1. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Working with Life Income Options: Moving to the Next Level Jeff Lydenberg PG Calc 617-497-4997 jeff@pgcalc.com http://www.pgcalc.com

2. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Raising money in a bad economy Focus on how giving helps Don’t assume everyone equal Acknowledge reluctance Modify gifts to meet donor need Life income gifts can help

3. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options What donor’s are thinking I’m not as rich as I once was. When is the market going to come back? I have multiple priorities. How can I make a gift and meet other needs? Can I position myself for recovery?

4. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options What charity is thinking We still need money. How are we going to fill the shortfall in fundraising? How can we meet commitments but respect our donor’s needs? How can I capture dollars that count?

5. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Market Risk/Volatility Swings in giving are not as severe as broader economic conditions! 100 point change in S & P 500 = $1.5 billion change in philanthropy 37% drop in the S & P in last year $1.161 trillion of philanthropy lost as of 3/18/2009

6. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Effect of Economy on Charity Decrease in value of endowments Fewer and smaller private foundation grants Reduced corporate giving due to smaller profits Smaller bequests with shrinkage of estate assets Probable reduction in major outright gifts and life-income gifts

7. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Qualified Retirement Plans Limits on contributions $22,000 for most Concerns about market risk in IRAs, 401(k)s

8. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Capital Gain Taxes 15% for most Dramatic declines in market values Long term investors still concerned Recovery will come

9. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options How to respond to planned gift donors Gift annuities –Safe, guaranteed payments for life –Backed by all of Partners assets –Not subject to market risk –Payments not tied to asset performance –Gift annuities counter-cyclical

10. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Essentials Charity pays fixed amount to one or two individuals for life Deduction = contribution minus present value of annuity Immediate annuity: payments begin immediately after gift Deferred annuity: payments begin at designated future time Annuity rates based on age of beneficiary

11. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Essentials Prototype CGA prospect –Ages: mid-70s and older –Fiscally conservative –Not wealthy (or do not think they are) –Loyal annual fund donors, usually very low amounts

12. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Cash For duration of life expectancy: –Payments partially ordinary income –Payments partially tax-free return of capital

13. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Cash Present Value of an AnnuityGift Value A $58,917 B $41,083 $100,000 gift, $6,100 annual payment

14. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Cash Tax free return of capital: $58,917 ÷13.1 = $4,497 Ordinary income $1,603 $6,100

15. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Appreciated Property For duration of life expectancy: –Payments partially ordinary income –Payments partially capital gain –Payments partially tax-free return of capital –No tax-free if zero basis

16. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Appreciated Property Present Value of AnnuityGift Value A Cost $23,567 B Gain $35,350 C Cost $16,433 D Gain $24,650 $58,917$41,083 $100,000 property, $40,000 cost basis $6,100 payment

17. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Taxation: Appreciated Property Tax free return of capital: $23,567÷13.1 = $1,799.01 Capital gain: $35,350 ÷13.1 = $2,698.47 Ordinary income $1,602.52 $6,900.00

18. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Charitable Remainder Trust Essentials Deduction for present value of remainder At least annual payments Life or no more than 20 years No more than 5% or 50% payout Deduction at least 10% of principal Payable as an annuity or unitrust amount

19. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Charitable Remainder Trust Essentials Prototype CRT prospect –Ages: mid-50s to 70 –Fiscally savvy and often aggressive investors –Wealthy or very affluent –Less likely to be loyal donors, but average gifts are high

20. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Charitable Remainder Annuity Trusts Annuity amount negotiated Only 20,000 in existence More expensive and complicated than gift annuities Subject to market risk Can run out of money!!

21. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Charitable Remainder Unitrusts Standard Charitable Remainder Unitrust Pays the fixed percentage Net-income Charitable Remainder Unitrust Pays lesser of fixed percentage or actual net income. Net-Income with Make-up Charitable Remainder Unitrust Pays lesser of the fixed percentage or actual net income, but can pay make-up distributions to beneficiaries to the extent of accrued past deficiencies in payments. Flip Trust Converts from net income trust to straight payout upon the occurrence of a triggering event.

22. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Charitable Remainder Trust Taxation WIFO (worst-in, first-out) First: Ordinary income to the extent payments consist of interest, dividends, and rents earned by the trust. Second: Capital gain to the extent payments consist of capital gain realized by the trust. Third: Tax-exempt income from tax-exempt securities. Fourth: Tax-free return of principal.

23. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Pooled Income Fund PIF is a trust operated by charity, not tax-exempt Distributes income proportionate to beneficiaries interest in the fund Poor man’s CRT Highly disfavored due to low interest and dividends

24. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Gift Annuity Funded with Cash Ms Sylvester, age 75 –$50,000 invested in CDs –$1,080 after-tax income $50,000 gift annuity –$3,150 before-tax –$2,926 after-tax

25. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Remainder Unitrust Funded with Stock Mr. and Mrs. Coronado, ages 72 and 70 –$250,000 stock, $20,000 cost basis –$3,188 after-tax income 5% Charitable Remainder Unitrust –$12,500 before-tax –$9,275 after-tax –Year 5 $14,069 before-tax –Year 10 $16,310 before-tax

26. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Flip CRUT to Supplement Retirement Dr. Bernard, age 50 –Contributing maximum to qualified plans –Heavily invested in market 5% Flip Unitrust –Adds to trust each year till retirement –Pays net income during working years –Pays unitrust amount beginning at age 65 –$1,000,000 principal at retirement –$50,000 income in first year of retirement

27. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Remainder Annuity Trust for Income Security Ms Carmelo, age 84 –$500,000 of appreciated stock –$15,000 dividend income 8% Charitable Remainder Annuity Trust –$40,000 annual payments –No capital gain –Income tax deduction

28. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Build-up Deferred Gift Annuity Mr. and Dinofrio, ages 58 and 57 –Contribute $20,000 each year to fund DGA –Each annuity start date staggered YearAnnuity paymentAnnuity Rate 2020 $1,340 6.7 2021 2,680 6.7 2022 4,040 6.8 2023 5,400 6.8 2024 6,800 7.0 2025 8,200 7.0 2026 9,620 7.1

29. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Flexible Deferred Annuity Mr. Jasper, Age 54 –Stock worth $100,000, $60,000 cost basis –Start dates between 9/30/2020 and 9/30/2029 –Lowest deduction of all possible start dates ElectiveAge at AnnuityTotal Start DateStart DateRateAnnuity 9/30/2020668.6%$8,600 9/30/2021679.0%$9,000 9/30/2022689.6%$9,600 9/30/20236910.1%$10,100 9/30/20247010.8%$10,800

30. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Promoting Gift Annuities Despite the Economy Gift Date10-Year Treasury After- Tax Income Gift Annuity After-Tax Income Differential 6/12/08$2,827$6,353$3,526 10/31/082,6265,9953,369 2/1/091,6755,7724,097 Gift annuity rates at historic lows Still competitive with fixed income vehicles

31. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Leveraging Depressed Asset values Contribution$2,000,000 Taxable gift to daughters $1,271,860 Taxable gift to daughters $1,907,790 (if gift delayed until stock appreciates to previous $3,000,000 value) Reduction of taxable gift $635,930 if trust funded now

32. PG Calc | Invested in your mission ©2009 PG Calc Working with Life Income Options Questions and Answers