Leveraging Planned Giving to Maximize Donor Support Judy Sager - - PDF document

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Leveraging Planned Giving to Maximize Donor Support

Judy Sager Director of Gift Planning Massachusetts Institute of Technology

Introduction PG Donor Profile

Today’s Topics

PG Donor Profile Gift Vehicles Clues Discussion Questions Discussion Questions Gift Options in a Fluctuating Market Conclusion

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How current laws are influencing philanthropy.

• Nobody knows what might happen in 2013 with

estate, gift and GST taxes.

• Obama’s Act allows a $5m exemption amount and

lowers the maximum tax rate from 45% to 35% for all three taxes for 2012.

• The increased exemption provides an unprecedented
• pportunity to move substantial amounts of wealth
• ut of the taxable estate.

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What the possible impact of this?

• Potentially, makes more money available for

charities.

• The wealthy now have more flexibility and

perhaps more money to give away.

• It is a good time to reach out to our more

affluent donors.

• People have this window in which they are

trying to figure out how to transfer assets.

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• 75% are ages 70‐78, 25% over age 78= gift

annuity and bequest donors

• Philanthropic intent

Planned Giving Donor Profile

• Philanthropic intent
• Seeking greater income stream
• Holds appreciated assets, cash, Real

estate, Retirement funds

• Outright gift is not likely initially
• No children or children are not in need of

inheritance

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Other characteristics of Planned giving donors

• Marital status‐ married once or widowed
• Income and Wealth
• Inherited wealth generally don’t give away principal since it is

family money. They donate income only.

• Created wealth need a lot of education about philanthropy

but make great planned giving donors. Entrepreneurs.

• Modest income some wealth‐retired school teacher or
• engineer. Live frugally. Bought house for $35k now worth

$3.5m.

• Good income, some wealth. Make $1m p/yr, net worth $12‐
• 18m. Problem is gift from income not principal.

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Why Certain Gift Vehicles Prevail in a Fluctuating Market?

• Bequests
• Gift Annuity
• Deferred Gift Annuity
• Trusts

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Bequests

• Bequests are the beginning of a planned giving
• discussion. Revocable. Legacy.
• Plant the seed at age 50 the discussion of
• Plant the seed at age 50, the discussion of

bequest and/or trust is perfect.

• The discussion may come up if the donor is

hesitant about considering an outright gift but they are over 50.

• “Bob have you and your wife done any estate
• “Bob, have you and your wife done any estate

planning? Have you considered including MIT in those provisions? If so, what do you hope to do with your bequest?”

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Gift Annuity

• Pays a fixed annual income for life based on

age and number of beneficiaries age and number of beneficiaries.

• Payments are guaranteed by the charity.
• Payments can be partially tax‐free.
• Income tax deduction for a portion of the gift.
• Best funded with cash or stocks
• Best funded with cash, or stocks.

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Deferred Annuity

• An annuity that defers payment to the

beneficiary The longer the deferral the more

• beneficiary. The longer the deferral, the more

income is received at the time of the payout.

• Guaranteed future income for life.
• Partial income tax deduction in the year the

gift is made.

• Best funded with cash or stocks.

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Trusts

• Provide more flexibility in investments, payout

and management. and management.

• Unitrusts and annuity trusts.
• Unitrusts payouts= 5% of the annual fair market

value.

• Partial income tax deduction.
• Age and beneficiaries just impact the tax

deduction.

• Best funded with stocks, illiquid assets, real

estate.

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Clues to listen for with a potential planned giving prospect If you hear, “I’d like to make a gift, but…

• my assets do not produce enough income ”
• my assets do not produce enough income.
• all my stocks are in one company.”
• I am invested in real estate.”
• I am planning for retirement.”
• all I have is my pension.”
• I have no children.”
• all my money is in the family business.”

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Probing Questions for Planned Gifts and Bequests

• What have been the most meaningful

i i lif ? experiences in your life?

• What people and experiences have shaped

your views and ideals?

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Probing Questions for Planned Gifts

• What are the priorities of you and your

family? family?

• How important to you is giving back?
• How important to you is passing on the values
• f giving to your children?
• How do you do this?

How do you do this?

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What about the wife?

• Who makes the financial decisions in the

family? family?

• Who makes the philanthropic decisions?
• How are those decisions made?

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What about the kids?

• Do the kids have a say in the family’s

philanthropic decision making? p p g

• Which child influences the others and how?
• Are the kids involved in philanthropy

themselves?

• What have the kids accomplished in life?
• Family dynamics is key to philanthropy and
• ften to planned giving.

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Gift Options in a fluctuating market

• Retirement assets
• Mutual funds
• Mutual funds
• Publically traded stocks
• Proceeds from a lawsuit
• Inherited property

R l t t

• Real estate
• Restricted stock

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Retirement Assets

Jane Pugh is an active 85 year old donor and volunteer who wants to gift $50k to WGBH in volunteer who wants to gift $50k to WGBH in support of the wonderful programming. She comes to you to ask how she can do this during life in a planned gift and at death?

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Retirement Funds

Two ways to gift retirement assets:

• Withdraw IRA money and pay the income tax

Withdraw IRA money and pay the income tax for each dollar taken out and then gift the money to WGBH to set up a planned gift.

• Bequeath the IRA at death directly to the

charity with no income tax consequences.

• Billions of dollars sit in overfunded retirement

funds that could be gifted.

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Mutual Funds Darrell Bothers lives in VA and holds a number of mutual funds at Vanguard h h d i d b 30% i h that have depreciated by 30% since he first bought them 8 years ago. He wants to make a gift of $100K to The Nature conservancy to establish a gift annuity for himself and his wife. He comes to you and asks how can he make this gift happen?

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Gerry Motley lives in Los Gatos, CA and has heard about MIT’s Endowment. He is Public Stock interested in setting up a trust at MIT. He wants to give you some of his Apple stock that he has held for decades but it is down in value since August ($170p/share) and he thinks he should wait till it hits and he thinks he should wait till it hits $200p/share before he gives any away. What could Gerry do now with his gifting?

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Cash proceeds in a lawsuit

• Dr. Hart (age 75) just settled a medical

malpractice lawsuit. The net proceeds from the suit provide him with $100k in cash. He wants to shelter the money from his income to avoid paying more income tax. How can he gift the proceeds to the Boston Symphony through a planned gift and get a tax through a planned gift and get a tax deduction?

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Inherited Property Carolyn Wang (age 60) inherited Microsoft stock worth $100k from her uncle’s estate. Her father bought the stock for $100 in 1983. She comes to you at the Museum of Fine Arts and wants to gift that stock into a trust at the museum so that she will get income for life and a tax deduction.

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Real Estate

Sam McNulty owned a condo in Cambridge while he was a student at BU. He bought the condo in the 1980’s for $75K. His next door neighbor just sold the same condo for $420K. Sam comes to you and wants to gift the condo to BU since he now comes to you and wants to gift the condo to BU since he now lives in Louisiana but only if you will sell it with his broker and for nothing less than $400K. You know that condos are only selling in the area for $375k. What can you do? He also wants to ultimately split the gift between BU and Sweet Briar College where his wife graduated. Sam wants the proceeds of the real estate to go into a trust at Boston U i it id d it i hi h l i ? C University provided it gives him enough annual income? Can you take the gift? Sam forgot to tell you that he has a $50k mortgage on he condo. Can he still make the gift of real estate into a crut?

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Real Estate

Housing values remain strong in some areas around the country including Massachusetts. Even during a weak economy, people keep buying houses For many donors their homes may

• houses. For many donors, their homes may

represent their most valuable asset. Tap into this wealth. Many donors are exploring real estate gifts discussions for residential and commercial

• properties. Exclusion: $250K and $500K.

p p $ $

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Restricted Stock Don James is President of a small private company that is just about to go p p y j g

• public. Don holds large shares of the

company’s restricted stock that he wants to gift to Pomona College to establish a crut in the endowment. He wants to avoid the capital gains taxes on his stocks avoid the capital gains taxes on his stocks. Can he do this and if so, how?

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Conclusion

• Planned giving is part of family philanthropy.
• It is another tool for all of you to use
• It is another tool for all of you to use.
• A planned gift can help the donor think of a

much larger gift.

• More donors are interested in blended gifts.

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