Soltis 9 th Annual Client Appreciation & Wealth Management Conference

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1 Soltis 9 th Annual Client Appreciation & Wealth Management Conference Presentation by Mark J. Morrise Callister Nebeker & McCullough / mjmorrise@cnmlaw.com

2 The Multi Generational Trust

3 CHILDREN S LIFETIME TRUSTS TO PROTECT CHILDREN S INHERITANCE FROM TAXES AND CREDITORS Parents Revocable Trust death of first spouse Survivor s Trust (all of survivor s assets) Family Trust (first $5 million of deceased spouse s assets for surviving spouse & ren) Marital Trust (remainder of deceased spouse s assets for surviving spouse) death of second spouse

4 LIFETIME TRUSTS FOR GRANDCHILDREN Parents Revocable Trust death of first spouse Survivor s Trust (all of survivor s assets) Family Trust (first $5 million of deceased spouse s assets for surviving spouse & ren) Marital Trust (remainder of deceased spouse s assets for surviving spouse) death of second spouse grand grand

5 The Family Bank

6 Family Bank with a Family Council Family Members Create & elect family members to Outside advisors to promote objectivity and foster multi generational harmony Family Council* Creates Family members to oversee specific family bank functions Family Bank Education Missions Medical and emergencies Weddings Home purchase Reunions Graduate school; later descendants education Business loans and investments Hardship loans (limited) *A family council is composed of individual family members elected by the full family to meet regularly and provide guidance and governance.

7 Family Bank with a Board of Managers Family Council Board of outside advisors to mentor and assist on special issues Family Members Elect Managers to Board of Managers Governs Descendants are eligible to become Associates of the Bank* Family Bank Education Missions Medical and emergencies Weddings Home purchase Reunions Graduate school; later descendants education Business loans and investments Hardship loans (limited) *Bank Associates have no ownership; may vote on an advisory (non binding) basis on some decisions; and have full access to Bank information

8 Estate and Income Tax

9 Assets to Be Transferred Out of the Taxable Estate (Wealth Transfer) Transfer Tax Step Up In Tax Basis Income Tax Assets Recognized During (Tax Avoidance and Deferral)

10 A Comparison of Private Foundations and Donor Advised Funds

11 Private Foundations A Private Foundation provides a way to benefit specific charitable interests of the grantor. Donor Contributes low basis assets to foundation Private Foundation Foundation makes annual distributions to further its charitable purposes Charity Advantages Income tax deduction on funding of private foundation Assets can be sold without incurring capital gains tax Benefits charity immediately and on an ongoing basis through annual distributions Can be part of overall estate plan, holding the remainder interest of a charitable remainder trust or as charitable beneficiary of a charitable lead trust Can be funded with restricted stock (although deduction will be limited to cost basis unless qualified appreciated securities ) Family members work together to achieve philanthropic goals Considerations Annual reporting requirements can be cumbersome to manage Annual minimum distribution requirements apply Identification and verification of grant recipients can be time consuming May be reportable as a gift by insiders Additional administrative costs for accounting, legal, or tax filings may be incurred Excise taxes Self dealing restrictions Jeopardizing investment rules may restrict desired investments Excess business holding limitations Gifts to private foundation are irrevocable 11

12 Donor Advised Funds (DAF) A Donor Advised Fund allows the donor to enjoy the tax benefits of a gift to a public charity, while providing similar attributes to a Private Foundation. Donor Donor recommends charities to receive distributions Receives income tax deduction upon contribution Donor Advised Fund Charity Advantages Public charity income tax deduction upon contribution Donor may recommend amounts and charitable beneficiaries of distributions Administration of assets and gift transfers handled by fund May involve family members in charitable distribution decisions Relatively low minimum initial contributions Considerations Donor loses ultimate legal control over assets May be reportable as gift by insiders Gifts to donor advised fund are irrevocable Charitable distributions may not be made to private foundations May have limited scope of investment options Fund management fees 12

13 Private Foundation vs. a Donor Advised Fund: Choosing the Appropriate Strategy Description Donor Advised Funds Charitable account established by donor within a public charity; offered by community trusts or national donor advised funds Anonymity Yes No Accepts Contributions Of Securities & Certain Restricted Stock Yes Yes Donor Control Over Investment Of Assets Donor Control Over Disposition Of Assets Create a unique and perhaps permanent giving legacy Advisory Role. Donor may be able to make recommendations from available offerings Advisory Role. Charity is legal owner of assets. Donor can recommend that charity make grants to eligible entities from their account; charity may follow but has discretion to refuse Yes Private Foundations Charitable organization funded primarily by a single donor or family group Yes. Donor, with board, controls all investment decisions Yes. Donor, with board, controls all grantmaking requests Yes 13

14 Private Foundation vs. a Donor Advised Fund: An Economic Comparison Donor Advised Fund Private Foundation Income Tax Deductions (Amount Deductible as a Percentage of AGI)* Cash Gifts 50% 30% Long-Term Capital Gain Property 30% 20% Amount Deductible Publicly Traded Stock Held Longer Than 1 Year FMV FMV Other Appreciated Long-Term Capital Gain Property (other than tangible personal property) FMV Basis Operating Rules Excise Tax on Investment Income (1% or 2%) No Yes Minimum Payout Requirement (5%) Possible Yes Restrictions on Self Dealing/Excess Benefits Yes Yes Restrictions for Gifts to Non-Public Charities Yes Yes Accounting and Tax Preparation Tax Return Required No** Yes Start-up Costs and Annual Expenses Start-up Costs No Yes Average Administrative Expenses Approximately 1%*** 0.14%-10%**** Investment Management Variable Variable * Any portion of a charitable deduction that cannot be used because of the income limitation may be carried forward and used for up to five years. ** Individual donor-advised fund accounts do not require a separate tax return. *** As a percent of assets in the donor-advised account. **** David F. Freeman and the Council on Foundations. The Handbook On Private Foundations, Revised Ed, c.1991, pp