FOR BROKER/DEALER USE ONLY1 Charitable Giving Basics & Beyond Manulife Financial and the block design are registered service marks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manuilfe Financial Corporation. All rights reserved. This material may not be used or copied with the public. MLI

FOR BROKER/DEALER USE ONLY2 Charitable Giving What Are We Going to Discuss? Charitable giving basics. Overview of the tools & techniques of charitable planning. Pointers on how to develop your charitable planning practice.

FOR BROKER/DEALER USE ONLY3 Charitable Giving Basics

FOR BROKER/DEALER USE ONLY4 Satisfaction and recognition. Substantial tax advantages. Probate avoidance or simplification. You decide what to do with your social capital, not Uncle Sam. Charitable Giving Basics Benefits to Donor

FOR BROKER/DEALER USE ONLY5 Looking beyond basic planning. Income versus growth focus. Prefers own judgment over Uncle Sam’s. Charitably minded?? Charitable Giving Basics Donor Profile

FOR BROKER/DEALER USE ONLY6 Public charity. Private foundation. Special issue - community foundations & donor advised funds. Charitable Giving Basics Donee Types

FOR BROKER/DEALER USE ONLY7 Donor Public Charity (e.g. United Way, UNICEF) Operating Costs (payroll, rent) FamineMonsoon War Advantages. –Economies of scale. –Administration ends following gift. –Wide variety of choices. –Maximum tax advantages. Disadvantages. –Scandal, bureaucracy and waste. –Usually cannot direct specific use of funds. Charitable Giving Basics Public Charity

FOR BROKER/DEALER USE ONLY8 Board of Trustees Donor Family members Associates Jones Family Foundation FamineMonsoonWar Advantages. –Direct control of funds kept in family. –Secure community position for family for generations. –Provide employment for family members. Disadvantages. –Deduction limitation may make it less tax advantageous. –Ongoing responsibility and administration. Charitable Giving Basics Private Foundation

FOR BROKER/DEALER USE ONLY9 Community Foundation. –Taxed as a public charity. –Board usually composed of local figures. Advised Fund. –Unrestricted component fund. –Donor can make non-binding “suggestions” or “recommendations.” Donor Community Foundation Jones Advised MonsoonWar Charitable Giving Basics Donor Advised Fund

FOR BROKER/DEALER USE ONLY10 The Tools & Techniques of Charitable Giving

FOR BROKER/DEALER USE ONLY11 Outright gift. Charitable Remainder Trust (CRT). Charitable Lead Trust (CLT). Charitable Gift Annuity (CGA). The Tools & Techniques of Charitable Giving Structuring the Charitable Gift

FOR BROKER/DEALER USE ONLY12 Quick & simple. No set-up costs (unlike charitable trusts). No worry about partial interest problems. No ongoing administration. All rights to income or remainder interest surrendered. The Tools & Techniques of Charitable Giving Outright Gifts

FOR BROKER/DEALER USE ONLY13 The Tools & Techniques of Charitable Giving Outright Gifts-Gift of Life Insurance Naming charity as beneficiary. Transfer policy to charity. Contribute cash to charity to fund premiums.

FOR BROKER/DEALER USE ONLY14 Donor (Owner) Charity (Beneficiary) Policy Advantages Donor retains control. Charitable beneficiary can be changed. Full estate tax deduction. Disadvantages No income tax deduction. No lifetime charitable recognition. Naming Charity as Beneficiary. The Tools & Techniques of Charitable Giving Outright Gifts-Gift of Life Insurance

FOR BROKER/DEALER USE ONLY15 Donor (Owner) Charity (New Owner) Policy Advantages Current income tax deduction. Periodic deductions for future premiums. Proceeds avoid estate tax. Lifetime recognition. Insurable interest issue avoided. Disadvantages Lack of flexibility. Charity controls policy. Transferring Policy to Charity. The Tools & Techniques of Charitable Giving Outright Gifts-Gift of Life Insurance

FOR BROKER/DEALER USE ONLY16 Advantages Income tax deduction. Proceeds not subject to estate tax. Lifetime recognition. No obligation to continue payments. Disadvantages No control over policy. Potential insurable interest problem. Charity has no obligation to maintain policy. Donor Charity (Owner & Beneficiary of Policy) Policy Cash Gift of Cash to Fund Premiums. The Tools & Techniques of Charitable Giving Outright Gifts-Gift of Life Insurance

FOR BROKER/DEALER USE ONLY17 The Win-Win Estate Planning Option

FOR BROKER/DEALER USE ONLY18 LOTS OF SIZZLE. VERY FEW INSURANCE SALES? TRUE OR FALSE Charitable Remainder Trusts: The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY19 FALSE! Wrong client. Wealthy. Diversified assets. The “perfect asset” client. Wrong referral sources. Technical area. Find the “nests.” The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY20 The Tools & Techniques of Charitable Giving The Charitable Remainder Trust What is a Charitable Remainder Trust (CRT)? Irrevocable trust. Benefit of some named charity(ies). Tax exempt entity. Life or lives or term not to exceed 20 years.

FOR BROKER/DEALER USE ONLY21 Benefits of the CRT. Substantial income and estate tax benefits. Capital gains tax deferral. Charitable income tax deduction. Estate tax reduction. Income stream retained for life. Increase yield on assets. Convert unproductive assets into productive assets. Provide substantial benefit to charity. Substantial insurance sale in many cases. The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY22 1. Capital gains tax avoidance. 2. Charitable income tax deduction. 3. Taxable estate reduced by asset value. 4. Income stream retained for life, lives or term. 5. Increased yield on assets. 6. Charity receives substantial contribution. 7. Two types: CRAT & CRUT. The Tools & Techniques of Charitable Giving The Charitable Remainder Trust Basic Form. Charity Charitable Remainder Trust Mom & Dad 1. Asset3. Remainder Interest 2. Retained Interest

FOR BROKER/DEALER USE ONLY23 CRUTS and CRATS. Charitable Remainder Uni-Trust (CRUT). Retained interest-stated as percentage. Annual revaluation. Exposure to asset value fluctuations. Inflation protected. Can contribute additional assets. Charitable Remainder Annuity Trust (CRAT). Retained interest-fixed annuity amount. No annual revaluation. No inflation hedge, but less danger when asset value drops. No additional contributions. The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY24 Putting the CRT Transaction Together. Pat & Carol Grogan: –Ages 76 & 77. –$10,000,000 in bank stock ($100,000 basis and 2% annual yield). –15 kids and grandkids. Choices: –Keep stock until death. –Sell stock and re-invest. –Transfer stock to a CRT and replace with insurance. The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY25 Pat & Carol Keep Stock Until Death 2 % yield. Estate tax of approximately $4,775,800 Kids will receive stock at stepped-up basis. Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY26 Pat & Carol Sell Stock & Re-Invest Will likely be able to increase yield. $9,900,000 capital gain. Substantial principal reduction. Estate tax will still be waiting. Kids will receive stepped-up basis in replacement assets. Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY27 Pat & Carol Transfer Stock to a CRT and Replace With Insurance. CRAT. $700,000/year retained interest. $3,051,800 deductible remainder interest. $249,300 annual premium on $10,000,000 SUL policy. Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY28 The Grogan Plan - Step #1: The CRT Transfer Looks great, but what is missing? Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust Charity Charitable Remainder Trust 3. $3,051,800 remainder Interest Pat & Carol 1. $10,000,000 bank stock 2. $700,000 annual annuity income.

FOR BROKER/DEALER USE ONLY29 The Grogan Plan - Step #2: Wealth Replacement Charity Charitable Remainder Trust Pat & Carol 1. $10,000,000 Bank stock. 3. $3,051,800 remainder Interest 2. $700,000 annual annuity income. Grogan Irrevocable Insurance Trust Grogan Heirs $10,000,000 insurance proceeds $249,300 annual premium Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY30 What Did We Accomplish? $3,051,800 income tax deduction. Increase pre-tax cash flow (plus cash flow increases resulting from the income tax deduction). Avoid recognition of $9,900,000 gain. Remove $10,000,000 from taxable estate ($4,775,800 estate tax savings). Transfer $10,000,000 to kids and grandkids, estate tax free through a wealth replacement irrevocable insurance trust. Provide multi-million dollar gift to charity. Generated a $10,000,000 insurance sale! Putting the CRT Transaction Together The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY31 Retirement Planning and the CRT. Net Income Make-Up CRUT (NIMCRUT). CRT to provide future supplemental income. Initial focus-asset growth. Subsequent focus-income. The Tools & Techniques of Charitable Giving The Charitable Remainder Trust

FOR BROKER/DEALER USE ONLY32 Mom & Dad Charitable Lead Trust Charity Heirs Retained income stream Low-yield appreciated property At-death remainder Discounted gift Irrevocable trust. 2 types (“CLUT” or “CLAT”). Term, life or lives. Private and/or public charity(s) as beneficiary(s). Immediate income tax deduction. Increase cash flow from assets. Avoid capital gains tax. Discounted value for gift tax purposes. Substantial benefit received by charity. The Tools & Techniques of Charitable Giving The Charitable Lead Trust

FOR BROKER/DEALER USE ONLY33 Mom & Dad Charity Irrevocable Wealth Replacement Trust Heirs Manulife SUL Income stream Low-yield appreciated property Use increased cash flow to fund gifts to trust Tax-free death benefit Manulife Annuity Annuity Re-insurance Outright gift to charity. Donor receives a promise to pay. Term, life or lives. Immediate income tax deduction. Increase cash flow from assets. Avoid capital gains tax. Substantial benefit received by charity. Regulatory challenges. Insurance opportunities. The Tools & Techniques of Charitable Giving The Charitable Gift Annuity

FOR BROKER/DEALER USE ONLY34 Charitable Giving Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation. This material is for informational purposes only. For more detailed information please contact your advisor. Manulife Financial or any of its agents, employees, or registered representatives do not give legal, tax, investment, or accounting advice. The information given here is merely a summary of our understanding of the current laws and regulations. Prospective purchasers should consult their tax advisor. The End