PHILANTHROPIC PLANNING Giving back and leaving a lasting legacy Chad M. Irving, CFP, CIMA, Senior Portfolio Advisor Merrill Lynch, Pierce, Fenner & Smith, Inc. | 412-566-6624 | chad_irving@ml.com Jeremy Floberg, Director & Trust Specialist Merrill Lynch Retirement & Personal Wealth Solutions Shady Side Academy October 10, 2018

Philanthropic planning: A better way to give What compels you to give, and how can charitable endeavors be incorporated into your wealth plan in a way that works for you, your heirs and the charitable organizations that you value? With philanthropic planning, you can empower chosen charities to continue their good work while gaining a variety of personal benefits: Maximize philanthropic impact and personal satisfaction Integrate charitable strategies into your overall financial strategy Create a legacy of charitable giving for you and your family Accumulate tax-advantaged charitable assets for future giving Integrate with wealth and estate planning solutions Minimize both income and estate taxes America is a giving nation In 2016, Americans gave more than $390 billion to charity1. 80% came from individual giving and bequests1. 23.5% of high net worth individuals have, or plan to have, at least one giving vehicle2. 14.4% of high net worth households have a will with specific charitable provisions2. 5.9% of high net worth individuals plan to give by charitable bequest2. 1 Giving USA 2017. 2 2016 U.S. Trust® Study of High Net Worth Philanthropy.

What compels you to give? “I want to support organizations that help others.” “Giving is my way to honor an institution that has had a major impact in my life.” “It’s a great way to do good for others and help reduce my taxes.” “Giving is my way to pass on family values and traditions.” “I believe we have a responsibility to give to the less fortunate.” “Being active in my community is important to me.”

Planned giving opportunities, from simple to complex DIRECT GIVING DONOR-ADVISED FUNDS CHARITABLE GIFT ANNUITIES CHARITABLE REMAINDER TRUSTS AND CHARITABLE LEAD TRUSTS PRIVATE FOUNDATIONS Philanthropic strategies Simple Complex Many philanthropic strategies allow you to give generously — today and upon your death — while providing important personal benefits: Charitable donations may provide income tax deductions for gifts made during your lifetime. Donating appreciated securities may help you minimize capital gains taxes and reduce the risk of holding a concentrated stock position. Philanthropic planning may reduce the size of your estate and resulting estate tax liability. There are various strategies that might be appropriate, from the simple to the complex — all giving you various levels of control. Your U.S. Trust wealth strategist can explain your options and help you determine which are most suitable for you. Donor-advised fund and private foundation management are provided by U.S. Trust.

Direct giving Advantages Simple and convenient The most basic form of charitable giving, direct giving, allows you to provide immediate financial support to charities and receive a charitable tax deduction in the year the gift was made. You can develop a structured giving program that outlines what will be given and when. Advantages Simple and convenient Provides immediate financial support to charities Typically, you receive a tax deduction for that year Challenges Uncertainty of direct giving means charities can’t plan in advance Donations of complex assets may not be possible

Donor-advised funds With a donor-advised fund, you make charitable contributions to an account sponsored by a charitable organization and receive an immediate tax deduction. Over time, the fund will make grants to charities based on your recommendations. Donor-advised funds allow you to: Contribute appreciated assets Recognize tax benefits now while granting over time Invest assets to generate additional funds for future grants Maintain anonymity if desired Include your family in philanthropic giving Donor-advised fund Donor receives income tax deduction Donor makes charitable recommendations Fund makes grants to recommended charities that have been qualified and approved by the fund Donor contributes to a fund sponsored by a charitable organization Donor-advised fund and private foundation management are provided by U.S. Trust.

Charitable gift annuities With a charitable gift annuity (CGA), you make an irrevocable gift to a charity that, in turn, pays a fixed income stream to you or other beneficiaries for your lifetimes. At the end of the annuity contract, remaining assets belong to the managing charity. A CGA allows you to: Diversify concentrated or appreciated assets without recognizing capital gains tax at the time of sale Establish the annuity during your lifetime or through your will Set the annuity term for your lifetime, for joint lifetimes or for the lifetime of a beneficiary you designate Reduce your taxable estate while receiving income from the annuity over your lifetime Eliminate taxes on the portion of each annuity payment that is treated as return of principal Donor makes gift to charity Charitable gift annuity (CGA) Donor receives charitable tax deduction Remaining assets at the end of the term belong to the charity Donor or a designated beneficiary receives income for life

Charitable remainder trusts With a charitable remainder trust (CRT), you and your beneficiaries can receive a steady income stream for a selected period of time while making a contribution to the charities of your choice, including private foundations. A CRT allows you to: Diversify highly appreciated or low-income- producing assets without recognizing capital gains tax at the time of sale Establish the trust during your lifetime or through your will Claim an immediate charitable tax deduction on your income tax return Benefit from an estate and gift tax charitable deduction for the amount passing to charity Grantor transfers assets CHARITABLE REMAINDER TRUST (CRT) Grantor receives income and gift tax deduction Charity receives remaining assets at the end of the income term Grantor or a designated beneficiary receives distributions during the income term

Charitable remainder trusts Charitable Remainder Trusts (CRTs) can provide income to you or your beneficiaries, for a fixed term or to last for a beneficiary’s lifetime, and are advantageous for assets with a low tax basis. The trust can sell appreciated assets without triggering capital gains taxes, enabling it to reinvest the proceeds to generate income. Assets remaining in the trust when it terminates are distributed to your chosen charities. GRANTOR $1M gift CHARITABLE REMAINDER TRUST GRANTOR or BENEFICIARIES $50K/year for 12 years totaling $600K CHARITY $1.2M remainder Assumptions: Client is age 72, a nonsmoker in good health and has a life expectancy of 12 years IRS discount rate of 3.4% 6% appreciation on assets over 12 years For illustrative purposes only; does not reflect an actual investment.

Charitable lead trusts Charitable lead trusts (CLTs) are often used to transfer assets to younger generations while, at the same time, generating an income stream for designated charities. A CLT allows you to: Apply all or part of your unified credit to the gift, although it will not qualify as an annual exclusion gift Remove income and future appreciation from your estate Designate charities to receive a fixed or variable income for a specified time period without permanently relinquishing control of your assets Possibly discount the value of a gift for transfer-tax purposes, enabling you to transfer more value to heirs with reduced transfer-tax implications* Grantor transfers assets CHARITABLE LEAD TRUST (CLT) Grantor receives income and gift tax deduction* Beneficiaries receive remainder of assets at the end of the income term, often with no or reduced gift or estate taxes** Charity receives distributions during the income term The grantor only receives an income tax deduction if the CLT is set up as a grantor trust for income tax purposes. **Consider the applicability of generation-skipping transfer taxes.

Charitable Lead trusts Charitable Lead Trusts (CLTs) enable you to provide for charitable causes and transfer property to heirs at a reduced valuation for gift tax purposes. The value of the charitable gifts made by the trust reduces the gift tax value of the transferred property. GRANTOR CHARITY $1.5M remaining after 15 years available to heirs BENEFICIARIES $1M gift CHARITABLE LEAD TRUST $40K/year for 15 years totaling $600K CLT enables Grantor to transfer $1.5M in assets to heirs at a gift tax value of $536K Assumptions: Trust has 15 year term IRS discount rate of 3.4% 6% annual rate of return on assets1 1 A higher or lower actual return (than 6%) would change the final value of the trust property but would not affect the gift tax consequences. For illustrative purposes only; does not reflect an actual investment.

Private foundations For greater flexibility and control, you can establish a nonprofit legal entity specifically dedicated to your giving program. With a private foundation, you have full decision-making authority over granting and investment management. A private foundation allows you to: Engage your family members and other donors as board members, trustees and staff and provide a reasonable income for services Invest assets to generate additional funds for future grants Establish a giving program for future generations With a private foundation, you must: Distribute at least 5% of assets each year File tax returns and pay excise tax (up to 2% of net investment income) Donor establishes and contributes to a 501(c)(3) charitable organization PRIVATE FOUNDATION Donor receives income tax deduction Foundation may employ family members and donors as board members, trustees and staff Private foundation makes grants to designated charities Donor-advised fund and private foundation management are provided by U.S. Trust.

Choosing the strategy that’s right for you Donor-advised funds Private foundations Deductibility of contributions For cash, up to 50% of AGI For property, up to 30% of AGI For cash, up to 30% of AGI For property, up to 20% of AGI Grantmaking Donor may make recommendations, which must be approved by the fund Donor has full control over and responsibility for grantmaking Required annual distribution None 5% of charitable assets, based on asset value Excise taxes on net investment income Up to 2% of income Privacy/IRS filing requirements Can give anonymously; no IRS filing required Cannot give anonymously; IRS Form 990-PF must be filed Investments Donor chooses from available investment options Donor can choose direct investment management Setup and ongoing costs None other than any investment or management fees charged by the sponsoring organization or its affiliates Legal and filing fees, and annual tax preparation costs Fiduciary and legal requirements Limited for donor Extensive for donor and foundation staff

Choosing the planned giving strategy that’s right for you Charitable gift annuity Charitable remainder trust Charitable lead trust Deductibility of contributions Income tax deduction on the estimated amount of the original gift that the charity will receive after annuity payments Partial income tax deduction on contributions; gift taxes may apply Generally no deductions on current income taxes; gift taxes may apply Beneficiary during life of trust Specified annuitant receives current income but will be required to pay taxes on a portion of it Specified beneficiary receives current income but will be required to pay taxes on it Charity receives current income Beneficiary at trust termination or donor’s death Charitable organization that received initial donation and has paid income to the annuitant; no federal estate taxes Charitable organization; no federal estate taxes Specified beneficiary (for example, children or grandchildren); no federal estate taxes* Level of complexity Low High Donor control None Medium Timing for charity to receive donation At the end of the annuitant’s lifetime At end of specified payment term (for example, at death of payment recipient(s)) or at end of life, joint lives or specified term of years not to exceed 20) During specified payment term at least annually until death of measuring life or lives, or end of specified term of years Annual fees Donor does not pay an annual fee; the nonprofit absorbs any administrative and investment fees There may be trustee, investment management, administration and tax preparation fees * Consider the applicability of generation-skipping transfer taxes.

Fulfilling your philanthropic vision Supporting the causes you care about is an important part of enjoying your wealth. We are committed to making your philanthropic endeavors more fulfilling and effective. At U.S. Trust, you work with a team of skilled professionals to develop a sound philanthropic plan that reflects your goals and complements your overall wealth strategy. Our goal is to help you realize your vision of a better world by delivering innovative charitable solutions and advice, giving you access to our resources and intellectual capital through a trusted advisor. How we help you pursue your philanthropic goals Disciplined, holistic discovery process Helps you and your family turn your values into actionable charitable giving plans Innovative, effective charitable giving solutions Help you and your family, including future generations, achieve greater unity and continuity by sharing your philanthropic commitment Rigorous investment management process Helps you and your family meet unique grantmaking and investment objectives through carefully selected and combined investment managers Experienced, dedicated team of philanthropic advisors Brings to bear our true passion for helping you fulfill your vision and minimize your day-to-day administrative concerns Culture of innovation Enables you to manage the grantmaking, governance and investment aspects of charitable giving with greater efficiency, productivity and accountability

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