Charitable GivingEffective Strategies for Philanthropy

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This material was written and prepared by Emerald.

Copyright by Emerald. All rights reserved. No part of this publication may be copied or distributed, transmitted, transcribed, stored in a retrieval system, transferred in any form or by any means—electronic, mechanical, magnetic, manual, or otherwise—or disclosed to third parties without the express written permission of Emerald, 12395 World Trade Drive, San Diego, California 92128-3743, U.S.A.

The information contained in this workbook is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from your own tax or legal counsel. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Emerald assumes no responsibility for statements made in this publication including, but not limited to, typographical errors or omissions, or statements regarding legal, tax, securities, and financial matters. Qualified legal, tax, securities, and financial advisors should always be consulted before acting on any information concerning these fields.

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Contents

© 2010 Emerald 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Workshop Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Our Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 About Your Workbook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Philanthropy in America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 How Much Do We Give? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 What Motivates People to Give? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Why Give Strategically ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Enhancing the Value of a Charitable Gift . . . . . . . . . . . . . . . . . . . . . . . 6

Charitable Giving Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Which Groups Can Benefit from Your Gift? . . . . . . . . . . . . . . . . . . . . . . . . . . 6 What Can You Give? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Advantages of Donating Highly Appreciated Assets . . . . . . . . . . . . . . . . . . . . 7

Gifting Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Seven Key Gifting Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Outright Gift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Outright Gift Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Gift of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Gift of Insurance Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Pooled Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Pooled Income Fund Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Charitable Remainder Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Charitable Remainder Annuity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Charitable Remainder Unitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Charitable Remainder Trust Considerations . . . . . . . . . . . . . . . . . . . . . . . . 12 Charitable Lead Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Charitable Lead Trust Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Wealth Replacement Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Wealth Replacement Trust Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 14 Private Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Private Foundation Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Other Gifting Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Which Gifting Strategy Is Appropriate for You? . . . . . . . . . . . . . . . . . . . . . . 15

Real-World Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 The Andersons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 The Turners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Figuring Out Your Net Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Figuring Out Your Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

What to Bring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .back cover

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Preview What Can You Give? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Advantages of Donating Highly Appreciated AssetsPreview Advantages of Donating Highly Appreciated Assets . . . . . . . . . . . . . . . . . . . .Preview . . . . . . . . . . . . . . . . . . . . 7Preview7

Gifting StrategiesPreviewGifting Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Preview8 Seven Key Gifting StrategiesPreview Seven Key Gifting Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Preview8 Outright GiftPreview Outright Gift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Preview8 Outright Gift ConsiderationsPreview

Outright Gift Considerations 8Preview

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Introduction

Workshop Objectives • Introduce • Educate • Illustrate

Our CommitmentOur organization is committed to helping people evaluate their financial

situations and giving them the tools to help them make informed decisions. As

part of that commitment, we use workshops like this one to provide individuals

with sound financial information. This will help you identify your goals and

make wise decisions to improve your financial situation.

We follow up this session with a meeting in our offices. This is a compli-

mentary consultation we offer to everyone who attends our workshops. During

that consultation, we can discuss any questions you have as a result of the

workshop. If you prefer, we can use that time to examine your specific situation

and begin the process of helping you formulate a financial strategy that will suit

your needs.

About Your WorkbookThe workbook is designed to help you apply what you learn to your specific

situation. It’s yours to keep. It reinforces the workshop’s major points and will be

a valuable resource for you.

Throughout the workbook, you’ll see informative graphics. They

come directly from the workshop slides, making it easy for you to

follow the presentation. Later, these graphics will be reminders of the

workshop’s important points.

The workbook has wide margins so you can take notes. Feel free to

underline or circle items you may have questions about.

You’ll find helpful exercises, worksheets, and self-analysis

quizzes in the workbook. These materials will make your workshop

experience interesting, informative, and most important, valuable.

4 © 2010 Emerald

“It’s easier to make money than to give it away.”

— Bill Gates

Source: Newsweek, February 4, 2002

Previewmake wise decisions to improve your financial situation.

Previewmake wise decisions to improve your financial situation.

We follow up this session with a meeting in our offices. This is a compli-PreviewWe follow up this session with a meeting in our offices. This is a compli-

mentary consultation we offer to everyone who attends our workshops. During Previewmentary consultation we offer to everyone who attends our workshops. During

that consultation, we can discuss any questions you have as a result of the Previewthat consultation, we can discuss any questions you have as a result of the

workshop. If you prefer, we can use that time to examine your specific situation Previewworkshop. If you prefer, we can use that time to examine your specific situation

“It’s easier to make Preview“It’s easier to make money than to Previewmoney than to give it away.”Previewgive it away.”

America is a nation of givers. It’s estimated that 70–80 percent of American

households give to charity each year. The average American household contributes

more than $1,000 annually.1

How Much Do We Give?In 2008, U.S. charitable giving reached

$307 billion. About 75 percent of the money

was donated by individuals. Corporations,

foundations, and bequests provided the rest.2

What Motivates People to Give? • Meet philanthropic goals • Help the less fortunate • Give back to the community • Support causes and interests such as religion, art, science, education • Establish a family legacy of giving

Why Give Strategically?There are a number of reasons why strategic giving can

benefit both the giver and the receiver, as well as the giver’s

heirs. The method you choose will have different income tax,

gift tax, and estate tax consequences.

• May enhance the value of the gift to charity • Can help reduce your income tax liability • May generate income during your lifetime • Can help you reduce estate taxes and leave a greater legacy

© 2010 Emerald 5

Philanthropy in America

Sources: 1) The American, March/April 20082) Giving USA 2009, Giving USA Foundation

Inspirational Words

“In faith and hope the world will disagree, but all mankind’s concern is charity.”

— Alexander Pope, Words of Wisdom

“No act of kindness, no matter how small, is ever wasted.”

— Aesop

Source: JustGive.org

75%Individuals

Bequests

Foundations

Corporations

7%13%

5%

PreviewWhat Motivates People to Give?PreviewWhat Motivates People to Give?

Sources:

PreviewSources: 1) Preview1) The American,PreviewThe American, March/April 2008Preview March/April 20082) Preview2) Giving USA 2009, PreviewGiving USA 2009, Giving USA FoundationPreviewGiving USA FoundationPreviewPreviewPreview

75%

Preview75%

Individuals

PreviewIndividuals

To make a charitable gift more effective, donors should consider these three critical areas:

Enhancing the Value of a Charitable Gift

Charitable Giving Basics • Which groups can benefit from your gift? • What can you give?

Which Groups Can Benefit from Your Gift?Of course, you can give assets to anyone or any group you wish. But in order

to retain the tax benefits associated with charitable giving, contributions need to be made to qualifying tax-exempt organizations or institutions that meet certain criteria and have been organized in the United States.

• The United States, a state, a local government, the District of Columbia, or a U.S. possession for exclusively public purposes • Corporation, trust, or community chest, fund, or foundation • Organization of war veterans or an auxiliary society/unit • Domestic fraternal society, order, or association • Certain nonprofit cemetery companies

Qualifying charitable organizations generally must be operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international sports competition, or for the prevention of cruelty to children or animals.

Potential recipients of charitable gifts might include a church or religious organization, a homeless shelter, a college or museum, a hospital or medical research organization, an emergency energy program, a volunteer fire department, a public park or recreational facility, or a civil defense organization.

Charitable Giving Basics

CHARITABLE GIVING BASICS

GIFTING STRATEGIES

REAL-WORLD SITUATIONS

1

2

3

“We make a living by what we get, but we make a life by what we give.”

— Sir Winston Churchill

Source: brainyquote.com

QUALIFIED ORGANIZATIONS

Source: 2010 U.S. Master Tax Guide, CCH Incorporated

6 © 2010 Emerald

PreviewCharitable Giving BasicsPreviewCharitable Giving Basics Preview • Which groups can benefit from your gift? Preview• Which groups can benefit from your gift? • What can you give? Preview • What can you give? PreviewPreview

What Can You Give?

Remember that the tax deduction for your charitable gift will be determined

in part by the type of property you give and the type of entity receiving the gift.

Advantages of Donating Highly Appreciated AssetsBefore deciding what to donate, it’s a good idea to become aware of the

advantages of donating highly appreciated assets. Generally speaking, the more

you donate, the higher the tax deduction for which you may qualify, as long as the

donation is made to a qualifying charitable organization.

If you donate highly appreciated assets during your lifetime, you may also be

able to help reduce or avoid capital gains taxes, thus potentially enhancing the

value of your gift and increasing your tax savings.

The example below shows how donating appreciated assets could enhance the

tax benefits of a charitable contribution.

Charitable Giving Basics

Gross GivingCharitable giving accounted for roughly 2.2% of gross domestic product in 2008.

Source: Giving USA 2009, Giving USA Foundation

Cash and cash equivalents

Businessinterest

Artwork Precious stones and metals

Other personal property

Marketable securities

Real estate Life insurance

SELL STOCK AND DONATE CASH

DONATE STOCK

This hypothetical example is used for illustrative purposes only. Actual results will vary. It assumes a taxpayer in the 28% federal income tax bracket and a 15% long-term capital gains tax rate. In the example of donating cash, the total tax savings reflects the tax deduction less the capital gains taxes that would be owed. In order to receive the benefits of a charitable tax donation, you must itemize your tax return instead of taking the standard deduction. Before taking any specific action, you should consult with your tax advisor.

Stock value $100,000 $100,000

Capital appreciation $ 90,000 $ 90,000

Capital gains tax (15%) $ 13,500 $ 0

Total contribution $ 86,500 $100,000

Tax deduction (28% rate) $ 24,220 $ 28,000

Total tax savings $ 10,720 $ 28,000

© 2010 Emerald 7

PreviewRemember that the tax deduction for your charitable gift will be determined PreviewRemember that the tax deduction for your charitable gift will be determined

in part by the type of property you give and the type of entity receiving the gift.Previewin part by the type of property you give and the type of entity receiving the gift.

Gross Giving

PreviewGross GivingCharitable giving PreviewCharitable giving accounted for Previewaccounted for roughly 2.2% of Previewroughly 2.2% of gross domestic Previewgross domestic product in 2008.Previewproduct in 2008.PreviewPreview

interest

Previewinterest and metals

Previewand metals property

Previewproperty

Gifting Strategies

Seven Key Gifting Strategies

Outright GiftAn outright gift is the simplest of all gifts to carry out. The donor just transfers

cash, writes a check, fills out a credit-card slip, or transfers title of an asset to the

charitable organization. The charity can use the gift immediately, and the donor

receives a current income tax deduction for the gift.

Outright Gift ConsiderationsIf you are contemplating an outright gift, keep in mind the following:

• No size limits

• Gift is tax deductible, within certain limits, up to 50% of adjusted gross income

• Documentation is required for all cash donations

• Assets are removed from taxable estate

• No retained interest in gift

Outright gifts are tax deductible, usually up to 50% of your income in a given year, although you may be limited to 20% or 30% of your income, depending on the type of property you donate and the type of charitable organization you choose.

8 © 2010 Emerald

Tax Deduction Lowers Cost of

DonationA tax deduction

from an outright gift lowers the cost

of a donation.

Donor

Gift

Tax deduction

Charitable organization

1

2

3

4

5

6

7

Outright gift

Gift of insurance

Pooled income fund

Charitable remainder trust

Charitable lead trust

Wealth replacement trust

Private foundationPreviewOutright GiftPreviewOutright GiftAn outright gift is the simplest of all gifts to carry out. The donor just transfers PreviewAn outright gift is the simplest of all gifts to carry out. The donor just transfers PreviewPreview7Preview7 Private foundationPreviewPrivate foundation

Gift of InsuranceA gift of insurance is another, potentially more effective method for giving

— especially if you would like to be able to donate more than you currently have

available to give.

With a gift of insurance, you make your favorite charitable organization the

owner and/or beneficiary of a life insurance policy. When you die, the death

benefit goes directly to the charitable group, which generally results in a

substantially larger future gift in exchange for your paying the premiums on

the policy. If the charity is named as the owner and beneficiary of the policy,

you can receive an income tax deduction for the premiums you pay, within

certain limits.

Gift of Insurance ConsiderationsIf you are contemplating a gift of insurance, there are

some considerations to keep in mind:

• Can significantly increase the value of the gift

• Premiums are generally tax deductible

• No retained interest in the gift

© 2010 Emerald 9

Gifting Strategies

The cost and availability of life insurance depend on factors such as age,

health, and the type and amount of insurance purchased. Before implementing

a strategy involving life insurance, it would be prudent to make sure that you

are insurable.

Charitable organization

Donor

Premiums Death benefitPolicy

Previewcertain limits.

Previewcertain limits.

PreviewPreview

Gifting Strategies

10 © 2010 Emerald

Pooled Income FundOne strategy that enables you to make a donation yet still receive a benefit

from the donated asset during your lifetime is a pooled income fund.

A pooled income fund combines the contributions (typically cash or

marketable securities) of several donors into one large trust, managed by the

charitable organization. Donors can claim a charitable tax deduction for part of

their donations, and the trust gives the donors a proportionate share of the fund’s

total earnings each year as income. Donors receive this income for the rest of

their lives. Note that this annual income is taxable. When a donor dies, his or her

property belongs to the charitable organization.

Pooled Income Fund ConsiderationsIf you are thinking of giving through a pooled income fund, you should keep

several things in mind:

• Can receive lifetime income from the fund

• Income varies based on investment performance

• Fund is managed by the charity

• No capital gains taxes on appreciated assets

• Contributions are partially tax deductible

• Irrevocable donation

Donors

Charitable organization

Income

Trust

FundPreviewPreviewPreviewFundPreviewFund

Charitable Remainder TrustA charitable remainder trust (CRT) is another popular gifting strategy. Like a

pooled income fund, it offers a way to donate property and continue to receive an

income during your lifetime.

Here’s how it works. An individual makes a gift to a CRT, naming the charitable

organization as the beneficiary. For a specific number of years or the duration

of the donor’s lifetime (or the joint lives of the donor and his or her spouse or

selected beneficiary), the donor receives regular payments from the trust; this

annual income is taxable. The donor may take an income tax deduction, subject

to certain limits, on a portion of the value of the donated assets for the tax year in

which the trust was created. At the end of the trust period, which is often after the

donor’s death (or the death of the surviving spouse or selected beneficiary), the

remaining assets in the trust go to the charitable organization.

There are two types of charitable remainder trusts: a charitable remainder annuity

trust (CRAT) and a unitrust (CRUT). Both make regular annual payments, but the

income they provide can be fixed (with a CRAT) or variable (with a CRUT).

Charitable Remainder Annuity TrustA CRAT pays a fixed dollar amount (or a fixed percentage) of the original

value of the trust to the donor (or selected beneficiary) each year, so the income

provided by the trust is fixed, rather than variable.

Charitable Remainder UnitrustA CRUT pays a set percentage of the trust’s annual fair market value to the donor

(or selected beneficiary) as income. Because the value of the unitrust changes each

year and is recalculated on an annual basis, the donor’s income can vary from year

to year, depending on the performance of the investments in the trust.

Gifting Strategies

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing any trust strategies.

Donor

Property

Trust

Income

Property Charitable organization

© 2010 Emerald 11

PreviewHere’s how it works. An individual makes a gift to a CRT, naming the charitable PreviewHere’s how it works. An individual makes a gift to a CRT, naming the charitable

organization as the beneficiary. For a specific number of years or the duration Preview

organization as the beneficiary. For a specific number of years or the duration PreviewDonorPreviewDonor IncomePreviewIncome

Property

PreviewProperty Charitable

PreviewCharitable

organizationPrevieworganization

Gifting Strategies

12 © 2010 Emerald

Charitable Remainder Trust ConsiderationsIf you are thinking about giving through a charitable remainder trust, there are

some factors to keep in mind:

• Can provide income for a set term or life

• Receive fixed or variable annual income

• No capital gains taxes on highly appreciated assets

• Contributions to trust are partially tax deductible (subject to certain limits)

• May help reduce future estate taxes

• Irrevocable donation

Charitable Lead TrustA charitable lead trust is an alternative strategy in which you can donate the

income from a gift while retaining ownership of the principal. This type of trust

can be a valuable tool for individuals who don’t need income from a particular

asset during their lifetimes, but want to leave the assets to their heirs.

Basically, you place income-producing assets in a trust, and income generated

by the assets is donated to a charitable organization for the duration of the trust.

Upon termination of the trust, the remaining trust assets return to you or pass to

your chosen beneficiaries. This strategy can help reduce, or in some cases even

eliminate, gift and estate taxes on appreciated assets that are eventually transferred

to your heirs.

Donor

Property

Trust

Income

Beneficiaries

Property

Charitable organization

Preview • Irrevocable donation

Preview • Irrevocable donation

Charitable Lead TrustPreviewCharitable Lead TrustA charitable lead trust is an alternative strategy in which you can donate the PreviewA charitable lead trust is an alternative strategy in which you can donate the

Charitable Lead Trust ConsiderationsConsider these factors if you are considering a charitable lead trust:

• Assets eventually return to beneficiaries

• Helps reduce or eliminate gift and estate taxes

• Provides a current gift to charity

• Lose present interest in property during life of the trust

• Not tax exempt...you may owe capital gains taxes on highly appreciated assets sold by the trust

• Irrevocable donation

Wealth Replacement TrustA wealth replacement trust is designed to replace the assets that a donor’s heirs

would have received if a gift had not been made to charity. It is used most often

by people who are donating appreciated assets to charitable organizations using a

charitable remainder trust or a pooled income fund.

Donors who use this strategy create an irrevocable wealth replacement trust.

The trust purchases a life insurance policy, with the trust named as beneficiary

of the death benefit (which generally has a face value equal to the value of the

property given to charity), and the donor’s heirs are named as beneficiaries of the

wealth replacement trust. If a wealth replacement trust is used in combination

with a charitable remainder trust, the income generated from the CRT could be

used to pay the life insurance policy premiums.

When the donor passes away, the death benefit paid to the wealth replacement

trust is distributed to the donor’s beneficiaries free of estate taxes, and the

charitable organization receives the property originally donated to the CRT.

Gifting Strategies

Philanthropy WarsAndrew Carnegie and John D. Rockefeller, two of the greatest philanthropists in American history, were rivals in the field of giving.

Over their lifetimes, Carnegie gave away about $350 million and Rockefeller $540 million.

Source: www.pbs.org

Donor

Property

Property

Income

Life insurance policy

Charitableremainder trust

Wealthreplacement trust Beneficiaries

Charitable organization

© 2010 Emerald 13

PreviewWealth Replacement TrustPreviewWealth Replacement TrustA wealth replacement trust is designed to replace the assets that a donor’s heirs PreviewA wealth replacement trust is designed to replace the assets that a donor’s heirs

would have received if a gift had not been made to charity. It is used most often Previewwould have received if a gift had not been made to charity. It is used most often

by people who are donating appreciated assets to charitable organizations using a Previewby people who are donating appreciated assets to charitable organizations using a

John D. Rockefeller,

PreviewJohn D. Rockefeller, two of the greatest Previewtwo of the greatest philanthropists in Previewphilanthropists in American history, PreviewAmerican history, were rivals in the Previewwere rivals in the field of giving. Previewfield of giving.

Gifting Strategies

Wealth Replacement Trust ConsiderationsWhen structured properly and used in conjunction with a CRT, a wealth

replacement trust can make it possible to accomplish many goals:

• Donate appreciated assets to charity

• Avoid capital gains taxes on appreciated assets

• Receive income from assets during lifetime

• Provide beneficiaries with life insurance death benefit (replacing value of assets given to charity)

• Avoid estate taxes on assets in wealth replacement trust

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

Private FoundationWith a private foundation, donors use their money to establish their own

charities. This strategy can give the donor greater control over how the charitable

contributions are used, and the donor can memorialize his or her own name, the

family name, or the name of a loved one over and over again.

Private foundations generally make contributions through grants to other

nonprofit organizations that support education, society, charity, religion, or

community service. The donor can also make contributions to several charities

using an asset that is difficult to divide, such as real estate. With a private

foundation, a donor can respond quickly to unexpected needs in the community,

such as a fire or flood.

When the donor dies, control of the foundation can pass to his or her heirs,

thus establishing a legacy of giving for future generations.

Private Foundation Considerations • Establish a family tradition of giving

• Founder may retain control

• Donations are tax deductible (the foundation must be recognized by the IRS)

• Requires substantial time, effort, and money to create and oversee

Gates Foundation BY THE NUMBERS

With more than $30 billion in its

treasure chest, the Bill & Melinda Gates

Foundation gave more than

$2.8 billion in 2008 grant payments:

• $1.8 billion to global health causes

• $462 million for global development

• $519 million for U.S. programs

Source: Bill & Melinda Gates

Foundation, 2009

14 © 2010 Emerald

PreviewThe cost and availability of life insurance depend on factors such as age, health, and the type and amount of

PreviewThe cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make Previewinsurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.Previewsure that you are insurable.

Private FoundationPreviewPrivate Foundation

With more than

PreviewWith more than

$30 billion in its

Preview$30 billion in its

treasure chest, the Previewtreasure chest, the Bill & Melinda Gates PreviewBill & Melinda Gates

Foundation PreviewFoundation gave more than Previewgave more than

$2.8 billion in Preview$2.8 billion in

Gifting Strategies

© 2010 Emerald 15

Other Gifting Strategies Bequest: A charitable donation (money, a specific asset, or a portion of an

estate) made by an individual through his or her will. A bequest is revocable during the donor’s lifetime and goes into effect only after the donor’s death.

Charitable gift annuity: A contractual agreement entered into by a donor and the charity of his or her choosing. In exchange for the donation, the charity agrees to pay the donor a guaranteed income for life.

Community foundation: A grant-making organization that attracts large contributions to benefit a particular community or area. It is generally run by a board of directors or trustees, which distributes the funds to area charities.

Supporting organization: Typically, a subcategory of a public charity. It gives founders and their descendants the opportunity to support their chosen causes through grants and distributions.

Donor-advised fund: Similar to a private foundation, but doesn’t require the time and effort to oversee the fund. Typically, these restricted accounts allow donors to make recommendations or to advise a college, community foundation, or public charity how the charitable donations should be distributed and used.

Which Gifting Strategy Is Appropriate for You? Determining the most appropriate gifting strategy depends on what you hope to

achieve with your gift. Consider whether you want to:

• Maximize your gift to charity

• Maintain control of your donation

• Increase your income during your lifetime

• Reduce your income taxes

• Preserve your estate for your heirs

Remember, the method you choose will have different consequences.

List your giving objectives in order of importance:

Goal 1.

2.

3.

4.

5.

PreviewSupporting organization:

PreviewSupporting organization: Typically, a subcategory of a public charity. It gives

Preview Typically, a subcategory of a public charity. It gives

founders and their descendants the opportunity to support their chosen causes

Previewfounders and their descendants the opportunity to support their chosen causes through grants and distributions.Previewthrough grants and distributions.

Donor-advised fund:PreviewDonor-advised fund: Similar to a private foundation, but doesn’t require the Preview Similar to a private foundation, but doesn’t require the time and effort to oversee the fund. Typically, these restricted accounts allow Previewtime and effort to oversee the fund. Typically, these restricted accounts allow donors to make recommendations or to advise a college, community foundation, Previewdonors to make recommendations or to advise a college, community foundation,

Real-World Situations

16 © 2010 Emerald

The Andersons This 55-year-old couple has an income of $85,000 per year from Mr. Anderson’s

job. Mrs. Anderson runs the household; their two children are attending a local

university. The couple own a home but have few other real assets.

Mr. Anderson was recently promoted, and the Andersons would like to make a

gift to their favorite charitable organization. Although the couple is attracted by the

tax advantages offered by the charitable gift, tax savings is not their real motivation.

They simply want to share their good fortune.

The Andersons could use their $8,500 annual donation to have their chosen

charity purchase a $150,000 life insurance policy on Mr. Anderson’s life. The

charity would be the owner and beneficiary of the life insurance death benefit.

The Andersons would fund the policy with five annual payments of $8,500 each,

for a total cost of $42,500.

Because the charitable organization is the owner and beneficiary of the policy,

the premium payments are fully deductible from the Andersons’ income taxes

and will generate $10,625 in tax savings during the five years that they make

annual payments (assuming a 28 percent tax rate). Upon Mr. Anderson’s death, the

organization will receive the $150,000 death benefit.

In this situation, the advantages of giving life insurance are clear.

Although an outright gift of insurance will generally produce the same income

tax savings as an outright gift of cash, the gift to the charitable organization

increases with life insurance. In this case, it increases to $150,000 with life

insurance.

This hypothetical example is used for illustrative purposes only. Actual results will vary. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent for an individual to make sure that he or she is insurable.

(1) Want to make gift to favorite charity. (2) Share their good fortune. (3) Can afford $8,500 per year.

Outright gift of insurance.

SITUATION

STRATEGYPreviewPreview (2) Share their good fortune.

Preview (2) Share their good fortune. (3) Can afford $8,500 per year.Preview (3) Can afford $8,500 per year.

Preview Outright gift of insurance. PreviewOutright gift of insurance. PreviewPreviewSTRATEGYPreviewSTRATEGYPreview

The TurnersThe Turners are both 52 years old with two married children. The couple

has a combined annual taxable income of $125,000. About 15 years ago, they purchased $60,000 worth of common stock with the money that Mrs. Turner inherited from her family. Over the years, the value of the stock has risen to $300,000 and currently pays annual dividends of $5,000. They want to leave their stock to a charitable organization upon their deaths.

If the Turners sold their $300,000 of stock, they would have to pay $36,000 in

capital gains taxes. The remaining $264,000 could be reinvested in a diversified

portfolio projected to provide a hypothetical 6 percent income with 2 percent

growth. This portfolio would provide them with a $19,600 annual income over

the next 20 years ($392,500 total). During the same time period, the total value

of the portfolio would rise to $392,300. According to provisions in their will, the

portfolio would be given to the charitable organization upon their deaths.

Alternatively, if they utilized a charitable remainder unitrust, they could

accomplish more of their goals. They could place their stock in a charitable

remainder unitrust and direct the trustee to sell the stock. The full $300,000

would be reinvested in the same diversified portfolio. In addition to avoiding

$36,000 in capital gains taxes, they would receive $26,180 worth of income tax

deductions. Over 20 years, their total income would increase from $392,500 to

$437,400 ($21,900 annual income). The total value of the portfolio would rise to

$445,800 over this period. Upon their deaths, the entire portfolio would pass to

the charitable organization.

By using a charitable remainder trust to donate their gift, the Turners’ total

benefit package — the gift, the income tax savings, and their total income over

20 years — increased by $160,580 more than the total benefit package without a

charitable remainder unitrust.

This hypothetical example is used for illustrative purposes only. Actual results will vary. For convenience, all dollar amounts have been rounded to the nearest hundred dollars. The example uses a 15% capital gains tax rate and a 20-year life expectancy. The deduction for the charitable contribution is based on a 20-year term-certain charitable remainder unitrust factor with a 6% hypothetical annual income and a 2% annual growth rate. The average income figure is the average of the income for each of the 20 years of the projected life of the trust. Deductions are based on a 28% income tax rate. When charitable gifts of capital gain property are given to organizations classified as “50% limit organizations” (such as schools, recognized educational organizations, and hospitals), annual deductions are limited to 30% of adjusted gross income.

Real-World Situations

(1) Reduce their tax liability. (2) Increase their income. (3) Give back to the community.

Charitable remainder unitrust.

GOALS

STRATEGY

© 2010 Emerald 17

PreviewPreviewIf the Turners sold their $300,000 of stock, they would have to pay $36,000 in PreviewIf the Turners sold their $300,000 of stock, they would have to pay $36,000 in

capital gains taxes. The remaining $264,000 could be reinvested in a diversified Previewcapital gains taxes. The remaining $264,000 could be reinvested in a diversified

portfolio projected to provide a hypothetical 6 percent income with 2 percent Previewportfolio projected to provide a hypothetical 6 percent income with 2 percent Preview Charitable remainder unitrust. Preview Charitable remainder unitrust. PreviewPreviewSTRATEGYPreviewSTRATEGYPreview

How much of your discretionary monthly income are you investing or saving each month? $ ____________________

18 © 2010 Emerald

How much discretionary income do you have available after your monthly

obligations are met? Can you account for where the money goes? Some people

are surprised at the amount they should be able to save and invest each month

but don’t. Analyze your cash flow for the current month. Because income and

expenses can vary from month to month, you may wish to estimate your cash

flow through all 12 months or take a 12-month average.

Figuring Out Your Net Cash Flow

Monthly Income Wages, salary, tips $

Alimony, child support $

Dividends from stocks, mutual funds, etc. $

Interest on savings accounts, bonds, CDs, etc. $

Social Security benefits $

Pensions $

Other income $

TOTAL MONTHLY INCOME $

Monthly Expenses Mortgage payment or rent $ Vacation home mortgage $ Automobile loan(s) $ Personal loans $ Charge accounts $ Federal income taxes $ State income taxes $ FICA (Social Security) $ Real estate taxes $ Other taxes $

Utilities (electricity, heat, water, telephone, etc.) $

Household repairs and maintenance $ Food $ Clothing/laundry $ Education expenses $ Child care $

Automobile expenses (gas, repairs, etc.) $

Other transportation $ Life insurance $ Homeowners insurance $ Automobile insurance $

Medical, dental, disability insurance $ Unreimbursed medical, dental expenses $ Entertainment/dining $ Recreation/travel $ Club dues $ Hobbies $ Gifts $

Major home improvements and furnishings $ Professional services $ Charitable contributions $ Other expenses $

TOTAL MONTHLY EXPENSES $

NET CASH FLOW

Total monthly income $

Total monthly expenses $

Discretionary monthly income $ (Subtract your expenses from your income)

PreviewPreviewPreviewPreviewPreviewPreviewPreviewPreview Interest on savings accounts, bonds, CDs, etc. $

Preview Interest on savings accounts, bonds, CDs, etc. $ Interest on savings accounts, bonds, CDs, etc. $

Preview Interest on savings accounts, bonds, CDs, etc. $

Social Security benefits $

Preview Social Security benefits $ Social Security benefits $

Preview Social Security benefits $

Pensions $Preview Pensions $ Pensions $Preview Pensions $

Other income $Preview Other income $ Other income $Preview Other income $

TOTAL MONTHLY INCOMEPreviewTOTAL MONTHLY INCOME $Preview $ $Preview $Preview Monthly Expenses

Preview Monthly Expenses

Preview

19

How much are you worth? Just as corporations prepare a balance sheet to deter-

mine their current net worth, you may want to complete a personal balance sheet.

Set a goal for yourself.

What would you like your net worth to be in 5 years? $ _________________

What would you like it to be in 10 years? $ _________________

Figuring Out Your Net Worth

Tangible Assets

Residence $

Vacation home $

Furnishings $

Automobiles $

Rental real estate $

Art, jewelry, or other valuables $

Equity Assets

Qualified retirement funds $

Stocks $

Equity mutual funds $

Variable life insurance (cash value) $

Variable annuities $

Limited partnerships $

Business interests $

Liabilities

Home mortgage $

Other mortgage $

Automobile loans $

Bank loans $

Personal loans $

Charge-account debt $

Other debts $

TOTAL LIABILITIES $

NET WORTH

Total assets $

Total liabilities $

NET WORTH $ (Subtract your liabilities from your assets)

U.S. government bonds and agency securities $

Municipal bonds $

Corporate bonds $

Face amount certificates $

Debt mutual funds $

Fixed-Principal Assets

Fixed-interest annuities $

Life insurance (cash value) $

Other assets $

Cash and Cash Equivalents

Checking accounts $

Savings accounts $

Money market funds $

Certificates of deposit $

Other cash reserve accounts $

TOTAL ASSETS $ (Add tangible, equity, fixed principal, debt assets, and cash)

Debt Assets

PreviewPreviewPreviewPreviewPreview Equity AssetsPreview Equity AssetsPreviewPreviewPreviewPreview Qualified retirement funds $Preview Qualified retirement funds $ Qualified retirement funds $Preview Qualified retirement funds $

Stocks $Preview Stocks $ Stocks $Preview Stocks $PreviewPreviewCash and Cash Equivalents

PreviewCash and Cash Equivalents

PreviewPreviewPreviewPreviewPreviewPreviewPreview Checking accounts $Preview Checking accounts $ Checking accounts $Preview Checking accounts $

Savings accounts $Preview Savings accounts $ Savings accounts $Preview Savings accounts $

Money market funds $Preview Money market funds $ Money market funds $Preview Money market funds $

Certificates of deposit $Preview Certificates of deposit $ Certificates of deposit $Preview Certificates of deposit $Preview

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Your consultation is scheduled for:

_________________________________Date Time

NGS-013-07-000000

What to BringPlease bring the following documents to your consultation:

PreviewPreviewPreviewPreviewPreviewPreviewPreviewPreviewPreviewPreviewPreviewPreview 2.Preview 2. 2.Preview 2. 2.Preview 2.

3.Preview 3. 3.Preview 3. 3.Preview 3.

4.Preview 4. 4.Preview 4. 4.Preview 4.