1. January 19, 2012 Presented by Kevin Handford CFP®, ChFC®, CFS®, AIF® Jennifer Handford www.handfordfinancial.com Planned Giving Ideas for Wakefield School Endowment

2. There is a reason it’s called “Planned” Giving If schools were routinely awarded $3 million dollar checks with no strings attached, then we would call a “gift a gift,” “giving” as purely “giving.” But there is a reason why institutions call their departments “Planned” giving. It is because, like most things in life, the “Plan” is the essential element toward reaching the goal.

3. There are two tax systems in this country—one for the informed and one for the uninformed Our goal: (1) To review the methods/techniques that are typically used in the planned giving arena. (2) To illustrate to you how a properly-crafted charitable plan can leave you, the donor, in better shape than you would have been had no gift been given.

4. We’ll show you: The “Do Nothing” Plan for Mr. and Mrs. Smith How their $2.5 million estate is reduced by 68% because there was no plan in place. *How “Estate Planning 101” (the use of rev. trusts) saved their estate 22% *How “Charitable Planning 101” increased their estate to their children by 48% AND left $500,000 to Wakefield. *How The Smith’s lifestyle and cash flow increased because of the planning.

5. Planned Giving – Types of Gifts “Life Income” Gift— A gift that provides payments for life to Donor; remainder to Wakefield (CGA, CRT) Charitable Lead Trust—A gift that provides payments to Wakefield now; remainder to Donor’s family

6. “Life Income” Gifts Payments for Donor; Remainder to Wakefield If Wakefield Donor is comfortable giving assets now but would like to receive a regular payment stream for the rest of his life, one of several "life income” gift plans might work. A Charitable Gift Annuity (CGA) is a simple contract that pays Donor (one or two) a fixed annuity for life. At the end of the contract term, the remainder will be distributed to Wakefield. Similar to a CGA, a Charitable Remainder Trust (CRT) can be funded with a wide range of assets, including securities, cash or real estate. A CRT provides regular payments to Donor. The remainder is then gifted to Wakefield. With a “life income” gift, Donor is eligible for a current income tax deduction, will receive a regular payment stream, will remove the assets from his taxable estate, and will provide much-needed future support to Wakefield.

7. Charitable Remainder Trusts Charitable Gift Annuities CGAs and CRTs are great techniques for Wakefield Donors who wish to make a charitable gift and receive income for their lifetimes and/or the lifetimes of others May provide a charitable income tax deduction equal to a portion of the trust value in the year the gift is made; Provides regular income for the lifetime of each beneficiary or for a period of up to 20 years; May help bypass (defer) capital gains taxes; May reduce estate taxes; May be funded with a wide range of assets including cash, appreciated securities, or real estate; Ensures that your specific philanthropic desires are realized during your lifetime.

8. The Charitable Lead Trust— Payments to Wakefield Now; Remainder to Donor Family In contrast to “life income” gifts that provide Wakefield Donor with a current payment stream and Wakefield with a future remainder interest, a Charitable Lead Trust (CLT) provides a current payment stream to the school to meet current needs. At the end of the trust term, the trust remainder will be returned to Donor or to Donor’s beneficiaries. CLTs allow Donor to: significantly reduce gift or estate tax, become eligible for a current income tax deduction, and allow Donor to witness during his lifetime the tangible impact his dollars at Wakefield.

9. Combining Concepts for “Maximum Benefit” We must get Wakefield Donors to understand that “doing nothing” can often cost them more than putting into place some estate planning, including charitable giving. Example: Dan and Ann Smith- Retired - 70 years old Wakefield Grandparents Total Net Worth = $2.5 Million Investments = $500,000 in appreciated assets (land/stocks) + $500,000 in Dan’s IRA

10. “Do Nothing” Plan $2.5 Million Estate REDUCED to $1,670,000 Dan dies after 2012 with a basic will and unlimited marital deduction. All goes to Ann. Ann dies. The entire estate is subject to taxes after $I million exemption. $500,000 of land/stock sold to diversify -$100,000 basis = $400,000, subject to current cap gains tax rates (15% - Fed and 5% - State).  TAX $80,000 $500,000 in IRA – subject to income tax (40%) at distribution or death.  TAX $200,000 FINALLY- All assets are subject to estate tax (up to 55% after exemption)  TAX is about $550,000 TOTAL TAX: $830,000 $1,670,000 left to children *45% blended rate on net assets. Final Analysis: Kids receive significantly less. Wakefield receives nothing. No added benefits for the Smiths while living

11. $2.5 million estate passes on in tact WHILE leaving Wakefield an additional $500,000 “CRT/IRA/ILIT” Plan While living Dan and Ann create a CRUT and put into it their appreciated assets (assets w/ low cost basis). IRA At the same time, Dan is now age 70 and is required to take RMDs. Instead, he withdraws a lump sum from his IRA($200,000). Taxes will be due on this but offset by the CRT $200,000 tax deduction.* He uses this to fund a 2 nd to die LI policy on himself and Ann. Upon death the remaining $300,000 in the IRA is subject to 40% income tax, leaving $180,000. *Deduction subject to AGI limits of Donor * CRT Inside the CRT, the $500,000 asset is sold but no capital gains tax is due because the sale was done inside the trust. This gives the Smiths a tax deduction of $200,000 (based on age). Per CRT rules, the Smiths are able to now draw 5% per year in income of the $500,000 generating $25,000 of income. ILIT There is now an $800,000 Life Insurance policy that will pay income and estate TAX FREE at the death of both Dan and Ann. Final Analysis: No estate tax due. Children receive $2,480,000.00, a 48% increase over “do nothing” plan. Wakefield receives $500,000 and the Smiths, while living, receive $25,000 per year from the payout of the CRT. Dan and Ann update their wills to include credit shelter trusts in their estate plan providing them each with a $1 million dollar exemption.

12. “IRA-to-Roth/ILIT” Plan The WIN-WIN-WIN Plan While living Dan and Ann donate their $500,000 highly appreciated asset to Wakefield outright. This generates a $500,000 current income tax deduction.* IRA to Roth IRA With the $500,000 income tax deduction, Dan can convert all $500,000 in his IRA to a Roth IRA.* He can then withdraw tax-free $25,000 a year. IRA is not subject to RMDs and is tax free to beneficiaries ILIT The Smiths use the $25,000 a year to buy 1.4 Million of 2 nd to die insurance that will pay income and estate tax free at the death of both Dan and Ann. Final Analysis: The children benefit the most using this plan. They now receive $3,400,000 million, a 103% increase over the “do nothing.” Wakefield receives $500,000 while Dan and Ann are living and Dan and Ann get to witness during their lifetime the tangible impact of their dollars at Wakefield. * Deduction subject to AGI limits of Donor. Dan and Ann update their wills to include credit shelter trusts in their estate plan providing them each with a $1 million dollar exemption.

13. FINAL COMMENTS After working on numerous estate plans, our experience has taught us that people want to give but they’re scared of committing money they might someday need. Show them how to make a gift that doesn’t hurt their current lifestyle, that doesn’t minimize what’s left for the children. The best estate/charitable plan has pieces that work together (as we just illustrated). Focus on the LEVERAGE that a gift can provide. Show them how donating an old piece of real estate (a beach house in disarray, an old condo, a piece of land) can then be sold inside of a trust with the proceeds given to Wakefield. Show them how this gives them a nice tax deduction. Then show them how that tax deduction can purchase something shiny and new – a new life insurance policy – to replenish the gift that was given. People want to give but they need to know that there is an economic benefit for them. The benefit is simple: tax deductions, leverage, and the arbitrage of one asset for another. With a tax deduction, there are numerous options for creative planning (for example, converting to Roths and life insurance policies)

14. How HFS can help Wakefield As a resource for ideas. The Endowment Committee volunteers may feel free to call us to discuss ideas, Donor situations, and solutions. As a resource for outside administrators. We are quite familiar with the investment companies, annuity companies, and life insurance companies that are most amenable to charitable estate planning. Some are better than others. As a source of confidentiality for donor prospects. Donor prospects may feel free to discuss their situation with us in strict confidence.

15. January 19, 2012 Presented by Kevin Handford CFP®, ChFC®, CFS®, AIF® Jennifer Handford Securities and Advisory Services are offered through Commonwealth Financial Network, member FINRA, SIPC, a Registered Investment Adviser. Fixed insurance products and services offered by Handford Financial Strategies are separate and unrelated to Commonwealth. Handford Financial Strategies 7 Hotel Street Warrenton, VA 20186 540-349-0700 www.handfordfinancial.com Planned Giving Ideas for Wakefield School Endowment