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Juicing Up Your CGA Program in a Low Interest Rate Environment: Turning Lemons into Lemonade

CHICAGO COUNCIL ON PLANNED GIVING ANNUAL SYMPOSIUM – MAY 25, 2017

Marilyn B. Schaffer, CAP Director of Planned Giving Lincoln Park Zoo Chicago, Illinois

Joel Schaffer, CFP Director of Gift Planning University of Illinois Foundation UIC Chicago, Illinois

UIC

Agenda

 Is a charitable gift annuity program right for your charity?  The challenge in the current interest rate environment  Case studies  Management issues  Gift annuity guidelines – protecting your charity

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 2

Charitable gift annuities remain a popular giving vehicle

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 3

For the donor:

 Easy to understand and set up

 Provides a steady, guaranteed income stream  Typically provides some tax-free income  Can provide a charitable tax deduction  Opportunity to make a meaningful gift to charity

For the charity:

 CGA contract is easy to understand and create

 CGAs are easy to explain to donors and advisors  Appeal to donors  Can lead to other outright and planned gifts, including the ultimate gift

Is a gift annuity program right for your charity?

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 4

Things to consider

 How long the charity has been in existence?

 Assets owned by the charity.  Staff to market, solicit and administer the program.  Donor base – how big is the donor pool and how many are age 60+?  Do you have an endowment?  Do you have an investment policy in place?  Have you obtained the necessary registration requirements for the states where you want to issue CGAs?

Do Good for Kids Charity Established 2015 Relief from Pain Charity Established 2005

The challenge in a low rate environment

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 5

 Extremely unattractive annuity rates available for donors under age 70  Volatility of the markets  Can the charity earn enough to cover the payments  Viability of your gift annuity pool

0.5 1 1.5 2 2.5 3 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17

IRS Discount Rates

Cases studies Charitable Gift Annuities

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Quick review – Gift Annuity 101

Gift of property Donors Income tax charitable deduction Fixed payments Charitable Gift Annuity Remainder to Weiner Dog Charity The Weiner Dog Charity

Case Studies Immediate pay gift annuities

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#1 Laddering annuities for maximum benefit

Donors: Mr. and Mrs. Peter Cheng  First met in 2013, now age 75 and 72

 Support a number of organizations, including the zoo.  Have given annually for many years, but very modest gifts  Have means, but do not see themselves as able to make a significant gift  Had established gift annuities with other organizations

Laddering annuities for maximum benefit

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Gift Annuity #1 Annuitant: Mr. Peter Cheng Annuitant Age: 72 Date of Gift: Nov 2013 Cash Donated: $10,000 Annuity Rate: 5.4% Charitable Deduction: $4,240 Annuity: $540 Tax-free Portion: $397 Ordinary Income: $142 Year 1: Charitable Gift Annuities – funded with cash Gift Annuity #2 Annuitant: Mrs. Janet Cheng Annuitant Age: 70 Date of Gift: Dec 2014 Cash Donated: $10,000 Annuity Rate: 5.1% Charitable Deduction: $4,002 Annuity: $510 Tax-free Portion: $377 Ordinary Income: $132 Gift Annuitant #3 Annuitant: Mrs. Janet Cheng Annuitant Age: 71 Date of Gift: Jan 2016 Cash Donated: $10,000 Annuity Rate: 5.3% Charitable Deduction: $4,014 Annuity: $530 Tax-free Portion $393 Ordinary Income $136

Laddering annuities for maximum benefit

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 9

Gift Annuity #1 Annuitant: Mr. Peter Cheng Annuitant Age: 72 Date of Gift: Nov 2013 Cash Donated: $10,000 Annuity Rate: 5.4% Charitable Deduction: $4,240 Annuity: $540 Tax-free Portion: $397 Ordinary Income: $142 Year 2: Charitable Gift Annuities – funded with cash Gift Annuity #2 Annuitant: Mrs. Janet Cheng Annuitant Age: 70 Date of Gift: Dec 2014 Cash Donated: $10,000 Annuity Rate: 5.1% Charitable Deduction: $4,002 Annuity: $510 Tax-free Portion: $377 Ordinary Income: $132 Gift Annuitant #3 Annuitant: Mrs. Janet Cheng Annuitant Age: 71 Date of Gift: Jan 2016 Cash Donated: $10,000 Annuity Rate: 5.3% Charitable Deduction: $4,014 Annuity: $530 Tax-free Portion $393 Ordinary Income $136

Laddering annuities for maximum benefit

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 10

Gift Annuity #1 Annuitant: Mr. Peter Cheng Annuitant Age: 72 Date of Gift: Nov 2013 Cash Donated: $10,000 Annuity Rate: 5.4% Charitable Deduction: $4,240 Annuity: $540 Tax-free Portion: $397 Ordinary Income: $142 Year 3: Charitable Gift Annuities – funded with cash Gift Annuity #2 Annuitant: Mrs. Janet Cheng Annuitant Age: 70 Date of Gift: Dec 2014 Cash Donated: $10,000 Annuity Rate: 5.1% Charitable Deduction: $4,002 Annuity: $510 Tax-free Portion: $377 Ordinary Income: $132 Gift Annuitant #3 Annuitant: Mrs. Janet Cheng Annuitant Age: 71 Date of Gift: Jan 2016 Cash Donated: $10,000 Annuity Rate: 5.3% Charitable Deduction: $4,014 Annuity: $530 Tax-free Portion $393 Ordinary Income $136

Case Studies Immediate pay gift annuities - continued

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# 2 Donor with significant growth stock portfolio, producing no income

Donor: Mrs. Fancy Bumpkins

 Widow, grown children all very well off  82 years old at the time of the gift  Connected with the University for over 20 years, husband was alumnus and former Trustee  Supported the University with large outright gifts over the years

UIC

Donor with significant growth stock portfolio, producing no income

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 12

Gift Annuity – funded with stock Annuitant: Mrs. Fancy Bumpkins Annuitant Age: 82 Stock Donated $1,500,000 Cost Basis of Property $250,000 Annuity Rate: 7.2% Charitable Deduction $759,045 Annuity $108,000 Tax-free Portion $14,886 Capital Gain Income $74,430 Ordinary Income $18,684

UIC

Case Studies Immediate pay gift annuities - continued

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 13

#3 Sometimes it pays to be older

Donor: Mr. Philip Smith  Widowed, wife died in 2005  Supported the zoo for over 25 years – small gifts  Dedications after wife died  Concerned that the bequest he had planned for the zoo will be less than intended

Sometimes it pays to be older

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Gift Annuity – funded with cash Annuitant: Mr. Philip Smith Annuitant Age: 87 Date of Gift: April 2016 Cash Donated: $300,000 Annuity Rate: 8.2% Charitable Deduction: $177,336 Annuity $24,600 Tax-free Portion $20,443 Ordinary Income $4,157

Cases studies Deferred Gift Annuities

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Quick review – Deferred Gift Annuity 101

Income tax charitable deduction Fixed payments - the payments will not begin until a specified date in the future Gift of property Donors Charitable Gift Annuity Remainder to The Smelly Cat Charity The Smelly Cat Charity

Case studies Deferred Gift Annuity

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#3 Sometimes it pays to wait

Donor: Ms. Gretchen Goodtimes

 60 year old, living in Minneapolis  Had attended the University, but never graduated  Family had attended the University  Had a career in pharmacy, planning her retirement  Widow, no children

UIC

Sometimes it pays to wait

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 17

Deferred Gift Annuity – funded with cash Annuitant: Ms. Gretchen Goodtimes Annuitant Age: 60 Date of gift: Jan 2017 Age at Date of First Payment March 2027 Age at First Payment: 70 Cash Donated $50,000 Annuity Rate: 7% Charitable Deduction $22,723 Annuity $3,500 Tax-free Portion $1,715 Ordinary Income $1,785

UIC

Cases studies Flexible Gift Annuities

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Quick review – Flexible Gift Annuity 101

Fixed payments - donor initiates start of payments within a range of future dates Gift of property Donors Remainder to The Rescue Kayaks from Rivers Charity Charitable Gift Annuity The Rescue Kayaks from Rivers Charity Income tax charitable deduction

Case studies Flexible Deferred Gift Annuity, continued

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#4 The cautious investor

Donor: Ms. Inga Halvorsen  Divorced, one grown child  Long time zoo volunteer  Not philanthropic  Conservative stock investor, has some stock with very low cost basis  Financially comfortable, does not need current income Unsure of future financial needs

The cautious investor

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Flexible Gift Annuity – funded with stock Annuitant: Mrs. Inga Halvorsen Annuitant Age: 61 Date of Gift: Nov 2010 Payment Start Date Range: 12/31/2011 – 12/31/2018 Principal Donated: $10,930 Cost Basis of Property: $906 Charitable Deduction $2,103 Annual Payment and Taxation for Elective Payment Start Dates

Elective Start Date Age at Start Date Annuity Rate Capital Gain Tax-free Portion Ordinary Income Total Annuity

12/31/2011 62 5.5% $362 $33 $207 $601 12/31/2012 63 5.7% $377 $34 $212 $623 12/31/2013 64 6.1% $391 $35 $240 $667 12/31/2014 65 6.5% $407 $37 $267 $710 12/31/2015 66 6.8% $424 $38 $281 $743 12/31/2016 67 7.2% $442 $40 $305 $787 12/31/2017 68 7.7% $462 $42 $338 $842 12/31/2018 69 8.2% $485 $44 $367 $896

Flexible Gift Annuities – yearly letter to annuitants

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DATE NAME ADDRESS CITY, STATE ZIP Dear Salutation, Thank you for the flexible gift annuity you set up with ABC Charity [Date Annuity Established]. Per to the terms of your agreement, you have the

• ption of initiating your annual annuity payments in 2017, beginning on

[DATE of payment in 20__]. If you choose to start receiving payments next year your annuity rate would be [Annuity Rate%]and your annual payment amount would be [$Annual Payment Amount]. You may also choose to continue to defer the payments. Enclosed is a reply form. Please indicate if you would like your payments to begin in 20__ or if you wish to continue to defer your payments, and mail the form to me. An envelope is enclosed for your convenience. Per the agreement, if you do wish to begin receiving payments, we need to receive this form 90 days prior to the first payment date. Please give me a call at 555-555-5555 if you have any questions. Thank you again for setting up this annuity and for everything you do for ABC Charity. Best wishes for a wonderful holiday season. Warm regards,

Flexible Deferred Gift Annuity – [YEAR] Election Thank you for the flexible gift annuity you set up with ABC Charity. Per to the terms of your agreement, you have the option of initiating your annual annuity payments next year or you may also choose to continue to defer the payments. For my annuity established on [DATE ESTABLISHED], I am making the following election: Option 1



I wish to begin receiving annual annuity payment for my annuity in 20__. First Payment Date __________ Annual Annuity Rate __________ Annual Annuity Payment Amount $_________ Tax-free Portion $_________ Ordinary Income $_________ After ________ years, the entire annuity becomes ordinary income. Option 2



I wish to continue to defer receiving annual annuity payments for another year. Name: [DONOR NAME] Signature Date Mail the completed form to: ABC Charity Philanthropy St Chicago, IL 60600

Management Issues

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Administration of your program  Responsibility for making annuity payments  Issuing 1099-Rs  Yearly assessment of financial ratio of your CGA pool Investment of CGA funds

Gift Annuity Guidelines – protecting your charity

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Issues to address:  Minimum age to establish immediate pay gift annuity  Minimum age to establish deferred or flexible gift annuity  Minimum gift amount  Assets accepted to fund an annuity  Annuity rates that will be offered  Payment frequency  Designation for residuum  Special procedures

QUESTIONS???

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 24

?

? ?

Thank you!!!

CHICAGO COUNCIL ON PLANNED GIVING SYMPOSIUM 2017: JUICING UP YOUR CGA PROGRAM 25

Guidelines for Annuity Administration and Investment Subsection of the University of Illinois Foundation Guidelines for Annuity and Life Income Administration and Investment. (Revised July 2016) Charitable Gift Annuities Any charitable gift annuity issued by the Foundation shall be issued in accordance with payout rate guidelines established by the American Council on Gift Annuities (ACGA) which assumes that UIF, as the charity, will receive a residue of approximately 50% of the gift value upon

• termination. These gifts shall be subject to the following guidelines.

 The property transferred in exchange for an annuity should have a value of $10,000 or more. Any exceptions shall be subject to the written approval of the Vice President for Gift Planning and Trust Services.  The minimum age of any annuitant shall be 60 years. A deferred gift annuity can be established at any age as long as the annuity payments are deferred until the annuitant(s) reaches age 60. Exceptions may be made where it is determined to be reasonable after considering such factors as the ages of all of the beneficiaries and the size of the gift. Such exceptions shall be subject to the written approval of the Vice President for Gift Planning and Trust Services.  Annuity rates recommended by the ACGA shall be used as guidelines in determining payout rates. Any deviation from the ACGA recommended rates will be approved in writing by the Vice President for Gift Planning and Trust Services.  The property transferred in exchange for an annuity shall be liquidated as soon as practical and proceeds invested in the gift annuity pool.  A gift annuity issued on the remainder value of a life estate or funded with real estate will have prior written consent of the UIF Treasurer. In these cases, consideration may be given to the age of annuitants, the liquidity of the real estate, the proposed payout rate, the expected residuum, and discounting the value on which the payout is calculated.  Gift annuities are for the sole benefit of the Foundation; no other charity may be included as a beneficiary of the residuum.  The primary investment consideration for the gift annuity pool shall be one of total return.

Juicing Up Your CGA Program in a Low Interest Rate Environment Presented by Joel Schaffer and Marilyn Schaffer CCPG 2017 Symposium – May 25, 2017 ADDENDUM 2

Approved by the Planned Giving Advisory Committee February 24, 2009 Amended September 9, 2014 Amended February 14, 2017

Juicing Up Your CGA Program in a Low Interest Rate Environment Presented by Joel Schaffer and Marilyn Schaffer CCPG 2017 Symposium – May 25, 2017 ADDENDUM 3

Charitable Gift Annuity Program Guidelines I. Assets accepted to fund a charitable gift annuity. The Lincoln Park Zoological Society will accept cash or readily marketable securities to fund an immediate, deferred charitable gift annuity or flexible gift annuity. II. Minimum ages for establishing a charitable gift annuity. For an immediate charitable gift annuity, the minimum age to establish an annuity is 65. In the case of a two-life annuity, the minimum age would apply to the younger of the two annuitants. For a deferred charitable gift annuity or flexible gift annuity, the minimum age to establish an annuity is 55, and the minimum age of the annuitant(s) when payments begin is 65. III. Minimum gift amount to establish a charitable gift annuity. The minimum gift amount to establish a charitable gift annuity is $10,000. IV. Annuity Rates that will be offered. The Lincoln Park Zoological Society will follow the rates recommended by the American Council on Gift Annuities, which is designed to result in a residuum of at least 50% for the zoo. V. Designation for the residuum of the annuity. With the approval of the President of Lincoln Park Zoo, the donor may designate the purpose he/she wants the residuum used to support. If undesignated, the residuum will be used to support the operation of Lincoln Park Zoo. VI. Special procedures. If a proposed gift annuity is for $500,000 or greater, or the donor’s primary residence is

• utside of Illinois, the proposed annuity will be submitted for review and acceptance to

the Executive Committee per Section V. of the Gift Acceptance Policy of the Board of Trustees.