1. Charitable Planning Agency Name
Welcome to our sales presentation on charitable giving. We will focus on planning opportunities using charitable trusts and other strategies to transfer property to charities.
Agency Name
Charitable Planning
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Agency Phone number
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2. 1 2 Agenda The Social Capital Concept Planned Giving Techniques
Specific bequests of qualified plan assets
Charitable remainder trusts
Funding an endowment with life insurance
We are going to cover two major topics. First, we want you to understand the concept of social capital. Second, we want to familiarize you with three specific charitable giving techniques you may want to consider. Again, it is important for you to contact a tax advisor for tax information and your legal advisor for legal advice.

3. THE SOCIAL CAPITAL CONCEPT

4. The Great Philanthropists
Rockefeller
Carnegie
Getty
Gates
Buffett
You (???)
The United States has a strong history of philanthropy and charitable giving. From industrial age philanthropists to modern day software giants, Americans have always found it in their hearts to share their wealth. Are you tomorrow’s great philanthropist?

5. The Social Capital Concept
During our lifetimes we all create capital:
The concept of social capital covers that part of our capital that we give away to the public good. We can give away that capital to our government and allow the government to decide how that capital will be spent. If we don’t want the government to decide how to use all our social capital, we voluntarily give money away to charity where we have some say over who gets the money and how the money is spent.

6. The Social Capital Concept
During our lifetimes we all create capital:
Personal Capital
We get to keep
The concept of social capital covers that part of our capital that we give away to the public good. We can give away that capital to our government and allow the government to decide how that capital will be spent. If we don’t want the government to decide how to use all our social capital, we voluntarily give money away to charity where we have some say over who gets the money and how the money is spent.

7. The Social Capital Concept
During our lifetimes we all create capital:
Personal Capital
Social Capital
We get to keep
We give away
Voluntarily — gifts and bequests
Involuntarily — federal, state and local taxes
The concept of social capital covers that part of our capital that we give away to the public good. We can give away that capital to our government and allow the government to decide how that capital will be spent. If we don’t want the government to decide how to use all our social capital, we voluntarily give money away to charity where we have some say over who gets the money and how the money is spent.

8. Example: John Generous
Starts working at age 25
Earns $90,000/year, growing at 3%
Retires at age 65
Here is an example of a citizen who starts working at age 25 and retires at age 65.

9. Example: John Generous
Earns over $6.7 million in his working years
How much personal capital does John get to keep?
How much does John involuntarily contribute to social capital?
During John’s lifetime, he generates a significant amount of personal capital. If John elects to pay the money over to the government, he is involuntarily contributing his social capital. Were John to take a more active role in how he spends his social capital, he would become a voluntary contributor to charity.

10. Example: John Generous
Keeps approximately $4.4 million as personal capital
But, involuntarily contributes approximately $2.2 million to social capital in the form of taxes*
* Assumes John is in the 25% tax bracket, 5% State Income Tax Rate, 7.7% Social Security and Medicare Tax Rate.

11. Example: John Generous
Finally, John may be subject to federal and/or state estate taxes at his death
The bottom line: All taxpayers are philanthropists
In general, the basic ways to reduce estate taxes and expenses are:
1. to avoid the probate process (this also reduces delays)
2. use the $14,000 annual gift tax exclusion to make lifetime gifts of cash or property; this removes their value from your estate
3.The pros and cons of this type of planning should be discussed with your customers’ tax advisors. The American Taxpayer Relief Act of 2012 permanently raised the exemption amount and indexed it for inflation. For 2015, the estate tax exemption is $5,490,000.
4. making bequests to charity reduces your estate tax because all gifts to a qualified charity are eligible for an unlimited charitable deduction
Another important deduction the IRS allows is an unlimited deduction for gifts and bequests between spouses. This generally results in no estate tax due until both spouses have died. This assumes that both spouses are U.S. citizens. Different rules apply if one, or both spouses, are not U.S. citizens. Again, this is general information. We recommend everyone seek and rely on the advice of his or her own legal or tax advisor.

12. The Great Philanthropists
Rockefeller
Carnegie
Getty
Gates
John Generous
Based on the prior example, even though John Generous didn’t intend to be, he has become a great philanthropist because the tax laws have forced him to pay taxes on his income and his estate.

13. The Question is…
Do you want to be a voluntary or involuntary philanthropist?
It is up to you. You can decide where you spend your social capital. You can give it to the government in the form of taxes and become an involuntary philanthropist with no control on how your tax dollars are spent. Or you can become a voluntary philanthropist by actively using charitable giving techniques that allow you to direct how some or all of those dollars are spent.

14. BENEFITS OF CHARITABLE GIVING

15. Benefits of Charitable Giving
Social
Personal
Financial
Charitable giving or the voluntary spending of social capital feels good. Its many benefits include social, personal and financial benefits.

16. Financial Benefits
Lifetime contributions to qualified charities may be eligible for an income tax deduction
Generally, deduction limited to 50% of adjusted gross income (AGI) in any one year with a 5-year carry-forward (certain limits apply to gifts of appreciated property)
Gifts to most private foundations limited to 30% of AGI
There are clear income tax benefits by making gifts to charity. According to our current tax law, charitable deductions may reduce taxable income

17. Financial Benefits
Bequests to qualified charities at death are eligible for an unlimited estate tax deduction
Example:
A widow with a $20 million estate leaves $10 million to charity and $10 million in trust to her children (with portability of her deceased husband’s estate tax exemption)
Estate tax due: $0
Charitable deductions also reduce taxable estates.
Current law calls for a $5,4930,000 estate tax exemption in 2017.

18. Special Assets
Often possible to eliminate the income tax cost of liquidating certain assets by giving the asset to charity
Examples:
Charitable gifts or bequests of certain appreciated property (e.g., Stock, real estate)
Deduct fair market value of asset (including unrealized gain), but certain AGI limits apply for income tax purposes
Charitable bequests of retirement plan assets
Giving very specific assets to charity can reduce the overall tax burden from both an income and an estate tax perspective.

19. PLANNED GIVING QUALIFIED PLAN SAVINGS

20. Charitable Bequests
The income tax liability attached to qualified plan savings never goes away:
If a distribution is taken during lifetime, the plan participant pays the income tax
After participant’s death, the beneficiary pays the income tax when distributions are taken
In addition, the value of the qualified plan savings are includible in the estate for estate tax purposes
With special assets like qualified plan assets, the income tax liability continues beyond the death of the owner.

21. Charitable Bequests Charitable bequests of retirement plan savings:
Effective technique for lowering overall tax costs to an estate and its beneficiaries
Non-charitable beneficiaries of the estate may inherit more after tax if charitable bequests are satisfied with qualified plan assets
No longer a disadvantage to have a charity as a beneficiary for purposes of the required minimum distribution rules
Distributions from a qualified retirement plan to a charity are not subject to income taxes, allowing more overall dollars to be applied to the charitable good.

22. Example: Penny Wise Estate composed of:
Cash - $100,000
Home - worth $200,000; basis of $50,000
Stock - worth $500,000; basis of $250,000
IRA - $100,000
Wants to give $100,000 to Worthy Cause, Int’l
Using the beneficiary designation on the IRA account results in Penny’s heirs inheriting all the other assets (with a step-up in basis); saves them the income tax cost of liquidating the IRA account
Here is an example of how this works.

23. PLANNED GIVING CHARITABLE TRUSTS

24. Charitable Split-Interest Trust
What if the donor has charitable intentions, but is concerned about his/her income needs, or does not want to deprive the next generation of their inheritance?
A charitable split-interest trust may be the solution
Two main types:
Charitable lead trusts
Charitable remainder trusts
We're going to focus on the advantages of using charitable gifts as part of an estate plan.
We'll talk about direct gifts and bequests and then about more advanced charitable giving techniques such as;
Charitable remainder annuity trusts (CRATs)
Charitable remainder unitrusts (CRUTs)
Charitable lead annuity trusts (CLATs), and
Charitable lead unitrusts (CLUTs)

25. Charitable Remainder Trusts (CRTs)
Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs)
Gift of property into an irrevocable trust
Grantor retains right to an income stream for a term of years, or for life; then charitable beneficiary receives trust property
Value of charitable deduction is reduced by present value of the income stream
Charitable remainder trusts provide for the interest to be split between a charitable and non-charitable beneficiary.

26. Charitable Remainder Trusts (CRTs)
Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs)
Payout rate must be at least 5%
Term of years cannot exceed 20 years
Value of remainder interest must be at least 10% of the initial value of the trust
Effectively eliminates CRTs for young grantors, or for successive lives
Effective technique for avoiding capital gains taxes
The noncharitable portion of the trust in a charitable remainder trust is determined by the payout rate. The payout rate is the percentage of the trust that is paid to the non-charitable beneficiary each year. This rate is chosen by the grantor of the trust. For example, if a 10% payout rate is chosen, and $1,000,000 is contributed to the trust, the annual payment to the beneficiary is $100,000 (if a CRAT), or 10% of the current value of the trust assets (if a CRUT). The higher the payout rate, the lower the charitable deduction.
There are very specific rules that must be followed to make these trusts qualify for a charitable deduction.
There are now limits on how high the payout rate can be. When the value of the CRT is divided into the portion going to the grantor (the present value of the income stream) and the portion eligible for a charitable deduction (the remainder interest going to charity), the value going to charity must be at least 10% of the initial value of the trust property. So for example, if $1,000,000 is being contributed to the trust, the value of the charitable interest must be at least $100,000.

27. CRTs Funded with Real Estate Gift
Example:
$1,000,000 parcel of real estate
Current cash flow: $0.00
Basis = $100,000
Wants to increase cash flow, but doesn’t want to pay capital gains tax
Has charitable objectives
Let’s follow an example of a charitable remainder trust that is funded with a gift of real estate.

28. Alternative 1: Straight Sale
$1,000,000 $ 200,000
$ 800,000
($267,800) $ 532,200
Proceeds Capital Gains Tax*
Net
Estate Tax**
Net to Children
(1)
Let’s see what would happen if the customer were to do a conventional sale of an asset.
Current law calls for a $5,490,000 estate tax exemption in 2017.
(1) Assuming a 5% After-Tax Return, Donor Nets $40,000/yr. until Death
*Assumes 15% Federal Capital Gains Rate (effective 2014) and 5% State Income Tax Rate
** Assumes no remaining estate tax exemption and 39% Federal Estate Tax Rate. Other estate assets are equal to or greater than estate tax exemption

29. Alternative 2: CRT $1,000,000 $0 CRT Proceeds Capital Gains Tax*
$1,000,000 $0
$1,000,000 $0
$ ??????
CRT Proceeds Capital Gains Tax*
Net
Estate Tax**
Net to Children
(1)
Now let’s look at what the income and estate tax effects are of a sale of that property inside a charitable remainder trust.
The 2017 estate tax exemption is $5,490,000.
(1) Assuming a 5% After-Tax Return, Donor Nets $50,000/yr. until Death. Would also get charitable deduction based on age, payout rate, etc.
*Assumes 15% Federal Capital Gains Rate (effective 2014) and 5% State Income Tax Rate
** Assumes no remaining estate tax exemption and 39% Federal Estate Tax Rate

30. Income Tax Deductions
Assumptions: The IRS Sec Rate is 2.2% (January, 2017) $1,000,000 Gift to a CRUT, with Lifetime Annual Payments
Payout Rate
5% 7% 10%
$316,480 $215,140 $130,890
$446,530 $337,990 $233,180
$599,310 $499,260 $388,250
$192,580 $103,450 N/A
$299,370 $190,320 $100,150
$443,790 $326,820 $211,110
Maximum
Payout Rate
11.91%
19.21%
34.88%
7.12%
10.00%
15.62%
Age(s) 55 65 75
55/50
65/60
75/70
Here is a table that shows the amount of potential payouts on a million dollar gift to a charitable remainder trust.

31. How About the Children?
Donor has potentially increased after-tax cash flow by $10,000, plus has value of the charitable deduction
Various Options:
Gift $10,000 into irrevocable life insurance trust for purchase of insurance
Gift enough to purchase $520,000 of coverage (this was the net to children without a CRT)
Gift enough to purchase $1,000,000 (or more) of life insurance
What is the effect on the children when a donor transfers property to a charitable remainder trust, leaving nothing behind for them? How do you effectively replace the wealth lost to the children?

32. PLANNED GIVING WITH LIFE INSURANCE

33. Planned Giving with Life Insurance
Simple way to make a substantial gift to charity
Donor applies for a life insurance policy
Policy is owned by the charity
Charity is the beneficiary of the policy
Premiums paid by the donor are eligible for an income tax deduction
With life insurance, a donor can leverage the amount of his or her gift. The premium payments to the charity can fund a substantial death benefit.

34. Planned Giving with Life Insurance
Modest annual premiums produce a substantial payment at death
If permanent life insurance is used, the charity also has access to the cash value to fund current programs
With life insurance, a donor can leverage the amount of his or her gift. The premium payments to the charity can fund a substantial death benefit.

35. Example: Phil Anthropist
Applies for a $100,000 permanent life insurance policy from ABC Insurance Co.
Worthy Cause Int’l is named the owner and beneficiary of the policy
Phil’s $2,000 annual premium is eligible for a charitable deduction
At Phil’s death, Worthy Cause collects the death benefit and builds a playground for handicapped children in Phil’s honor*
With life insurance, a donor can leverage the amount of his or her gift. The premium payments to the charity can fund a substantial death benefit.

36. Summary
Planned giving has many benefits.
Do well, by doing good!

37. Disclaimers
This presentation is for general educational purposes only. It represents our understanding of generally applicable rules. Please note that Allstate or its agents and representatives cannot give tax or legal advice. We recommend everyone seek and rely upon the advice of his or her own professional advisors for such advice. IRS REQUIRED TAX DISCLOSURE: Information contained herein is not intended or written to be used, and it cannot be used, for the purpose of avoiding any tax penalties. This document is written to support the promotion or marketing of the transactions or matters discussed. You should seek advice based on your particular circumstances from an independent tax advisor.
We take this slide very seriously. We are here to provide some general information to you, but it is important for your customers to contact their tax advisor for tax information and their legal advisor for legal advice.

38. Thank You
This material is intended for general educational purposes only. Please note that Allstate or its agents and representatives cannot give tax or legal advice. The brief discussion of taxes in this presentation may not be complete or current. The laws and regulations are complex and subject to change. For complete details, consult your attorney or tax adviser. Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office, 2920 South 84th Street, Lincoln, NE Check the background of this firm on FINRA’s BrokerCheck website Life insurance offered through Allstate Life Insurance Company, Northbrook, IL; Allstate Assurance Company, Northbrook, IL and American Heritage Life Insurance Company, Jacksonville, FL. In New York, life insurance offered through Allstate Life Insurance Company of New York, Hauppauge, NY. © 2017 Allstate Insurance Company.
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