1. Planned Giving Tools and Donor Development
This presentation is for discussion purposes only and should not be considered legal or tax advice.

2. Tools and Donor Development
Planned Giving ~
Tools and Donor Development
~ Why learn about the tools of gifting?
~ What we will cover:
Gifting Tools and Strategy
Giving Trends and Strategy
Tax Law Effects
How to Initiate the Giving Conversation
Types of Gifts

3. People Want to Give ~
In 2017, total giving to charitable organizations was
$ billion – up 5.2% from the prior year.
Historically, donations from individuals account for over
two-thirds of all donations.
Of those who give, 78% state that they view charitable
giving as a way to give back – and not necessarily for
the tax benefits of giving.
(Charity Navigator, 2017 report)

4. People Want to Give ~ Database, Website and Email
65% ~ Percentage of nonprofits that require three or more clicks to make a donation
73% ~ Percentage of nonprofits that did not offer a “share” option after an online donation
74% ~ Percentage of constituents’ addresses the
average nonprofit is missing
84% ~ Percentage of nonprofits’ websites that are not
optimized for mobile
49 ~ Average nonprofit s sent per donor in 2015
Donor Satisfaction
49% ~ Percentage of donors that are concerned about how organizations use the money
50% ~ Percentage of donors that say personalization of thank you is more important than speed

5. People Want to Give ~ The Changing Landscape of Donors
Philanthropy United States
Today Projected Population
73% Caucasian 55% Caucasian
9% African American 13% African American
11% Hispanics 22% Hispanics
5% Asians 6% Asians
Hispanic Donors
~ 52% Say that most of the giving they do is spontaneous and based on who asks them
~ 55% Say they prefer appeals in English
African American Donors
~ 75% Say giving to their place of worship is important
~ 20% Say they would give more often if asked

6. People Want to Give ~ The Changing Landscape of Donors
Philanthropy United States
Today Projected Population
73% Caucasian 55% Caucasian
9% African American 13% African American
11% Hispanics 22% Hispanics
5% Asians 6% Asians
Asian
~ 49% Say they are more likely to support a nonprofit when
their friends and family ask them to
~ 40% Say they always visit a nonprofit’s website before
becoming a supporter
[Blackbaud, Inc 2018 Study on Donors]

7. 2018 Giving (After Tax Reform) ~
Increase of the Standard Deduction and How it May
Impact Giving:
~ Individual $12,000
~ Couple $24,000
(For those who are 65 or older, blind or disabled, an
additional $1,300 is available)
If the Donor can itemize, deductions are up:
~ Cash gifts deductible up to 60% of adjusted gross
income (up from 50%) and gifts of stock remain
deductible up to 30% of income.
~ Six years to use your deduction (remained the
same).

8. 2018 Giving Tax Strategy ~
Bunching Donations and using a Donor Advised Fund:
Example:
Year 1: Donor sets aside $5,000
Year 2: Donor sets aside an additional $5,000
Year 3: Donor sets aside an additional $5,000
and donates the accumulated amount of
$15,000 to a DAF and receives the tax deduction.
Year 3: Donor directs distribution of half to their
favorite charity.
Year 4: Donor directs distribution to favorite
charity and begins setting aside funds for next
contribution.
Concerns and Possibilities

9. Developing Donors Initiating Conversation ~ Suggested questions:
Are you currently making gifts to chartable organizations? Which ones? What are your philanthropic goals?
Is there a minimum amount of money you would want to leave to your family? A maximum? Do you have concerns about wealth and your children?
Are there charitable causes or specific organizations in your community that you would like to support?
Are there personal goals that you have set and not yet accomplished? Can philanthropy help you achieve them?
Would you like your philanthropic work to continue beyond your lifespan? Would you like your children involved in their own philanthropy? With you?
Are you concerned about estate tax? Can we do some planning to avoid the tax?

10. Developing Donors
~ Gifting Tools and Strategy
Bequests: A charitable bequest is a gift made in a will or trust. It is the most common type of gift and typically the largest planned gift type.
Dollar amount: “I hereby give and bequeath to the Monterey Peninsula College Foundation the specific amount of $10,000.”
Percentage: “I hereby give and bequeath to the SPCA of Monterey 50% of my estate.”
Specific Asset: “I hereby give and bequeath to Legal Services for Seniors my residence located at Mile Drive, Pebble Beach.”
Residue of the Estate: “I hereby give and bequeath to Meals on Wheels the remainder of my estate.”
Note: Including the address of the charity and the EIN can avoid problems later.
Benefits to Donor: Retain control of the asset during lifetime and remove asset from taxable estate.

11. Developing Donors
~ Gifting Tools and Strategy
Beneficiary Designations: Naming the charity as a beneficiary of a retirement plan or life insurance policy. An individual does this via a beneficiary designation form provided by the account custodian or insurance company.
Percentage, specific dollar amount or as a contingent beneficiary.
Benefits to Donor: Removes the retirement plan from the taxable estate. Retirement plans can be highly taxed to individual beneficiaries, but are untaxed to charitable beneficiaries.
Example: If a trust names a charity as a beneficiary along with family members, it is common that their IRA or life insurance beneficiary designations follow a similar distribution plan. Ask your potential donor if they are aware that by giving their IRA to charity and their trust assets to family, they are making better use of income tax savings and more assets are likely to reach their intended beneficiaries.

12. Find and Develop Donors
~ Gifting Tools and Strategy
Life Income Gifts: The prior gifts we reviewed are “end of life transfers.” What if your potential donor could benefit from additional income during life?
Charitable Gift Annuities: CGAs are governed by the state of California, Department of Insurance. Organizations that wish to issue CGAs are required to undergo a stringent licensing process. A national voluntary association of charities, the American Council on Gift Annuities (ACGA), is a resource available to charities and offers education and training regarding CGAs. CGAs can offer a favorable return and, unlike the markets, the lifetime payments are guaranteed.
Contractual agreement between donor and charity to make a donation in exchange for life income.
Donation is held in reserve where it earns small returns until the donor’s death. Remainder is released to the charity.
The charity must make payment for life regardless of whether the donor outlives the corpus and is backed by all charity assets.
Payout percentage varies by age and is fixed for life of annuitant.
Benefits to Donor: Donor receives current income tax deduction for the portion of gift constituting charitable transfer. Income payments are partially tax free. Reduce capital gains liabilities when funding with appreciated assets.

13. Developing Donors Charitable Remainder Trusts:
~ Gifting Tools and Strategy
Charitable Remainder Trusts:
A CRT is a trust that provides for a specified distribution to one or more beneficiaries, at least one of which is not a charity, for life or for a term of years (note to exceed 20 years), with an irrevocable remainder interest paid to charity.
Donor receives an annual payout at a percentage of the total trust value. Annual payout must be at least 5% and no more than 50% (Taxpayer Relief Act of 1997).
When establishing the trust parameters (term length, payout rate, etc.) CRTs must pass the “10% test.” At least 10% of the trust principal must go to charity at the end of the trust term.
A CRAT may avoid the 10% Probability Test if it is a qualified trust and the trust document includes language that the trust can be terminated and distributed to the charity if the corpus declines to 10% of the initial trust corpus.

14. Developing Donors Charitable Remainder Trusts: Benefits to Donor:
~ Gifting Tools and Strategy
Charitable Remainder Trusts:
Benefits to Donor:
Current income tax deduction. (Can be carried forward over six year period).
Defer and potentially reduce or avoid capital gains liabilities when funding with appreciated assets.
Receive fixed or variable (and often increasing) payments for life.
Release ownership responsibilities for stress free income stream.
Diversify portfolio.
May name multiple beneficiaries for life or a term of years, or a combination of both.
Convert a non-income producing asset into an income producing one.
Other?

15. Developing Donors Charitable Remainder Trusts:
~ Gifting Tools and Strategy
Charitable Remainder Trusts:
CRAT v. CRUT: Generally speaking, a Charitable Remainder Annuity Trust is the same as a Charitable Remainder Unitrust except for the donor’s payout and the ability for a donor to add assets.
CRAT: The donor receives annual trust payments that are calculated based n a fixed percentage of the total value of the trust’s assets at the date the trust was created. Annual payments do not change over time, regardless of the CRAT’s market performance.
~ Donor cannot make additions to the CRAT
~ 5% Probability Test for lifetime CRATs
CRUT: The donor receives trust payments that are calculated on January 1 of each year based on a fixed percentage of the total value of the trust assets. Payments fluctuate with the CRUT’s market performance and can increase over time.
~ Donor can make additional contributions to the CRUT
~ CRUTs are much more common than CRATS

16. Developing Donors
~ Gifting Tools and Strategy
NICRUT: (Net Income CRUT) The payout to the donor is the lesser of the Net Income earned by the trust or a Fixed Percentage. Most beneficial for those donors who want to leave more to charity.
NIMCRUT: (Net Income Make-up CRUT) The beneficiary receives the lesser of either the Net Income earned by the trust during the year or a Fixed Percentage amount. A make-up account is established for those years when the trust pays less than the percentage amount, and any shortfall is made up in years the trust earns more income than the percentage amount.
~ Also a good vehicle if you are funding a CRUT with a property that may take time to liquidate.
FLIP CRUT: Trust pays net income only, until the January 1 after a “triggering event.” At that time, the trust “flips” to a standard CRUT paying a fixed percentage amount. There are no make up provisions.
Taxation of CRT Payout: Four tier taxation: Highest taxed income paid out first.
1. Ordinary income
2. Capital gain income
3. Other income, generally meaning tax-free income
4. Tax-free return of principal

17. Developing Donors
~ Gifting Tools and Strategy
Charitable Lead Trust (CLT): Lead trusts are irrevocable gifts that allow a donor to place assets into a charitable trust for a period of years, make annual trust income gifts to charity and then pass the asset on to beneficiaries at a “discounted” value. (Can be CLUTs or CLATS)
~Donor sets up trust and transfers assets into it and annual gifts are made to charity.
~At inception, a gift tax (for the future transfer to children) is taxed and paid.
~Annual gifts to charity provide an annual tax deduction to the donor (and can potentially zero out the gift tax).
~Appreciation on the assets is outside the donor’s estate.
~After the trust term, the assets are transferred to beneficiaries – typically children.
~No charitable tax deduction for the donor
~The trust pays the annual income tax (in contrast to a CRT which is normally exempt from trust income taxation, the lead trust remainder will pass to family and is therefore a non-grantor trust and must file form 1041 annually and pay income taxes and capital gains tax.
~No step-up in basis for the beneficiaries.

18. Developing Donors
~ Gifting Tools and Strategy
A note about Wealth Replacement: A CRT can be the perfect tool to create an income stream, remove future growth from a taxable estate and benefit charity. However, sometimes children can object to having mom or dad “give away” a valuable asset. Enter the Wealth Replacement Trust. The donor sets up the CRT, transfers an appreciated asset and the asset is sold. A portion of the income paid from the CRT (or all of it, depending on the donor’s interest), is used to pay the premiums on a life insurance policy that, when paid on the donor’s death, “replaces” the wealth in the donor’s estate.
~ Donor is happy. Children are happy. Charity is happy!

19. Developing Donors
~ Gifting Tools and Strategy
Donor Advised Funds: Donor sets up individual account with a sponsoring organization like the Community Foundation. (Schwab Charitable and Fidelity Foundation also offer DAFs).
~ Donor makes gifts to the fund and receives a charitable tax deduction for each gift.
~ Donor relinquishes all control over the asset – it is a completed gift.
~ Donor has right to advise sponsoring organization to distribute grants to eligible nonprofit organizations.
~ IRS does not impose timing or minimum payout restrictions on distributions from the fund to charities.
Benefits to Donor: Provides charitable income tax deductions at a time that is beneficial to the donor’s overall tax planning strategy. Donor can choose a philanthropic strategy at a later time. Also, allows for donor anonymity.

20. Developing Donors Gifts of Real Estate~
~ Gifting Tools and Strategy
Gifts of Real Estate~
Outright: Donor transfers title and complete ownership to charity. Charity will either sell or keep (for faculty/student housing, office space, etc.)
Bargain Sale: Donor sells property to Charity at a discounted price; or gives Charity a property subject to a mortgage. (Donor may need to recognize the forgiven debt (the mortgage) as income!)
Retained Life Estate: Donor irrevocably transfers the remainder interest to Charity and receives a current income tax deduction equal to the present value of the remainder interest. Donor retains possession of the property for the remainder of his/her life. Donor is usually responsible for property taxes, home insurance, upkeep. Involves complex agreement and a close relationship between the Donor and the Charity. Limited to personal residence or farmland.

21. Developing Donors Gifts of Real Estate~
~ Gifting Tools and Strategy
Gifts of Real Estate~
When considering a real estate gift, the charity should consider the following:
1. If the property will be sold, is it marketable?
2. Are there issues with environmental pollution? Charity will be stepping into the chain of title and would be responsible for any superfund issues.
3. The donor can have a problem if the property is put on market for sale and then subsequently gifted to a CRT or other charitable vehicle.
4. Encumbered real estate can result in tax issues for both the Donor and the Charity – proceed with caution.

22. Developing Donors Gifts of Retirement Assets ~
~ Gifting Tools and Strategy
Gifts of Retirement Assets ~
Annual Gifts via the IRA Charitable Rollover: Individuals aged 701/2 and older can transfer up to $100,000 of their annual Required Minimum Distribution to Charity.
Name Charity as Beneficiary of Retirement Plan
Fund a Testamentary CRT to Benefit Children: Children will benefit from income stream while removing the plan from the taxable estate.
THANK YOU FOR ALL YOU DO FOR OUR COMMUNITY AND BEYOND. IT IS A PLEASURE TO SPEAK WITH YOU TODAY. THANK YOU!!

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