Charitable Planning Presenter’s Name Agency Phone number Contact Agency Street Address City, State, Zip Code Agency Name ALR1704 (9.15)

The Social Capital Concept Planned Giving Techniques Specific bequests of qualified plan assets Charitable remainder trusts Funding an endowment with life insurance 1 2 Agenda

THE SOCIAL CAPITAL CONCEPT

The Great Philanthropists Rockefeller Carnegie Getty Gates Buffett You (???)

During our lifetimes we all create capital: The Social Capital Concept

During our lifetimes we all create capital: The Social Capital Concept Personal Capital We get to keep

During our lifetimes we all create capital: The Social Capital Concept Voluntarily — gifts and bequests Involuntarily — federal, state and local taxes Personal Capital We get to keep Social Capital We give away

Starts working at age 25 Earns $90,000/year, growing at 3% Retires at age 65 Example: John Generous

Earns over $6.6 million in his working years How much personal capital does John get to keep? How much does John involuntarily contribute to social capital? Example: John Generous

Keeps approximately $4.4 million as personal capital But, involuntarily contributes approximately $2.2 million to social capital in the form of taxes* Example: John Generous * Assumes 2015 Federal Income Tax bracket, 5% State Income Tax Rate, 7.7% Social Security and Medicare Tax Rate.

Finally, John may be subject to federal and/or state estate taxes at his death The bottom line: All taxpayers are philanthropists Example: John Generous

The Great Philanthropists Rockefeller Carnegie Getty Gates John Generous

Do you want to be a voluntary or involuntary philanthropist? The Question is…

BENEFITS OF CHARITABLE GIVING

Social Personal Financial Benefits of Charitable Giving

Lifetime contributions to qualified charities may be eligible for an income tax deduction Generally, deduction limited to 50% of adjusted gross income (AGI) in any one year with a 5-year carry-forward (certain limits apply to gifts of appreciated property) Gifts to most private foundations limited to 30% of AGI Financial Benefits

Bequests to qualified charities at death are eligible for an unlimited estate tax deduction Example: A widow with a $20 million estate leaves $10 million to charity and $10 million in trust to her children (with portability of her deceased husband’s estate tax exemption) Estate tax due: $0 Financial Benefits

Often possible to eliminate the income tax cost of liquidating certain assets by giving the asset to charity Examples: Charitable gifts or bequests of certain appreciated property (e.g., Stock, real estate) Deduct fair market value of asset (including unrealized gain), but certain AGI limits apply for income tax purposes Charitable bequests of retirement plan assets Special Assets

PLANNED GIVING QUALIFIED PLAN SAVINGS

The income tax liability attached to qualified plan savings never goes away: If a distribution is taken during lifetime, the plan participant pays the income tax After participant’s death, the beneficiary pays the income tax when distributions are taken In addition, the value of the qualified plan savings are includible in the estate for estate tax purposes Charitable Bequests

Charitable bequests of retirement plan savings: Effective technique for lowering overall tax costs to an estate and its beneficiaries Non-charitable beneficiaries of the estate may inherit more after tax if charitable bequests are satisfied with qualified plan assets No longer a disadvantage to have a charity as a beneficiary for purposes of the required minimum distribution rules Charitable Bequests

Estate composed of: Cash - $100,000 Home - worth $200,000; basis of $50,000 Example: Penny Wise Wants to give $100,000 to Worthy Cause, Int’l Using the beneficiary designation on the IRA account results in Penny’s heirs inheriting all the other assets (with a step-up in basis); saves them the income tax cost of liquidating the IRA account Stock - worth $500,000; basis of $250,000 IRA - $100,000

PLANNED GIVING CHARITABLE TRUSTS

What if the donor has charitable intentions, but is concerned about his/her income needs, or does not want to deprive the next generation of their inheritance? A charitable split-interest trust may be the solution Two main types: Charitable lead trusts Charitable remainder trusts Charitable Split-Interest Trust

Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs) Gift of property into an irrevocable trust Grantor retains right to an income stream for a term of years, or for life; then charitable beneficiary receives trust property Value of charitable deduction is reduced by present value of the income stream Charitable Remainder Trusts (CRTs)

Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs) Payout rate must be at least 5% Term of years cannot exceed 20 years Value of remainder interest must be at least 10% of the initial value of the trust Effectively eliminates CRTs for young grantors, or for successive lives Effective technique for avoiding capital gains taxes Charitable Remainder Trusts (CRTs)

Example: $1,000,000 parcel of real estate Current cash flow: $0.00 Basis = $100,000 CRTs Funded with Real Estate Gift Wants to increase cash flow, but doesn’t want to pay capital gains tax Has charitable objectives

Proceeds Capital Gains Tax* Net Estate Tax** Net to Children Alternative 1: Straight Sale $1,000,00 $ 200,000 $ 800,000 ($296,000) $ 504,000 (1) (1) Assuming a 5% After-Tax Return, Donor Nets $40,000/yr. until Death *Assumes 15% Federal Capital Gains Rate (effective 2014) and 5% State Income Tax Rate ** Assumes no remaining estate tax exemption and 37% Federal Estate Tax Rate. Other estate assets are equal to or greater than estate tax exemption

CRT Proceeds Capital Gains Tax* Net Estate Tax** Net to Children Alternative 2: CRT $1,000,000 $0 $1,000,000 $0 $ ?????? (1) (1) Assuming a 5% After-Tax Return, Donor Nets $50,000/yr. until Death. Would also get charitable deduction based on age, payout rate, etc. *Assumes 15% Federal Capital Gains Rate (effective 2014) and 5% State Income Tax Rate ** Assumes no remaining estate tax exemption and 37% Federal Estate Tax Rate

Assumptions: The IRS Sec Rate is 2.2% (January, 2015) $1,000,000 Gift to a CRUT, with Lifetime Annual Payments Income Tax Deductions Payout Rate 5% 7%10% $316,290 $215,020$130,790 $446,330 $337,850$233,040 $599,140 $499,120$388,090 $192,390 $103,450N/A $299,160 $190,190$100,040 $443,580 $326,670$210,960 Age(s) /50 65/60 75/70 Maximum Payout Rate 11.91% 19.20% 34.86% 7.11% 10.00% 15.61%

Donor has potentially increased after-tax cash flow by $10,000, plus has value of the charitable deduction Various Options: Gift $10,000 into irrevocable life insurance trust for purchase of insurance Gift enough to purchase $520,000 of coverage (this was the net to children without a CRT) Gift enough to purchase $1,000,000 (or more) of life insurance How About the Children?

PLANNED GIVING WITH LIFE INSURANCE

Simple way to make a substantial gift to charity Donor applies for a life insurance policy Policy is owned by the charity Charity is the beneficiary of the policy Premiums paid by the donor are eligible for an income tax deduction Planned Giving with Life Insurance

Modest annual premiums produce a substantial payment at death If permanent life insurance is used, the charity also has access to the cash value to fund current programs Planned Giving with Life Insurance

Applies for a $100,000 permanent life insurance policy from ABC Insurance Co. Worthy Cause Int’l is named the owner and beneficiary of the policy Phil’s $2,000 annual premium is eligible for a charitable deduction At Phil’s death, Worthy Cause collects the death benefit and builds a playground for handicapped children in Phil’s honor* Example: Phil Anthropist * This is a purely hypothetical example

Planned giving has many benefits. Do well, by doing good! Summary

Disclaimers This presentation is for general educational purposes only. It represents our understanding of generally applicable rules. Please note that Allstate or its agents and representatives cannot give tax or legal advice. We recommend everyone seek and rely upon the advice of his or her own professional advisors for such advice. IRS REQUIRED TAX DISCLOSURE: Information contained herein is not intended or written to be used, and it cannot be used, for the purpose of avoiding any tax penalties. This document is written to support the promotion or marketing of the transactions or matters discussed. You should seek advice based on your particular circumstances from an independent tax advisor.

Thank You This material is intended for general educational purposes only. Please note that Allstate or its agents and representatives cannot give tax or legal advice. The brief discussion of taxes in this presentation may not be complete or current. The laws and regulations are complex and subject to change. For complete details, consult your attorney or tax adviser. Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office, 2920 South 84th Street, Lincoln, NE Life insurance offered through Allstate Life Insurance Company, Northbrook, IL; Allstate Assurance Company, Northbrook, IL; Lincoln Benefit Life Company, Lincoln, NE and American Heritage Life Insurance Company, Jacksonville, FL. In New York, life insurance offered through Allstate Life Insurance Company of New York, Hauppauge, NY. © 2015 Allstate Insurance Company Sanders Road, Northbrook, IL ALR1704 (9.15)