How To Raise Money For Charity

Transcription

1 Fundraising in a nutshell for nonprofit CEOs & development staff: Leveraging charitable giving in the current environment Meg Greene, Esq. Kenleigh Nicoletta, Esq. Amelia Kurtz, Senior Fiduciary Officer Donna Temple, Senior Account Officer James Robbins, Nonprofit Liaison

2 2 Today s Agenda Fundraising in a nutshell for nonprofit CEOs and development staff: Leveraging charitable giving in the current environment Wednesday, November 5, :00am to 10:00am Hilton Garden Inn Commodore Room 65 Commercial Street, Portland, ME 8:00 Registration & Breakfast 8:15 Introductions & Opening Remarks - Jim Robbins 8:20 Charitable Giving Landscape Amelia Kurtz 8:30 Leveraging Lifetime Tax Benefits Meg Greene 9:00 Another tool Charitable Gift Annuities Jim Robbins 9:10 Leveraging Testamentary Tax Benefits Kenleigh Nicoletta Compliance: Is your housekeeping in order? 9:30 What we re seeing: Case studies Donna Temple 9:40 Q&A Discussion 10:00 Adjourn

3 3 Here in Maine There are approximately 12,900 nonprofits Source:

4 Charitable Giving Priorities 4

5 5 Where Maine Ranks Median giving in Maine is lowest in nation Maine is 51st out of 50 states & Puerto Rico Median contribution is $1,403 Median discretionary income is $50,076 Source: (August 2012)

6 6 Testamentary Giving in Maine is Exceptional Maine ranks 3rd in the percentage of estates making gifts to charity (40% as compared to 22% nationally) Maine is 9 th in average size of estate gifts to charity ($7.7 M v. $10.4 M nationally)

7 7 Donations by individuals accounts for 75% of all charitable giving in Maine Individual charitable giving has been slowly increasing post 2008 recession 98% of high net-worth households nationally gave to charity in 2013 v. 65% of the general population

8 8 Why do individuals give? Key drivers = Financial capacity + Perceived need of non-profits Individuals who are asked to volunteer give more 1/3 high net worth individuals cite tax advantages as key motivator

9 9 Cash vs. Non-Cash Contributions There has been a noticeable decline in the giving of non-cash assets Source:

10 Leveraging Amount of the Charitable Gift 10 Leverage = Tax benefit reduces the cost of the gift

11 Criteria for Obtaining the Charitable Income Tax Deduction 11 Money or property should be contributed directly to a charitable organization If donor receives a benefit (e.g., she pays $200 to attend a charity fundraiser and receives a dinner valued at $50), the income tax deduction is limited to the excess of the contribution over the value of the benefit received = $150 Donor is required to obtain a written receipt when amount of gift exceeds $250, the larger the gift, the greater the details required in the written acknowledgement Generally, no deduction for the value of time or services contributed to charity.

12 Leveraging Lifetime Tax Benefits 12 Amount of charitable income tax deduction is based on the taxpayer s federal and state income tax bracket. The 2014 federal income tax rates for married taxpayers filing jointly are: 28% for taxpayers whose adjusted gross income is over $150,000 but less than $225,000 Up to 39.6% for taxpayers whose adjusted gross income exceeds $458,000 The Maine rate for married individuals filing jointly is 7.95%

13 13 Leveraging Lifetime Tax Benefits 2013 rates for those in the top brackets have gone UP Top marginal federal rate of 39.6% is now 4.6% higher, up from 35% Top capital gain rate is now 5% higher jumped from 15% to 20 % for taxpayers in the top bracket Plus an additional 3.8% on certain net investment income

14 14 Leveraging Lifetime Tax Benefits Flip side: There are new limitations on the charitable income tax deduction Federal limitations on itemized deductions of taxpayers whose adjusted taxable income is greater than $250,000 (individuals)/$300,000 (joint filers), adjusted for inflation Maine cap on charitable deductions limited to $27,500, adjusted for inflation through 2015, in 2016 $45,500 adjusted for inflation, sunsets 12/31/16

15 15 Leveraging Lifetime Tax Benefits Bob and Mary are Maine residents; Bob is 72, Mary is 70 Federal income tax rate of 28% ($175,000 income) Maine income tax rate of 7.95% = 35.95% combined tax rate Estimated taxable estate of $2.5 Million, including their house, retirement plan benefits and life insurance Bob has $600,000 in his IRA; Mary has $1.2 Million in her IRA Mary was given 1,000 shares of Exxon stock by her grandmother Bob and Mary have two children

16 Leveraging Lifetime Tax Benefits Lifetime Qualified Charitable Distribution ( QCD ) from IRA 16 Bob may direct his IRA custodian to distribute up to $100,000 from his IRA to charity (not donor advised fund). Cost of $100,000 gift to charity is $64,000 because Bob avoids having to pay $36,000 in income taxes on IRA distribution Even though we don t know whether the QCD will be extended again this year, there is no harm in making the distribution now. Bob s worse case scenario is that the distribution will be included in his taxable income, after which he can take the charitable income tax deduction.

17 17 Leveraging Lifetime Tax Benefits Lifetime Gifts of Appreciated Securities & Real Estate Mary is not sure she can afford to make a gift to charity. She also hesitates to sell the Exxon stock received from grandmother because it is worth $93/share and has a basis of $1/share. If sold her capital gain tax would be $21, Alternative strategies: Give the $93,000 of Exxon stock to charity. Mary will receive a charitable income tax deduction of $33, AND avoid incurring capital gain tax of $21, The after tax cost of this gift is $38,223. OR Sell the stock for $93,000, net $71, and give a lesser amount to charity

18 18 Leveraging Lifetime Tax Benefits When Anticipating Death Bob learns that he is terminally ill. He decides to make charitable gifts prior to his death in order to take advantage of the charitable income tax deduction. Bob removes the $50,000 gift to charity from his Will and instead makes the gift now. This will save Mary and Bob $17,975 in income taxes. Bob enjoys the recognition he receives for making the gift. The cost of the gift is reduced from $50,000 to $32,025. Bob is able to satisfy his charitable objectives and increase the amount he leaves for Mary by $17,975.

19 19 What are We Seeing: Lifetime Giving More giving of appreciated assets in order to avoid capital gains tax Use of $100,000 gift from IRA ( QCD ) Increasing use of donor advised funds Manage timing of charitable deduction, including prefunding prior to retirement or in response to spike in income Simplify giving of complex assets Reduce expense of changing charitable giving plans over lifetime

20 Leveraging Testamentary Tax Benefits Estate tax exemptions changed substantially at the end of 2012: Federal estate tax exemption is now $5.3 M per individual, indexed annually. Marginal federal and state rate is 44 % above this amount. Maine exemption is $2 Million per individual, but rates are not exorbitant: 8% between $2-5 Million 10% between $5-8 Million 12% over $8 Million 20

21 Leveraging testamentary tax benefits 21 Charitable estate tax deduction is not a key driver BUT choice of vehicle for making the gift is driven by tax planning

22 Leveraging Testamentary Tax Benefits Mary has survived Bob and inherited all of his assets Mary s net worth is $2.5 Million, consisting of: $1.8 Million IRA $300,000 house $175,000 cash $300,000 guaranteed universal life policy for which she paid $200,000 $25,000 whole life paid up policy for which she paid $12,000 Maine estate tax of $40,000 22

23 Leveraging Testamentary Tax Benefits Use of retirement plans to make charitable gifts Mary wants to give $250,000 to charity after she passes away. If Mary names charity as a beneficiary of $250,000 of her IRA, her family will inherit more. Reasons: Charity pays no income tax on the gift from the IRA. Mary s children receive $118,875 more when the $250,000 charitable gift is made from the IRA. They could have had to pay income tax of $118,875 if the $250,000 had been paid to them, rather than charity. 23

24 Leveraging Testamentary Tax Benefits Fixing Problems Related to Use of Retirement Plans to Make Charitable Gifts Mary did not receive good advice: She names her estate as the beneficiary of her IRA. Her Will gives 10% to charity and 90% to her children. The estate SHOULD NOT take any action until expert advice is obtained: Paying the IRA to the estate will result in an immediate income tax of $865,

25 Leveraging Testamentary Tax Benefits Fixing Problems Related to Use of Retirement Plans to Make Charitable Gifts Alternative: Executor instructs IRA custodian to retitle Mary s IRA as follows: 10% to charity, as beneficiary of Mary. No income tax is paid on this amount, saving over $85, % to each child, as beneficiary of Mary. Each child is permitted to defer withdrawal over a period of time. Alternative: Have Executor satisfy charity s entire 10% share with a portion of the IRA (tax savings of about $120,000) 25

26 Leveraged Charitable Giving on Death Should Life Insurance be Considered? Life insurance can provide leverage Mary could decide to give her life insurance policies to charity: $300,000 guaranteed universal policy for which she paid $200,000 and which has a cash surrender value of $100,000. If she makes the gift during her life, she will also receive a charitable income tax deduction of $35,950. $25,000 whole life policy for which she paid $12,000 and which has a cash surrender value of $20,000. Again, if the policy is given to charity during her lifetime she will receive an income tax deduction of $7,

27 27 What are We Seeing: Testamentary Giving Individuals across the spectrum are including charity in their estate plans Decision whether to give on death is not driven by tax planning; selected vehicle for making the gift is tax sensitive Use of retirement plan funds Greater use of donor advised funds, in addition to private foundations Women becoming more engaged in significant charitable giving at end of life

28 28 Compliance: Is Your Housekeeping in Order? Does your organization have a gift acceptance policy? Are you in compliance with the Maine Charitable Solicitations Act? Auctions Do you follow the IRS s substantiation and disclosure rules applicable to certain contributions (see IRS Pubs and 4302)?

29 29 Forecasting the Future Known upcoming changes in federal and state tax law: State and federal caps on charitable income tax deduction are increasing America Gives More Act: passed House, pending in Senate IRA charitable rollover Enhanced food donation deduction for small businesses Enhanced conservation easement deduction Permit gifts made after 12/31 but before 4/15 to be deducted on prior year s return

30 30 Sources and Reference Materials Giving in Maine: 2014 Update of Individual Giving Guidestar National Council of Non-profits Philanthropy.com Tax-Advantaged Year-End Charitable Planning, L. J. Malone, 41 Estate Planning, No. 11, 26 (November 2014) The 2014 U.S. Trust Study of High Net Worth Philanthropy The Urban Institute, Tax Policy and Charities Wall Street Journal

31 Presenters 31 Martha ( Meg ) Greene is a recognized specialist in charitable giving and non profit governance. She assists clients in implementing significant charitable giving plans, including the formation and operation of private family foundations, public charities and the creative use of donor advised funds. Because Meg served as the Managing Director of the John T. Gorman Foundation for 10 years before the Foundation hired full time staff, she has a deep operational understanding of the philanthropic and non profit sectors. Meg currently serves on the Boards of Directors of the John T. Gorman Foundation and the Maine Association of Nonprofits. Kenleigh Nicoletta focuses her practice in the areas of estate planning and advising tax-exempt organizations. She has assisted numerous nonprofit organizations, including both public charities and private foundations, in qualifying for tax exempt status with the IRS, as well as with their continuing tax and corporate compliance. Jim Robbins serves as an Account Officer and liaison to nonprofit clients for Bangor Savings Bank s Wealth Management Group. He brings 25 years of experience in financial services, financial planning and private banking to his current role. Jim has earned designations from the College for Financial Planning as a Para-planning Professional and the Cannon Financial Institute as a Certified Wealth Strategist. Jim is a graduate of the University of Southern Maine where he received a BA in Social Sciences. Jim resides in Portland, Maine. Amelia Kurtz has worked in the financial services industry since She draws upon her in-depth knowledge of investments, trust management and financial planning to apply a comprehensive approach to her client s financial needs. Amelia graduated from Wheaton College and is a Certified Trust and Financial Advisor. (CTFA) Having recently completed the Institute for Civic Leadership s year-long intensive, she serves on the Board of the Maine Women s Fund as well as Big Brothers Big Sisters of Southern Maine. Donna Temple is the Senior Account Officer in the Wealth Management Group of Bangor Savings Bank. Donna has eighteen years of experience in trusts and estates. Donna received her Bachelor Degree from Husson College. Donna is responsible for administrative oversight and relationship management of investment management accounts, fiduciary accounts, endowments and custodial accounts.

32 Charitable Gift Annuity: Solutions based planned giving What is it? A charitable gift annuity is a contract between a donor and a charity represented by an irrevocable gift in exchange for a lifetime income at a fixed rate of interest. How does it work? A donor (usually a couple) gifts appreciated assets (usually stock or real estate) to a charity. The gift is irrevocable. The asset is usually sold by the charity, tax free. The charity, in return, agrees to pay (by contract) the donor a fixed income stream (annuity) for the remainder of the donor (s) life. The donor usually qualifies for a charitable gift income tax deduction (for a portion of the gift) in the year the gift is made. Additionally, the annuity stream usually receives favorable tax treatment as a portion of the stream is characterized as return of principal, and a pro-rata share of capital gain. The annuity agreement becomes a general obligation of the charity. Upon the donor s death, the remainder of the gift (residue) belongs to the charity. According to the ACGA most CGAs leave over 80% of the original gift. Who s eligible? Any individual (usually 60+ years of age) wishing to gift appreciated assets and who may benefit from current and future tax deductions and/or may desire a regular income stream.

33 Charitable Gift Annuity: Solutions based planned giving Win-Win: Pros: Donor A gift to charity of donor s choice, during one s lifetime Easy to understand contract terms An income stream for surviving spouse Income tax charitable deduction Some tax free income Alternative to low interest rate environment Cons: Donor Gift is irrevocable Change in charitable intent Change in charity s status Charity goes bankrupt Pros: Charity Increased donor connection Access to future gift dollars Additional gifting solution for donors Enhanced long-term relationships Increased asset base Cons: Charity Financial risk Actuarial risk Administrative burden Reputation risk Best Practices: Comply with ACGA guidelines and suggested rates Secure professional administration Establish minimum Donor age e.g. 70+ Establish minimum and maximum gift size Consider reinsurance for portion of portfolio Do not advertise rates as they are age dependent