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Advanced Charitable Advanced Charitable Brainteasers: Brainteasers: Common Problems and Uncommon Common Problems and Uncommon Solutions Solutions November 1, 2011 Bryan Clontz, CFP ® President Charitable Solutions, LLC bryan@charitablesolutio nsllc.com (404) 375- 5496 If you hear something today that you would like to share with your colleagues, clients and friends, please live-tweet from today’s event using #clontz. Brought to you by:

Advanced Charitable Brainteasers: Common Problems and Uncommon Solutions

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Page 1: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Advanced Charitable Brainteasers: Advanced Charitable Brainteasers: Common Problems and Uncommon SolutionsCommon Problems and Uncommon Solutions

November 1, 2011

Bryan Clontz, CFP®

PresidentCharitable Solutions, [email protected] (404) 375-5496

If you hear something today that you would like to share with your colleagues, clients and friends, please live-tweet from today’s event using #clontz.

All Materials Copyright 2010, Charitable Solutions, LLC

Brought to you by:

Page 2: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Agenda

EIGHT ADVANCED CHARITABLE CASE STUDIES1. Life-Changing Baseball Coach: Commodities for College2. Artwork to Ireland: Thankfully People Buy Modern Art 3. Corporate Real Estate Give-Back: Employees Retrained 4. Doctors’ With a Good Investment: Believe It or Not!5. Religious Conversion: Stabilizing a Family Foundation6. Asset Compression and Anonymity: Lesson Learned7. Pledge Fulfilled With Leveraged Dollars: Saving Face 8. S-Corporations and Roach Motels: Tax Arbitrage is a

Beautiful Thing

#clontz

Page 3: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #1 – Situation

LIFE-CHANGING BASEBALL COACH: COMMODITIES FOR COLLEGE•Client’s son barely graduated high school

•Went to small Midwestern university on baseball scholarship

•Immediately, coach positively changed son’s life

•Son is 27, graduated from Princeton and VP in father’s Commodity Trading Business

•Father wants to create a Scholarship Fund to honor coach

•Doesn’t want Fund if coach leaves or retires

•Father’s assets are limited except for three seats on the NYMEX

Source: Spectrem Group and Reality Times, June 2004 #clontz

Page 4: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #1 – Solution

NYMEX Seat

Made Grants to Coach’s

Current School for

Baseball Scholarships

Family Donor Advised Fund:

Son Named

Successor Advisor

Father Wants to

Thank Baseball

Coach

#clontz

Page 5: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #2 – Situation

ARTWORK TO IRELAND: THANKFULLY PEOPLE BUY MODERN ART•New York client owns multiple pieces of inherited art currently in storage•Originally intended to bequeath art to local church•Now he wants to make a $500,000 donation to an Irish charity’s endowment with no US-affiliate•Ideally, he would like to keep the money with his investment advisor for the next 10 years

#clontz

Page 6: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #2 – Solution

Donor Advised Fund Sells Art

at Sotheby’s for $500,000

Money Manager Named

Investment Agent

Two Paintings

5% Distributed Annually

to US-Based Donor Advised Fund

Specializing in International Grants

Donor Seeks to

Support

Irish Charity

#clontz

Page 7: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #3 – Situation

CORPORATE REAL ESTATE GIVE-BACK: EMPLOYEES RETRAINED•Fortune 500 corporation shut down domestic textile mill production and outsourced jobs•Goal was to create a foundation to provide job-retraining and social service grants to effected employees•Critically important to maximize tax savings and minimize administrative burden•Would consider funding with cash or shuttered mill property

#clontz

Page 8: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #3 – Solution

Corporation Donor Advised Fund

VP/Community Affairs Named

Fund Advisor

Mill Real Estate

Grants to Multiple Southeastern Rural

Communities for Job Retraining and

Social Services

Public Corporations

Wants to Support

Displaced Employees

#clontz

Page 9: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #4 – Situation

DOCTORS WITH A GOOD INVESTMENT: BELIEVE IT OR NOT!• Four doctors owned their medical building with virtually

zero cost-basis• A regional REIT offered to purchase it every year• Doctors wanted to retire and sell practice to six junior

doctors• Junior doctors wanted long-term lease• Each doctor was charitably-inclined but wanted to

maximize tax savings and receive a life income• Two were particularly concerned about disinheriting

children/grandchildren with donations

#clontz

Page 10: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #4 – Solution

$1.2 million/20% Interest

Four Donor Advised Funds

Children Successor Advisors

Multiple Grants

to Multiple Charities

$1.2 million/20% Interest

$1 Million

Insurance

Trust #1

$300K

Insurance

Trust #2

Four 7 Percent

Charitable Remainder Trusts

for LifeFour Doctors

Owned $6.0 Million Medical Building

#clontz

Page 11: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #5 – Situation

RELIGIOUS CONVERSION:STABILIZING A FAMILY FOUNDATION • 5 years ago, grandfather wanted a 100% charitable estate

tax deduction without irrevocably giving the assets to charity

• Now, two children and four grandchildren are on foundation’s board – one grandchild married outside of faith and upset her brother

• She feels ostracized and can’t make grants to new church• Family foundation had not met 5% payout requirement

and also wanted to grant to an environmental charity but application expressly excluded environmental groups

#clontz

Page 12: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #5 – Solution

Donor Advised Fund

for Daughter

Daughter Made Grants on Her Terms

and Family Foundation Flowed Anonymous Grants Through Fund

26-Year Charitable

Lead Annuity Trust/

Family Foundation

2 Parents/4 Children

#clontz

Page 13: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #6 – Situation

ASSET COMPRESSION AND ANONYMITY: LESSON LEARNED

• An overly optimistic client was named capital campaign chair for church – promised completion in 24 months

• As a warehouse developer, he held a number of triple-net lease properties which he wanted to tax-effectively transfer to his children

• 23.9 months into the campaign, he called to say the campaign was $300,000 short and he needed some solutions

• Also, his 80-year-old mother planned to contribute $500,000 to the church campaign for a charitable gift annuity (income for life) but was concerned about default risk

#clontz

Page 14: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #6 – Solution

Donor Advised Fund for

Anonymous Campaign Gift

Mother’s 8% Charitable Gift Annuity

Church Foundation

Single Premium

Immediate Annuity

13-Year Zero-Out

Charitable Lead

Annuity Trust

Funded With Family

Limited Partnership/

Triple-Net-Lease

Property

#clontz

Page 15: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #7 – Situation

PLEDGE FULFILLED WITH LEVERAGED DOLLARS: SAVING FACE • 65 entrepreneur pledged $10 million to name a business school in

1999• Company collapsed in 2006 and he had $7 million remaining on the

pledge• School said either $7 million now or $15 million in an irrevocable

estate gift• Client had an $4 million IRA, $13 million stock portfolio and a $5

million life insurance policy ($2 million in cash) originally purchased in 1985 as a cross-purchase business buy-sell (underperforming) and about $300K in cash

• Client does not want pledge fulfillment to negatively impact three children

#clontz

Page 16: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #7 – Solution

Donates Policy to University

Funds with IRA Contribution and

$2 million Appreciated Stock

Donor 1035-Exchanges Old

Policy For Better Performing

$15 Million Death Benefit/

$4 Million Cash Value

Donor Needs to

Complete School

Pledge

$2 Million

Life Insurance Trust

For Three Children

$100K from

IRA – Tax-Free

#clontz

Page 17: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #8 – Situation

S-CORPORATIONS AND ROACH MOTELS: TAX ARBITRAGE IS A BEAUTIFUL THING•Investment advisor’s firm is a S-Corp and he wants to sell $500,000 to new partner•State income tax rate is 8%•Investment advisor is charitably-inclined•Advisor wants to use the S-Corp stock if possible to make a contribution to consumer credit counseling•S-Corp has zero cost-basis and all gain is categorized as unrelated business taxable income to the charity (UBTI)

#clontz

Page 18: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Charitable Brainteaser #8 – Solution

Public Charitable Trust

With a Donor Advised Fund

Sells to New Partner/15% Gains

Tax Reduced by 50% for Deduction

Charity Receives Net 94% of Gift as Grant

Donor Receives a 100% FMV Deduction

Vs. Sale and Gift Netting 77% to Donor and Charity

Advisor Contributes

S-Corp to Trust-Form

Public Charity in

Florida (Income

Tax-Free State)

#clontz

Page 19: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

The following slides were developed by Lee Hoffman, President/CEO, Planned Giving Design Center from data derived from "The 2010 Study of High Net Worth Philanthropy" Sponsored by Bank of America and researched and written by The Center on Philanthropy at Indiana University

Page 20: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions
Page 21: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

#clontz

Page 22: Advanced Charitable Brainteasers:  Common Problems and Uncommon Solutions

Thank you for Coming!

Bryan Clontz, CFP®

PresidentCharitable Solutions, [email protected] (404) 375-5496

Peter A. DunnPresident & CEOCentral New York Community [email protected](315) 422-9538