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RISE IN REAL ESTATE DONATIONS MEANS NEW FEE OPPORTUNITIES Presented to: AI Connect Fall Meeting July 23-24, 2013 Hyatt Regency, Indianapolis, IN

PRESENTED BY: CHASE V. MAGNUSON, CCIM

Program Content An overview of the charitable world How real estate equities can be donated The impact on the Donor and the Charity A look at how MAIs may benefit Chase V. Magnuson, CCIMReal Estate for

Learning Objectives After completing this training, participants should be able to understand: – Benefits to MAIs, Donor, and Charity – Types of real estate gifts – Business opportunity for MAIs Chase V. Magnuson, CCIMReal Estate for

Overview of the Charitable World 2,000,000 Charities $310 billion given in 2011 Accept real estate for 3% of annual giving 80% of all gifts rejected Chase V. Magnuson, CCIMReal Estate for

Capital Wealth in the US Chase V. Magnuson, CCIMReal Estate for

MAI’s Benefits Normal service fees Consulting fees Annual CRT evaluations Representation of new client (Charity) Public relations exposure National referral opportunities Chase V. Magnuson, CCIMReal Estate for

Benefits for the Client / Donor? Reduced capital gains taxes Deduction for federal and state taxes Lower transfer expenses Eliminate management responsible Chase V. Magnuson, CCIMReal Estate for

Basic Options for Donations Straight / Outright donation Bequest Retained life estate Charitable gift annuity Charitable remainder trust Bargain sale proceeds Chase V. Magnuson, CCIMReal Estate for

Structure of an Outright Donation Chase V. Magnuson, CCIMReal Estate for

Are You With Me? Chase V. Magnuson, CCIMReal Estate for

Structure of a Retained Life Estate Primary or secondary homes qualify Donor must maintain the property, pay property taxes and insurance Option to lease for another source of income or sell remaining interest to charity for lump sum A CGA may be possible additional benefit Chase V. Magnuson, CCIMReal Estate for

Charitable Gift Annuity (CGA) Chase V. Magnuson, CCIMReal Estate for

Charitable Remainder Unitrust (CRT) Chase V. Magnuson, CCIMReal Estate for

Gift of property Donor Charitable Gift Annuity Remainder to Charity Income tax deduction Reduced gains tax Fixed payments 1.Donor transfers cash, securities, or other property to the Charity. 2.Donor receives an income tax deduction and may save capital gains tax. The Charity pays a fixed amount each year to Donor or to anyone Donor names for life. Typically, a portion of these payments is tax-free. 3.When the gift annuity ends, its remaining principal passes to the Charity. How a Charitable Gift Annuity Works Chase V. Magnuson, CCIMReal Estate for

Summary of CGA Benefits 5.2% Charitable Gift Annuity ASSUMPTIONS: Annuitants70 70 Principal Donated$100,000 Cost Basis of Property$20,000 Annuity Rate5.2% Payment Schedulemonthly BENEFITS: Charitable Deduction$26,214 Annuity $5,200 Capital Gain Income $3,598 Ordinary Income $1,602 Total reportable capital gain of $60, must be reported over 16.4 years, until all of the gain is reported. After 16.4 years, the portion of the annuity that was capital gain becomes tax-free. After 20.5 years, the entire annuity becomes ordinary income. Charitable Deductions for $100,000 Gift Charitable Gift Annuity Income Rate5.2% Two Lives 70 / 70$26,214 IRS Discount Rate: 2.8% Chase V. Magnuson, CCIMReal Estate for

Comparison of Benefits BENEFITS: CGA (5.2%)CRT (7%) Charitable Deduction $26,214$29,401 Annual Payout $5,200 (fixed) $7,000 (variable) Capital Gain $3,598 (for 16.4 yrs) Ordinary Income $1,602* Total Reportable Gain $59,029 *Once all tax-free portions have been distributed and all capital gain reported, the entire annuity will become ordinary income. CHARITABLE DEDUCTIONS FOR $100,000 GIFT Charitable Gift Annuity Charitable Unitrust Income Rate5.2%7% Two Lives 70 / 70$26,214$29,401 Chase V. Magnuson, CCIMReal Estate for

Tax Implications Individual donor Corporate donor Sub-chapter S Carry forward rules Appraisal rules Qualified gifts (capital gains properties) Chase V. Magnuson, CCIMReal Estate for

How Might the Charity Benefit? Cash proceeds from sale of the asset Income stream from leases Joint venture profits Exchange opportunities Ownership of office facilities Chase V. Magnuson, CCIMReal Estate for

ANY QUESTIONS? Chase V. Magnuson, CCIMReal Estate for

How to Convert Equity Cash Cash and carried financing 1031 exchanges (partial) Joint ventures Chase V. Magnuson, CCIMReal Estate for

Charities Annual Holding Cost Property taxes Property and casualty insurance Staffing time Maintenance Lost investment income Chase V. Magnuson, CCIMReal Estate for

Time for Staff to Manage Accounting for asset Grounds and building maintenance Collection of rents Compliance with city ordinances MAIs HELPING PEOPLE!!! Chase V. Magnuson, CCIMReal Estate for

What Happens at the Closing of the Sale of the Donated Property? Title Company divides funds: All normal closing costs paid including commission Donor or Charity fund the gift arrangement Reimbursement of funds used to obtain reports and consulting services Chase V. Magnuson, CCIMReal Estate for

What We Have Discussed 1.Benefit to charity 2.Types of real estate gifts 3.Business opportunity for MAIs Chase V. Magnuson, CCIMReal Estate for

Fact… Each year Americans give charities $310 billion in donations, less than 3% is in real estate, although 26% of the nation’s wealth is represented by real estate. For charities at any level the opportunity for carving out a niche in this market is incredible! Chase V. Magnuson, CCIMReal Estate for

NEW OPPORTUNITIES TO SERVE YOUR CLIENTS! Thank you!!! Chase V. Magnuson, CCIMReal Estate for