Integrating Estate Gifts into Planning

Integrating Estate Gifts into Planning Eddie Thompson, Ed.D., FCEP Founder & CEO Ben Powell, FCEP Senior Vice President Thompson & Associates Brentwood, TN Matthew McBurnie, MBA, CEP, FCEP Executive Director Riverside Healthcare Foundation Kankakee, IL

Riverside Medical Center Kankakee, IL

The Foundation exists to develop resources that support Riverside HealthCare in pursuit of its mission. Guided by the principle that generosity is a powerful healing force, the Foundation will develop resources by linking people with opportunities that fuel their dreams, satisfy their desire to serve others, and ignite their benevolent spirit. With its motto, Generosity Heals, the Foundation will become the most compelling, trusted, and effective vehicle in our region for remarkable philanthropic journeys. Vision and Motto

Board leadership engagement An early participant experience Solving an estate planning problem A remarkable employee The Impact of Estate Planning

One participant to another Constant promotion Small group presentations Key participants: –Longtime donors –Employees How does Estate Planning work for us?

Donor focused Builds trust Generosity heals Why do it?

Limits on deductions is gaining ground Charities are competing for decreasing discretionary income gifts Higher income and estate tax rates will lead donors to lifetime and testamentary techniques to reduce taxes and achieve their goals Charitable Deduction Changes

Estate plans will become more complex as exemption amounts go down and tax rates go up Charitable trusts and other leveraging techniques to minimize taxes and maximize what can pass to heirs Side Effects on Planning

They will do what they have done in the past –Likely decrease discretionary income gifts –Increase giving through their estates –Increased taxes on estates make charitable estate gifts even more attractive The Outcome on Giving

Major Gifts The effect on charities: The organizations that are focused on relationships and are important to communities will be fine after a few months as the new normal is accepted

The effect on charities: Organizations that pursue estate gifts will see an increase in gifts to endowment and outright planned gifts. Wise nonprofits will adapt to the changing market. Others will struggle! Estate Gifts

Your future success depends on your efforts today! You must plan to be successful You must then execute your plan KEEP YOUR MESSAGE IN FRONT OF YOUR DONORS! Integrating Estate Gifts Into Planning Practical Approaches to Address These Realities

Three types of gifts Three types of donors Two sources of assets Three questions Four giving techniques A Few Fundamental Concepts

Capital Annual Planned Three Types of Gifts

~ 70% Give Out Of Habit ~ 23% Give Based On Emotion ~ 7% Are Strategic Donors Three Types of Donors

Annual Planned Discretionary Income Net Worth Where Are We Looking for Gifts?

Three Questions… …that must be answered for, and by, Strategic Donors!!

#1 – My Needs Do I have enough to live on for the rest of my life?

#2 – Heir Needs How much should I leave my heirs? Do I have enough to live on for the rest of my life?

#3 – Social Capital Would I rather my executor or trustee write a check from my estate to the IRS, or to my favorite charities? How much should I leave my heirs? Do I have enough to live on for the rest of my life?

Financial Independence Inheritance for Heirs Charitable Gifts Self Directed Tax Government Directed Total Wealth

1.Many donors might not have the disposable income that they once had 2.Or, are concerned that they may no longer have the resources that they need to maintain their lifestyle Now, To the Issues at Hand

"If a number of my donors don't feel like they can write me check, but they still want to give, what other ways to give are available to them?" –There are many answers to that question, but here are a few that fit in the current economic environment: An Important Question

Gifts of net worth Testamentary gifts Gifts that provide income Gifts that also fulfill estate planning objectives 4 Types of Gifts Donors Are Making

26 Flashback to Chemistry Class

27 An Estate Planner’s Version

Trend 100 % 20% Outright 20% Outright 40% Annual 40% Annual 40% Lump 40% Lump Heirs

40% Lump 40% Lump 100% 20% Outright 20% Outright 40% Annual 40% Annual Heirs TCRUT TCLA/ UT Charity Trends in Charitable Estate Planning

The Mechanics of a Trust

* Entirely Tennessee Inheritance Tax Estate Plan Retirement Accounts Heirs $6,450,000 Heirs $6,450,000 After Planning: Heirs $ 6,450,000 Charity $ 2,400,000 Taxes $ 450,000* After Planning: Heirs $ 6,450,000 Charity $ 2,400,000 Taxes $ 450,000* Before Planning: Heirs $ 7,200,000 Charity $ 0 Taxes $ 2,100,000 (potential immediate income & estate taxes) Before Planning: Heirs $ 7,200,000 Charity $ 0 Taxes $ 2,100,000 (potential immediate income & estate taxes) Credit Shelter Trust $3,500,000 Credit Shelter Trust $3,500,000 Charity $2,400,000 Charity $2,400,000 Death of the first spouse Death of the surviving spouse Passes to Heirs free of tax Other Assets$ 2,375,000 Life Insurance$ 4,525,000 Retirement Accts. $ 2,400,000 Total Estate $ 9,300,000 Other Assets$ 2,375,000 Life Insurance$ 4,525,000 Retirement Accts. $ 2,400,000 Total Estate $ 9,300,000 Health, Education. Maintenance, Support Taxes $450,000 Taxes $450,000 $9,300,000 Surviving Spouse Outright $5,800,000 Surviving Spouse Outright $5,800,000

Trends In Estate Planning 100 % 20% Outright 20% Outright 40% Annual 40% Annual 40% Lump 40% Lump Heirs

Estate $3,800,000 ($2,000,000 in IRAs) Estate $3,800,000 ($2,000,000 in IRAs) * Actual future value of estate and gift may be higher or lower at time of death. ** Income Tax calculated at a 28% rate *** Future Values discounted at 3.5% for inflation to arrive at present values Remaining Assets $1,615,000 Remaining Assets $1,615,000 Current Planning* Heirs $ 2,890,000 Charities $ 0 Taxes $ 910,000 Current Planning* Heirs $ 2,890,000 Charities $ 0 Taxes $ 910,000 Heirs $3,340,000 Heirs $3,340,000 Taxes $185,000 ET Taxes $185,000 ET Taxes $185,000 Taxes $185,000 TCRUT $2,000,000 (7% ROI) TCRUT $2,000,000 (7% ROI) Recommended Plan Heirs $ 3,340,000 Charities $ 2,896,000 Taxes $ 185,000 Recommended Plan Heirs $ 3,340,000 Charities $ 2,896,000 Taxes $ 185,000 Charity $2,896,000 Charity $2,896,000 5% payout For 20 years After Tax Total** $1,725,000 5% payout For 20 years After Tax Total** $1,725,000 Present Value of Recommended Plan*** Heirs $ 3,340,000 Charities $ 2,855,000 Taxes $ 185,000 Present Value of Recommended Plan*** Heirs $ 3,340,000 Charities $ 2,855,000 Taxes $ 185,000 IRDs to Testamentary Charitable Remainder Trust

Wife $30,000,000 Death of 2nd Spouse Husband’s Heirs $2,460,000 Tax $140,000 Husband $2,600,000 ILIT $10,000,000 Tom’s DSUEA - $2,400,000 Wife’s Heirs $15,290,000 Tax $4,710,000 State Tax - $1,600,000 Fed Tax - $3,110,000 TCLTs $20,000,000 Charity $15,000,000 5 yrs. 10 yrs. 15 yrs. 20 yrs. 6% payout 6% return Wife’s Heirs $20,000,000 Death of 1st Spouse ILIT $10,000,000 Wife’s Heirs $30,000,000 Example of TCLT if Husband Dies First

40% Lump 40% Lump 100% 20% Outright 20% Outright 40% Annual 40% Annual Heirs TCRUT TCLA/ UT Charity Trends in Charitable Estate Planning

$18,000,000 * Actual future value of estate and gift may be higher or lower at time of death. Heirs $24,145,000 Heirs $24,145,000 $1,500,000 Credit Shelter Trust (No State Gap Trust) Credit Shelter Trust (No State Gap Trust) $16,050,000 Surviving Spouse Current Plan Heirs $12,975,000 Charities $ 525,000 Taxes $ 7,400,000 Current Plan Heirs $12,975,000 Charities $ 525,000 Taxes $ 7,400,000 Taxes $4,100,000 Taxes $4,100,000 QPRT $2,800,000 QPRT $2,800,000 ILIT 100,000 ILIT 100,000 Charity $75,000 Charity $75,000 Heirs $775,000 Heirs $775,000 Charity $450,000 GST Trust To Heirs $3,000,000 GST Trust To Heirs $3,000,000 Foundation $5,800,000 Foundation $5,800,000 Family Trusts $35,000,000 Family Trusts $35,000,000 Lead Trust $9,600,000 Lead Trust $9,600, years 5% to Charity Remainder to Heirs $17,470,000 Recommended Plan Heirs $24,145,000 Charities $10,125,000 Taxes $ 4,100,000 Recommended Plan Heirs $24,145,000 Charities $10,125,000 Taxes $ 4,100,000 Present Value of Plan Heirs $11,175,000 Charities $ 5,625,000 Taxes $ 4,100,000 Present Value of Plan Heirs $11,175,000 Charities $ 5,625,000 Taxes $ 4,100,000

Current Plan Heirs $21,700,000 Charities $19,730,000 Taxes $13,220,000 Current Plan Heirs $21,700,000 Charities $19,730,000 Taxes $13,220,000 Recommended Plan* Heirs $43,760,000 Charities $46,890,000 Taxes $ 5,260,000 Recommended Plan* Heirs $43,760,000 Charities $46,890,000 Taxes $ 5,260,000 Present Value of Plan** Heirs $24,500,000 Charities $25,360,000 Taxes $ 5,260,000 Present Value of Plan** Heirs $24,500,000 Charities $25,360,000 Taxes $ 5,260,000 *Actual future value of estate and gift may be higher or lower at time of death. **Present Value is discounted at 6% $54,500,000 Marital Deduction $2,800,000 Marital Deduction $2,800,000 Specific Bequests $3,550,000 Specific Bequests $3,550,000 Charitable Bequests $10,300,000 Charitable Bequests $10,300,000 CRT $20,000,000 CRT $20,000,000 CLTs $12,950,000 CLTs $12,950,000 Heirs Charity 5 years 10 years 15 years 20 years Income to Charity

Put their needs first Help them achieve their objectives and goals Show a better use of social capital Give them time to think about it Trust them! Introducing New Concepts to Donors

Do you think donors give so they can get a charitable deduction? Do you think donors would rather give to local charities than to the IRS? Do you think tax considerations impact the technique a donor may use to achieve their charitable intent? Do Tax Considerations Impact Giving?

Questions?