Planned Giving Vehicles

Lead trust to the rescue?

Image result for lead trustsAhhhh…the graphic tells the whole story..right?  Look at the cool chart and understand how charitable lead trusts work?

Sorry, not this vehicle.

Read this short piece about an actual situation and hopefully you’ll begin to see why it’s worth learning more about lead trusts!

Recently, a client of mine had a donor looking to fund a program that needed $80,000 a year to be fully running.  The fundraisers even thought the donor was going to give $1 million to immediately endow it (they would find other funds operate it with more eventually coming from the donor’s future estate)!

But, as we know too often, the donor has the final say. So, when they met with the donor to close in on the whole gift, they were in for a surprise: donor’s advisors told him to put the $1 million into a charitable gift annuity.

Normally, a $1 million CGA is cause for celebration but not this time. What about the endowment to partially underwrite the program while the donor is still alive?

So, back to the donor they went.  Donor says no problem, I’ll just give you the CGA annuity each year to fund the program.

Sounds interesting but there’s a few problems. #1 The CGA rate for this donor is 6% – that’s $60,000 a year – short $20,000 a year to fund the program.  #2 If the donor is willing to give up the income each year to partially fund the program, why do a CGA? Just go back to the original plan and the donor gets a 100% income tax deduction with no future 1099 tax obligations (the CGA will cause taxable income with an offsetting annual deduction).

Also, this donor has no heirs and is essentially leaving the bulk of his estate to the charity.

Obviously, the donor’s advisors felt that he should hedge his bets – if need be, he could always keep the income.  So, there is bit of concern that the donor might need the income or assets in the future.

The deduction is important but not overwhelming important as the donor was willing to take the lesser CGA deduction, only around 30% of the million.

Anyway, what does this have to do with lead trusts??  No heirs to send the assets to. A CGA.

But wait.  Think about this option via a reversionary grantor lead trust we offered the donor in addition to the CGA option.

We ran a 10-year, 8% grantor lead annuity trust with remaining funds in the lead trust going back to the donor after the trust term (remember, most assets in the estate are going to the charity anyway).  (“Grantor” also means the donor gets an upfront deduction, but has to pay taxes on any income/gains incurred in the trust during the term)

Look what this option offered the donor and the charity:

  • $80,000 a year from the lead trust to fully fund the program.
  • Higher income tax deduction than the CGA (from $300k range to $400k range)
  • Donor control! The donor could trustee this himself (with help from his lawyers), meaning he could put an income producing asset in the trust like real estate which has enough income to pay the charity and upside growth potential!
  • All remaining funds/assets in the lead trust go back to the donor at the end of 10 years.

Downsides of the Lead Trust here?

  • Annual tax burden for the grantor lead trust significantly higher than the CGA (which has an offsetting annual income tax deduction for each year’s gift).
  • Much more complex gift – would require active attorney involvement throughout the trust.

Think about the possibilities?  Have you dealt with any unusual situations that could have been solved with a creative lead trust option?

Stay tuned for what actually happens (when I find out!).

CLICK HERE TO LEARN MORE ABOUT LEAD TRUSTS!

 

 

IRA giving can lower Medicare premiums as well as taxable income?

Image result for money ira rmd cartoonYes, for those over age 70.5 who are now required to take their RMDs (required minimum distributions) from retirement accounts, the extra income from the RMD could cause an increase in Medicare premiums!  In other words: if your age 70.5+ supporter sends his or her RMDs to your charity (you must reach that age to use this law!), they will not only be lowering their taxable income but also possibly lowering their medicare premium costs!  (IRA rollover gifts can be used to satisfy RMD requirements!)

Here is a good article on it that goes into the details on the medicare premium issue: http://www.investmentnews.com/article/20170221/BLOG05/170229982/using-iras-to-reduce-medicare-premiums

The point for fundraisers is this:  you need to get comfortable with IRAs and the basic retirement planning!  IRA rollover gifts can be up to $100,000! Your 70.5 and older donors should already be using it for annual gifts!

Anyway, if you haven’t noticed, I have given several presentation on the new tax plan and will be giving one again TOMORROW 6/13 at NOON EASTERN!  Click here to learn more or register (NOTE THAT IT WILL BE RECORDED AND ALL REGISTRANTS WILL RECEIVE THE RECORDING LINK, TOO, EVEN IF YOU REGISTER AFTERWARDS)

 

Q & A in Planned Giving Tomorrow – IRAs, RMDs, and QCDs – Familiar with these?

Image result for q & aRecently, I’ve starting submitting for the Q & A section in Planned Giving Tomorrow – Here’s my first submission….

QUESTION

We are looking at some RMD info related to Jane’s IRA account, and we are assuming that the school satisfies the QCD requirement, but just want to check.

ANSWER

Highly focused people (usually the successful ones) often miss the easy stuff in their focus on the bottom line: raising money now. The question above came to me via email from a top capital campaign consultant. He really knows his stuff. And yet, he had to ask me what RMD and QCD meant!

Do you know?

RMD is Required Minimum Distribution. That is an amount you are required (as an individual over age 70.5) to withdraw from your IRA and other qualified retirement accounts annually.

Why is this so important?

The IRA charitable rollover provision (which is, by the way, PERMANENT now if you hadn’t heard!) allows donors age 70.5 and older to give up to $100,000 to your charity directly from their IRAs. It doesn’t work for other retirement accounts—yet. It just so happens that the law allows donors to direct their RMDs (which would be fully taxable to them) to your charity without any taxes.  This assumes your charity is QCD eligible.

You know that one, right? QCD means Qualified Charitable Distributions. If you are a regular charity – not a Donor Advised Fund or a Supporting Organization—you are more than likely QDC eligible. In a nutshell, using the charitable rollover provision gives donors an opportunity to support a cause they care about and avoid taxes on their RMD! Donors in this age range get this. You should, too, as these can be easy $100,000 gifts. Even if your donor has already taken their RMDs (which you can’t un-take), using an IRA to make a gift to charity is still a great idea. Talk it up with your donors!

If you have interesting questions that you wouldn’t mind being published in this blog and/or in Planned Giving Tomorrow, email your Q’s to me at jonathan@plannedgivingadvisors.com.  And, check out Planned Giving Tomorrow by clicking here!

DON’T FORGET TO CHECK OUT OUR SUMMER LINE-UP OF WEBINAR PROGRAMS!

Interesting opportunities as a result of the new tax law

Image result for Interesting opportunities cartoonSlowly, we are starting to realize there are interesting opportunities as a result of the new tax law.  Many will take months or longer to come out.

Here is one – in addition to the most obvious that people with estate planning attorneys are likely going back to them as we speak:

No longer needed life insurance!

Yes, many life insurance policies were created specifically to pay any federal estate tax liability – saving the principal of the estate for the family.

But now the estate tax exemption just jumped to $11.2 million per person from $5.6 million per person.  In other words, anyone who had such a life insurance policy should be talking to their insurance/financial planner.  Why not do something charitable with that policy?

Want to get up to speed on the new tax law and various planned giving options?

CLICK HERE TO SEE MORE ON OUR NEXT PLANNED GIVING BOOT CAMP

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