employees,
or registered representatives do not give legal, tax, investment, or accounting advice. The
information given here is merely a summary of our understanding of the current laws and
regulations. Prospective purchasers should consult their tax advisor.
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