1. PRESENTED BY: David DelFiandra, Esq. Leech Tishman INCLUDING CHARITY IN ESTATE PLANS WITH INDIVIDUAL RETIREMENT ACCOUNTS

2. WEALTH TRANSFER At least $41 trillion in U.S. wealth will be transferred by 2052 Approximately $20 trillion will be charitable John J. Havens and Paul G. Schervish, 1999. Millionaires and the Millennium: New Estimates of the Forthcoming Wealth Transfer and the Prospects for a Golden Age of Philanthropy, Social Welfare Research Institute, Boston College.

3. Giving USA 2014, The Annual Report on Philanthropy

4. HOW TO GIVE TO CHARITY? Outright gift Planned gift Establish a private foundation Donor Advised Fund  Community Foundation  Allows advisors to retain management of the assets and provides local expertise on the area.

5. WHY GIVE TO CHARITY? Charitably inclined Tax savings

6. CHARITABLY INCLINED? Source: Congressional Budget Office based on data from Internal Revenue Service, Statistics of Income Division, Individual Income Tax Returns 2008 (revised July 2010); the Federal Reserve Board’s 2004 Survey of Consumer Finances; and the Bureau of Labor Statistics’ 2002 Consumer Expenditure Survey. Note: Includes C.B.O.’s estimates of charitable contributions by people who filed income tax returns in 2008 but did not itemize deductions.

7. TAX SAVINGS Federal income tax deduction (subject to limitations) Federal estate tax deduction – unlimited Federal gift tax deduction – unlimited Pennsylvania Inheritance tax – 0% rate

8. INCOME TAX DEDUCTIONS Type of Property Donated Valuation for Purposes of Charitable Deduction Ceiling for Public Charities, Private Operating Foundations and Certain Private Nonoperating Foundations Ceiling for Other Private Nonoperating Foundations (PNOF) CashFair market value50%30% Ordinary Income Property and Short-term Capital Gain Property Lesser of the adjusted basis or the fair market value 50%30% Long-term Capital Gain property: - Intangible Fair market value30%* Adjusted Basis 20%** 20% - Tangible Personalty Fair market value – (a) related use Adjusted basis – (b) unrelated use 30% 50% 20% - Real PropertyFair market value30%

9. ESTATE & GIFT TAX RATES AND CREDITS 2014 Unified Credit against Federal Estate and Gift Tax $5.34M Maximum Estate and Gift Tax Rate 40% GST exemption$5.34M GST tax rate40% Annual exclusion$14,000

10. VEHICLES FOR CHARITABLE GIVING Lifetime Giving Testamentary Bequests Charitable Gift Annuities Charitable Remainder Trusts Charitable Lead Trusts Charity as IRA beneficiary IRA Charitable Rollover (currently expired)

11. SIMPLE APPROACH Lifetime Giving Income tax deduction Unlimited gift tax deduction Removes asset and future appreciation from taxable estate Recognition to donor during lifetime Testamentary Bequests Takes effect at death No income tax deduction Unlimited estate tax deduction Beneficiary designations  Qualified plans  Life Insurance

12. INDIVIDUAL RETIREMENT ACCOUNTS Usually a large asset Always subject to Federal income tax when withdrawn (unless Roth) Ordinary income tax rates

13. INDIVIDUAL RETIREMENT ACCOUNTS Participant’s use of Uniform Table versus taking as a beneficiary Participant dates:  Age 59 ½ - Penalty if withdrawn earlier  Age 70 ½ - Penalty if required minimum distributions are not taken

14. INDIVIDUAL RETIREMENT ACCOUNTS Spouse as beneficiary Non-spouse as beneficiary Trust as beneficiary No designated beneficiary

15. INDIVIDUAL RETIREMENT ACCOUNTS There are tax ramifications of dying with an IRA  An IRA is fully subject to Federal estate tax  The Federal Estate tax rate is 40% in 2014  Beneficiary must pay income tax on proceeds as received

16. Income in Respect of a Decedent (IRD)  The basic concept of IRD applies to assets that, had the decedent lived, would have been subject to Federal income tax  IRA’s are an IRD asset because the funds in the IRA have never been subject to Federal income tax  The IRA beneficiary must pay the Federal income tax on the IRA INDIVIDUAL RETIREMENT ACCOUNTS

17. IRD Deduction  The IRA beneficiary pays income tax (IRD) on the IRA proceeds as they receive them  The IRA is also subject to Federal Estate tax  The IRS allows the beneficiary an income tax deduction for the Federal Estate tax paid  The beneficiary must itemize but it is not subject to the 2% floor IRD

18. BENEFICIARY DESIGNATION Beneficiary Designation Controls  The beneficiary designation will determine not only who inherits but also the tax ramifications Spouse as Beneficiary  Usually no Federal Estate tax because of the unlimited marital deduction; no PA Inheritance tax because of 0% rate  Spouse will most likely roll over the IRA and treat it as her own IRA

19. BENEFICIARY DESIGNATION (CONTINUED) Children as Beneficiary  Naming “my children in equal shares” as beneficiary is very common  Note that the children must withdraw the IRA over the oldest child’s life expectancy  This is detrimental to the younger children, especially if not close in age, because they realize less tax deferral  Separate Shares

20. Trust as Beneficiary  Becoming more and more common  The IRA passes to the Trust for the benefit of the Trust beneficiaries  The IRA must be withdrawn over the life expectancy of the oldest Trust beneficiary  May want to implement separate trusts when beneficiaries are not close in age  See through trust vs. Conduit trust BENEFICIARY DESIGNATION (CONTINUED)

21. Estate (or No Designated) Beneficiary  The IRA passes equally to the beneficiaries of the Estate  The Estate must withdraw and pay income tax within 5 years of the Decedent’s death (unless death is after 70 ½)  IRA must pass through probate  No opportunity for continued deferral  Not a good answer BENEFICIARY DESIGNATION (CONTINUED)

22. WHAT DOES ALL THIS MEAN? IRAs are great assets to give to charities Charity as Beneficiary at death  A charity is exempt from income tax  Charity gets 100% benefit of full IRA proceeds free of tax

23. IRA CHARITABLE ROLLOVER IRA Charitable Rollover was not extended for 2014 Allowed individuals to give up to $100,000 of IRA to charity Does not count as income to participant But does count as a required minimum distribution Must be at least 70 ½ Must pass directly from account to charity No donor advised funds but can pass to a general endowment fund at a foundation

24. IRA CHARITABLE ROLLOVER On July 17, 2014, the House passed the “America Gives More Act” which makes the IRA Charitable Rollover permanent Has not yet passed the Senate – still not law Hold off on required minimum distributions until after November election

25. CREDITOR PROTECTION US Supreme Court ruled recently in Clark v. Remeker, 134 S.Ct. 2242 (June 12, 2014) that an inherited IRA is not exempt from bankruptcy. Supreme Court indicated that inherited IRAs are not “retirement funds” protected under the Bankruptcy Code since they are not intended for retirement. State law may protect – not PA. Designate spendthrift trust as beneficiary