Download 1 The Case for Planned Giving PowerPoint (Tuesday Morning)

Planned and Endowment
Giving: The Case
Philip M. Purcell, JD
Ball State University Foundation
[email protected]
Copyright 2012@All rights reserved.
.
The Case for Planned Giving
for your Organization
Sources of Gifts
Charitable giving in
billions of $, 2010
Sources of revenue for
reporting public charities, 2008
Source: Urban Institute, National Center for Charitable Statistics, Core
Files (2008) in Kennard Wing, Katie L. Roeger, Thomas H. Pollak, The
Nonprofit Sector in Brief: Public Charities, Giving and Volunteering,
Urban Institute, 2010. & Giving USA 2011.
Intergenerational Wealth Transfer
WWII
Generation
Baby
Boomers
Estimated $20+ trillion will be
transferred over next two decades
1998
2018
Generation
X&Y
As much as $6 trillion
expected to be
transferred to
philanthropic
purposes
2052
Social Capital
• Gift planning can
minimize taxes by
increasing charitable gifts
as “social capital”.
• Planned gifts offer unique
opportunities to
maximize support for
charitable organizations
during the wealth
transfer!
While annual giving programs focus
on gifts of cash from annual income…
Planned and major giving
programs focus on gifts of
assets …
Portfolios of the Wealthy
($1,000,000 or more. Percentage value of Portfolio
Components)
Federal Reserve Information Released • February 2003 •
Business Interests
24%
Life Insurance
8%
Stock & Bonds
22%
Real Estate 27%
Update, 5
Fundraising Pyramid:
The Lost Symbol?
Planned Gifts______________________
Major Gifts______________________
Increased/Repeat Annual Gifts_____
First Time Gifts_______________
Benefits of Planned Giving to
the Nonprofit
•
•
•
•
Increases available options of giving
Planned gifts tend to be large gifts
Acquire donors/assets not otherwise available
Often produces “actual-received” gifts on a regular
basis for operating expenses
• Often leads to increased future gifts through donor’s
additional estate and charitable planning
Sec. 1, 13
Benefits to Nonprofit
• Increases possibility of a donor moving a
bequest to a lifetime gift
• May be irrevocable as well as revocable
• May be used as a basis for future planning
• Frequently have promotional value
How Planned Giving Stimulates
Current (Cash) Giving
• No one cares more about the success of
the charity than someone who has made
a major/significant gift commitment
• Planned gift donors position themselves
for nurturing and personal attention
• Those donors want to be informed of the
successes and needs of the charity
• Planned gifts often increase the donor’s
cash flow; may be available for current
giving
Sec. 1, 11
Current Use Planned Gifts
• Some planned gifts are designed to produce
only current gifts, such as:
1. Gifts of assets
2. Charitable endowments
3. Charitable lead trusts
The Case for Planned Giving
for Donors
Definition of Planned Gifts
(Partnership for Philanthropic Planning)
• Planned gifts are a variety of charitable giving
methods that allow donors to express their
personal value by integrating their charitable,
family and financial goals.
• Uses variety of financial tools/techniques for
giving and requires the assistance of qualified
specialists.
• Utilizes tax incentives when appropriate.
Ethical Considerations
• Oversight by Congress, IRS, State Legislatures and
State Attorney Generals
• Model Standards of Practice for the Charitable Gift
Planner (Partnership for Philanthropic Planning)
• Model Code of Ethics for Nonprofit Organizations
(Independent Sector)
• Code of Ethical Principles and Standards
(Association of Fundraising Professionals)
A Donor Bill of Rights
Philanthropy is based on voluntary action for the common good. It is a tradition of giving and sharing that is
primary to the quality of life. To assure that philanthropy merits the respect and trust of the general public,
and that donors and prospective donors can have full confidence in the not-for-profit organizations and causes
they are asked to support, we declare that all donors have these rights:
•
•
•
•
•
To be informed of the organization’s mission, of the
way the organization intends to use donated
resources, and of its capacity to use donations
effectively for their intended purposes.
To be informed of the identity of those serving on
the organization’s governing board, and to expect
the board to exercise prudent judgment in its
stewardship responsibilities.
To have access to the organization’s most recent
financial statements.
To be assured their gifts will be used for the
purposes for which they were given.
To receive appropriate acknowledgment and
recognition.
•
•
•
•
•
To be assured that information about their
donations is handled with respect and with
confidentiality to the extent provided by law.
To expect that all relationships with individuals
representing organizations of interest to the
donor will be professional in nature.
To be informed whether those seeking donations
are volunteers, employees of the organization or
hired solicitors.
To have the opportunity for their names to be
deleted from mailing lists that an organization
may intend to share.
To feel free to ask questions when making a
donation and to receive prompt, truthful and
forthright answers.
DEVELOPED BY: American Association of Fundraising Counsel (AAFRC), Association for Healthcare Philanthropy (AAHP), Council for
Advancement and Support of Education (CASE), Association of Fundraising Professionals (AFP).
INITIAL ENDORSERS: Independent Sector, National Catholic Development Conference (NCDC), National Committee on Planned Giving (NCPG),
National Council for Resource Development (NCRD), United Way of America.
Introduction, 31
Profile of the Planned Gift Donor
• Loyal annual giver.
• Age 45 and up. The
“Boomer” Generation.
• College education.
• Wealth – but remember
that the planned gift
may be the largest gift a
donor may make!
Customized Planned Giving
• Charitable gift planning is a “customized”
process to meet the unique estate planning
goals of each donor.
• Donors decide important aspects such as:
1. Timing
2. Type
3. Assets
4. Use
With Gift Planning, the Donors Decide
the Timing of Their Gifts
• Gifts may be contributed during lifetime (inter
vivos gifts) or at death (testamentary gifts).
• Gifts may be motivated to reduce taxes during
high income years such as sale of a business.
• Gifts may coincide with life events such as
retirement, receipt of inheritances, loss of a
loved one, marriage and special needs.
The Donor Selects Type of Plan
1. Gifts that Help Now: Outright Gifts,
Endowments and Lead Trusts
2. Gifts that Help Later: Bequests in a Will or Trust
plus Other Deferred Gifts such as Beneficiary of
Life Insurance or Retirement Plans, Payments on
Death, Remainder Interests in Real Estate
3. Gifts that Pay Income: Gift Annuities, Charitable
Remainder Trusts and Pooled Income Funds
Donor Chooses Assets Used
for the Gift Plan
• Gifts of appreciated assets such as stock and real
estate allows the donor to escape potential
capital gains tax.
• Planned gifts may convert non incomeproducing assets into a dependable source of
lifetime income.
• Gifts with potential liability or unwanted donor
restrictions may be declined.
Donor Recommends Use of the Gift
• Gifts can be contributed to the annual campaign,
a special initiative, or an area of focus.
• Many planned gifts are designated for
endowment.
• Be careful with restrictions – and review ahead
of time!
Benefits of Planned Giving
to the Donor
•
•
•
•
•
•
•
•
Make a gift and retain income from gift property
Maximize gifts by minimizing net cost
Increase spendable income
Negotiate the rate of income
Income related to value instead of earnings
Secure income in a tax-advantaged way
Defer Income
Secure a contribution deduction (income tax savings)
Sec. 1, 15
• Avoid capital gains tax
• Establish a tax-sheltered fund to enhance
growth potential
• Tax-free diversification options
• Management options (Trusteeship)
• Incentive for comprehensive estate planning
• Gift, estate tax, and probate cost savings
• Relate charitable objectives to personal
financial plan objective
• Satisfaction of a partnership in a worthy
cause through a gift provision
Review of Tax Benefits for
Charitable Giving
26
Basic Tax Benefits for
Charitable Giving
• Income Tax Charitable Deduction
• Capital Gains Tax Saving
• Unlimited Gift and Estate Tax Charitable
Deduction
• Income Tax Credit (available in some states)
Tax Information
•
•
•
•
Personal Ordinary Income Tax rates: 10% - 35%
Alternative Minimum Tax: 26% - 28%
Corporate Income Tax: 15% - 35%
Capital Gains Tax:
– Short Term (gain income from assets held one
year or less) : 10% - 35%
– Long Term (assets held more than one year):
0% (if ordinary tax rate is 10% or 15%) 15% (if
ordinary tax rate is 25% or greater.
Update, 7
Estate and Gift Tax Rates
Economic Growth and Tax Relief Reconciliation Act of 2001
and 2010 Tax Relief Act
Calendar
Year
Estate Tax Death time
Transfer Exemption and
Generations Skipping
Exemption
Gift Tax
Exemption
Highest Estate
And Gift Tax Rate
2004
$ 1.5 million
$ 1 million
48%
2005
$ 1.5 million
$ 1 million
47%
2006
$ 2 million
$ 1 million
46%
2007
$ 2 million
$ 1 million
45%
2008
$ 2 million
$ 1 million
45%
2009
$ 3.5 million
$ 1 million
45%
2010
$ 5 million
$ 1 million
35% (subject to optout election)
2011
$ 5 million (unified with gift tax)
$ 5 million
35%
2012
$ 5 million (unified with gift tax)
$ 5 million
35%
2013
$ 1 million (unified with gift tax)
$ 1 million
55%
Income Tax Charitable Deduction
• Donors may deduct charitable contributions
of cash or property made to qualified
organizations or for qualified purposes if the
donor itemizes his or her deductions.
• Resource: IRS Publication 526, Charitable
Contributions
Limits on Income Tax Charitable
Deduction for Cash Gifts
• If a cash gift is made to a public charity (not a
private foundation), the annual deduction limit
is 50% of Adjusted Gross Income (AGI).
• Excess deduction (above the limit) may be
carried over for five more years, using as much
available deduction each year as possible.
Charitable Deduction
Annual Limit for Non-Cash Gifts
• In general, if a property gift is made to a public
charity, the annual deduction limit is 30% of
Adjusted Gross Income (AGI).
• Excess deduction (above the limit) may be
carried over for five more years, using as much
available deduction each year as possible.
Not All Gifts Qualify for an Income
Tax Charitable Deduction
No deduction is allowed for some gifts such as:
• Volunteer time or services.
• Loan of property.
• Non-qualified partial interest gifts.
• Gifts to non-qualified organizations or purposes such
as foreign organizations.
Qualified recipients are listed in IRS Publication 78.
33
Key Take Aways
1. Planned Gifts are a way to give assets
that is best done with thoughtful and ethical
estate and charitable planning.
2. Planned giving must be integrated into a
comprehensive fundraising program.