Walnut Creek, California To insert your company logo on this slide From the Insert Menu Select “Picture” Locate your logo file Click OK To resize the logo Click anywhere inside the logo. The boxes that appear outside the logo are known as “resize handles.” Use these to resize the object. If you hold down the shift key before using the resize handles, you will maintain the proportions of the object you wish to resize. Stephen W. Dale JD LL.M The Dale Law Firm, PC 1670 Riviera Ave, Suite 101 Walnut Creek, California 925-280-0172 www.achievingindependence.com Planned Giving www.nami.org www.specialneedsalliance.com

ABOUT THIS PRESENTATION I do not intend to teach substantive law My objective is to solicit your involvement on a Planned Giving Project. One of the objectives of the Special Needs Alliance is create opportunities for members with leading disability organizations If you cannot get in through the front door – take the back door.

ONE MORE THING There is a version of this presentation on the SNA Website – This version has been mostly stolen from so many sources – I don’t know who I need to make attributions to The Fleming Rule of Attribution.

About this Presentation This is a joint project between NAMI and the Special Needs Alliance The Special Needs Alliance, or SNA , is a national network of lawyers dedicated to Disability and Public Benefits Law. Families rely on SNA as the best way to connect with the nearest lawyer with proven expertise in maintaining public benefits for their loved ones – as well as for estate planning to protect their life savings.

Why Give to NAMI? As America's largest organization of consumers and families, NAMI stands at the forefront of supporting those whose lives have been affected by serious mental illness, and is leading the way in transforming America's mental health care system.

Our Planned Giving Plan Setting a goal Identifying a purpose Raising awareness Integrated message in all contacts Brochure Board training and commitment “Asking for the order”

What Are Planned Gifts? Gift of assets, rather than income Long range Significant tax benefits More thought and effort required Significantly larger than annual gifts

Why Planned Gifts? The fact is that in order for NAMI to do its advocacy – we need resources. THIS MIGHT BE A PLACE FOR INSTANCE FOR THE ARC TO MAKE THE POINT THAT PROGRAMS THAT RELY TOTALLY ON STATE MONEYS ARE LIKELY TO COLLAPSE

First Level Planning 1. Bequests Beneficiary Designations

Second Level Planning More advanced techniques: Gifts of life insurance Charitable Remainder Trusts (CRTs) Charitable Gift Annuities Charitable Residential Life Estates IRAs to NIMCRUTS

What reasons you can think of? Why do people give? What reasons you can think of?

Americans give ($212 Billion) out of a sense of wanting to make a difference… Support worthwhile causes. (79%) Financially successful have responsibility to share good fortune. (69%) Help meet critical needs in their communities. (63%) Help organizations that have benefited them. (50%) Set example for children – avoid “Affluenza.” (46%) Fill gaps left by government cutbacks. (29%) Tax benefits (11%) Earn respect and recognition from peers and community (4%) Pressure from social acquaintances (2%) (US Trust Survey of Affluent Americans 1998)

Why Do People Give? Philanthropy fulfills a basic need to attach meaning to life – to know that our lives matter and that we made a difference in the world while we were here.

The Seven Types of Donors Communitarian (26%) – Doing good makes sense. Devout (21%) – Doing good is God’s will, sense of purpose and mission in life. Investor (15%) – Doing good is good business. Socialite (11%) – Doing good is fun! Repayer (10%) – Doing good in return. Altruist (9%) – Doing good feels right. Dynast (8%) – Doing good is a family tradition. (The Seven Faces of Philanthropy, Russ Prince and Karen File, 1994)

In Summary… People Give to Charity to: Perpetuate ideological, philosophical & religious values Leave a legacy Provide for community, nation, world & society Direct social capital; and Reduce or eliminate taxes.

Controlling Your Wealth: Directing Social Capital That part of your wealth over which you are simply a STEWARD; you have temporary control of it, but eventually the government will use it to provide benefits for the general welfare of society.

Controlling Social Capital! A Word About Taxes… Controlling Social Capital!

The “Coupons” Annual Exclusion - $12,000/person/year Applicable Exclusion Amount - Lifetime Gift Tax Exclusion – Lifetime State Inheritance Tax Exclusion - Lifetime

More tax issues… I.R.D. is B-A-D…

Income in Respect of a Decedent (IRD) Estate assets that generate income after your death, but on which income tax was not paid during lifetime: Retirement plans Annuities IRAs Installment/promissory notes US Savings Bonds

The Problem with IRD… Good assets for gifting!!! The Value of IRD assets is subject to ESTATE TAX and the beneficiaries have to pay INCOME tax when they receive the assets. The combined effect of these taxes means that heirs may receive less than 25% of the assets after all taxes are paid! IRD affects even those without taxable estates! Good assets for gifting!!!

IRD Taxes (Income Taxes on IRAs, Annuities, Etc.) Marginal tax rates on income thresholds for single filer Income Federal State Total $6,000+ 10% 6.2% 16.2% $27,950+ 27% 8.4% 35.4% $67,700+ 30% 9% 39% $141,250+ 35% 44% $307,050+ 36.8% 45.8%

Planned Giving Strategies Our Two Key Strategies You Will Need to Know

Strategy #1--Bequests Amend your Will or Living Trust to make a bequest to NAMI Lowers the donor’s taxable estate – dollar for dollar deduction Can give all, part, or just the taxable amount Testamentary – effective at death.

Strategy #1—Bequests: Amend Will or Trust Designation Options: 1. Designate Percentage* of your Estate I give to the NAMI, five percent (5%) of the residue of my estate. 2. Designate Dollar Amount I give $10,000 to NAMI 3. Designate Real Property I give to NAMI my entire interest in the real property located at 123 Able Street, San Francisco, California. The legal description of the property is …

Strategy #1—Bequests: Amend Will or Trust Sample Language Once you’ve determined that you would like to make a bequest to NAMI, the following sample charitable bequest language can be used in your will or revocable living trust: An Unrestricted Bequest: "I give, devise and bequeath to NAMI (federal tax ID number 43-1201653), located at 2107 Wilson Boulevard, Suite 300, Arlington, Virginia 22201-3042, the sum of $_____ or ____% or real or personal property herein described, to be used for the general purpose of the organization, at the discretion of its Board of Directors."

Strategy #1—Bequests: Amend Will or Trust Sample Language Once you’ve determined that you would like to make a bequest to NAMI, the following sample charitable bequest language can be used in your will or revocable living trust: A Restricted Bequest: (to support a particular program or area of interest to you) "I give, devise and bequeath to NAMI (federal tax ID number 43-1201653), located at 2107 Wilson Boulevard, Suite 300, Arlington, Virginia 22201-3042, the sum of $_____ or ____% or real or personal property herein described, to be used for the purpose of _____________."

Strategy #1—Bequests: Amend Will or Trust Sample Language Once you’ve determined that you would like to make a bequest to NAMI, the following sample charitable bequest language can be used in your will or revocable living trust: A Residuary Bequest: (which leaves any remaining assets from your estate after all other obligations have been met) "I give, devise and bequeath to NAMI (federal tax ID number 43-1201653), located at 2107 Wilson Boulevard, Suite 300, Arlington, Virginia 22201-3042, all the rest, residue and remainder of my estate, both real and personal, of every kind of description, wherever situated and whether now owned or hereafter acquired, including any property with respect to which I may have power of appointment."

Strategy #1—Bequests: Amend Will or Trust If you have remembered NAMI in a similar way, please notify NAMI's Office of Development.  It will give us an opportunity to welcome you to the NAMI Iris Circle, a select group of NAMI supporters who are committed to ensuring NAMI's ability to serve generations to come.

Strategy #1—Bequests: Amend Will or Trust Designation Options: Designate For Specific Purpose or for General Fund: I give $25,000 to the National Alliance for the Mentally Ill in ****to create a perpetual endowment fund. This fund shall be called the Dale Family Endowment Fund for advocacy. The income of this fund shall be used to provide an *******. I give $25,000 to the General Fund of the NAMI, to be used wherever the financial need is greatest.

Strategy #1—Bequests: Amend Will or Trust *Designation Caution: Preference is for Specific Dollar Amounts Precludes accountings and delays Percentage gifts can be cumbersome and contentious ALWAYS HAVE DONORS WORK WITH A QUALIFIED ESTATE PLANNING ATTORNEY AND THE EXECUTIVE DIRECTOR!!!

Strategy #2—Change Beneficiary Designations IRAs, retirement plans, 401k, 403b, etc. Easy to do—just a form Lowers taxable estate and Avoids IRD (Income Taxes)! Usually name spouse as primary beneficiary, NAMI as the contingent Can specify percentages Use our exact name

Strategy #2—Change Beneficiary Designations Insurance Contracts Also easy to do—just a form Taxes on the gain on the annuity are avoided

What About The Kids???

What About The Kids??? How much is enough? Conveying your values: How you want to be remembered What was important in your life Set an example Provide direction Involve kids through Philanthropic options: Provide philanthropic wealth with financial wealth.

Charitable Gift Annuity A charitable annuity is an investment vehicle. A gift annuity makes it possible to transfer cash, real estate, or securities to the charitable organization. In exchange, the donor or another designee will receive fixed payments for life from the charitable organization. The charitable organization receives the remaining principle upon the passing of the beneficiary.

Pooled Income Fund A Pooled Income Fund is a type of charitable remainder trust that operates somewhat like a mutual fund, wherein gifts to the fund from many donors are invested in a common fund.

Pooled Income Fund Donors receive income earned by the fund in proportion to the number of shares in the fund.

Pooled Income Fund The charitable organization may use the remaining principal only after the donor’s death and the death of any donor-designated beneficiaries.

Charitable Remainder Trust A Charitable Remainder Trust (CRT) is an irrevocable trust that is designed to convert an investor's highly appreciated assets into a lifetime income stream without generating estate and immediate capital gains taxes. When the trust ends, the remaining assets pass to the qualified charity or charities of your choice.

Charitable Remainder Trust Here’s how it works:  (1) You irrevocably transfer cash, securities, or other property you own into a CRT; (2) As a result of this transfer, you lower the taxable value of your estate and provide significant estate tax savings to your heirs; (3) You select the type of CRT based on your individual needs.

What is a Gift Annuity? A gift annuity is a legal arrangement between a donor and a qualified charitable organization where the donor exchanges cash or other assets in exchange for the organization’s promise to pay the donor or some other designated annuitant(s) a fixed amount of income each year for the life of the annuitant(s).

What is a Gift Annuity? The donor is entitled to a charitable income tax deduction for the “gift value” at the time of contribution The charitable deduction is dependent on the annuitant(s) age, the amount being paid by the charitable organization and interest rate assumptions.

What is a Gift Annuity? EXAMPLE - Mr. Bruce Hilt, age 65, transfers $100,000 cash to NAMI in exchange for a gift annuity. The organization is offering 7.3% to age 65 donors. Mr. Hilt will receive $7,300 per year for the remainder of his life. Mr. Hilt will be entitled to an income tax deduction of $50,382.20 in the year of his gift.

The IRA - NIMCRUT IRA EXAMPLE - Bill Howard and his wife, Doris Howard, established an unfunded joint NIMCRUT, which was named as the beneficiary of Bill’s $250,000 IRA.

The IRA - NIMCRUT ILIT They also established a joint wealth replacement life insurance trust for the benefit of their children, which owns a second to die $250,000 universal life insurance policy, that insures both Bill and Doris Howard’s lives.

The IRA - NIMCRUT IRA If Bill dies first, the $250,000 IRA is paid to the NIMCRUT to provide Doris Howard with the same income the IRA would have paid her.

The IRA - NIMCRUT IRA Upon Doris Howard’s subsequent death, NAMI would receive the balance of the IRA proceeds tax free.

The IRA - NIMCRUT ILIT Bill and Doris Howard’s children will receive the $250,000 of life insurance proceeds from the joint wealth replacement life insurance trust, both income tax free and estate tax free.

The IRA - NIMCRUT Whereas, had the children received the IRA, they would have had to pay both income tax and estate tax on the IRA. After all these taxes, the IRA would have only netted them less than $100,000.

What is a Life Estate Contract?. 1. The donor can transfer real estate to a charitable organization reserving the right to live on and enjoy the use of the real property for life. 2. Only a personal residence or a farm or ranch will qualify for income, gift and estate tax deductions. 3. The donor receives an immediate income tax deduction for the remainder value of the gift. Depreciation must be taken into account on any structures. 4. The donor avoids the capital gains tax at the time of transfer.

Life Estate Rollover Options: Under Sec. 170(f)(2) of the Internal Revenue Code, a person may give a remainder interest in a personal residence, farm or ranch to a charity and reserve the right to live there for one or two lives. To Jane for Her Life, Remainder to NAMI

What is a Life Estate Contract?. EXAMPLE – The Smiths have a daughter named Jane who is age 60 and has Bipolar Disorder. They wish to make sure that Jane has a secure place to live for the rest of her life, and to have the home left to NAMI to be used for housing of persons with disabilities similar to Jane. To Jane for Her Life, Remainder to NAMI

What is a Life Estate Contract?. The value of the land is $60,000 and the house is $180,000. The Smith’s transfer the home by deed to NAMI, reserving a life estate for James life. The Smiths receives an income tax deduction of $48,666. Upon Jane’s death, the NAMI will own the real estate in fee simple. To Jane for Her Life, Remainder to NAMI

What Will The Gift Do? Advocacy

Profiles in Charitable Planning How to provide for a disabled loved-one, assist a charity, and get a tax break Or how to donate your home with your disabled child to a Charity Profiles in Charitable Planning

Revenue Rule 2002-20 8 percent Special Needs Trust CRAT The IRS has ruled that a Charitable Remainder Trust may be established for the life of what they call a “financially disabled” person, even thought the trust payments are paid to a trust rather than directly to the beneficiary. Charity

Revenue Rule 2002-20 8 percent Special Needs Trust CRAT Rev. Ruling 2002-20 - The text of the ruling addresses three situations, which are described as follows. Charity

Revenue Rule 2002-20 ISSUE [1] May a trust qualify as a charitable remainder unitrust under § 664 of the Internal Revenue Code, if the unitrust amounts are paid to a separate trust for the life of an individual who is "financially disabled," as defined in § 6511(h)(2)(A)?

Revenue Rule 2002-20 FACTS [2] An individual concurrently creates Trust A, a trust that otherwise qualifies as a charitable remainder unitrust, and a separate trust, Trust B. Under the governing instrument of Trust A, annual unitrust amounts will be paid to Trust B for the life of C. C is an individual who is financially disabled, that is, C is unable to manage C's own financial affairs by reason of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months.

Revenue Rule 2002-20 FACTS [3] Situation 1. Under the governing instrument of Trust B, a designated portion of the amount it receives from Trust A will be paid to C each month. If, at any time in the sole judgment of the trustee, the monthly payment to C is insufficient to provide adequately for the care, support, and maintenance of C, or is insufficient for the needs of C for any reason, additional amounts will be paid as needed to or on behalf of C from Trust B. Upon C's death, the balance remaining in Trust B will be distributed to C's estate.

Revenue Rule 2002-20 FACTS [4] Situation 2. Under the governing instrument of Trust B, the trustee may make distributions of income and principal, as determined in the trustee's sole and absolute discretion, for the financial aid and best interests of C in a manner that supplements but does not supplant any governmental benefits otherwise available to C. Upon C's death, the balance remaining in Trust B will be distributed to C's estate.

Revenue Rule 2002-20 FACTS [5] Situation 3. Under the governing instrument of Trust B, the trustee may make distributions of income and principal, as determined in the trustee's sole and absolute discretion, for the financial aid and best interests of C in a manner that supplements but does not supplant any governmental benefits otherwise available to C. Upon C's death, the governing instrument requires the trustee to reimburse the state for the total costs of medical assistance provided to C under the state's Medicaid plan. C is given a testamentary general power of appointment over the balance remaining in Trust B. If C fails to exercise the power, the balance will be distributed, in equal shares, to C's sister and to X, a charitable organization.

Revenue Rule 2002-20 LAW AND ANALYSIS [8] In general, a charitable remainder unitrust may pay unitrust amounts to a second trust only for a term of 20 years or less. In Situations 1, 2, and 3, the unitrust amounts are payable to Trust B for the life of C, not for a term of years. However, in each of these situations, the sole function of Trust B is to receive and administer the unitrust amounts for the benefit of C, who is unable to manage C's own financial affairs by reason of a medically determinable mental or physical impairment. Upon C's death, the assets remaining in Trust B will be distributed either to C's estate or, after reimbursing the state for any Medicaid benefits provided to C, will be subject to C's general power of appointment.

Revenue Rule 2002-20 LAW AND ANALYSIS In these situations, the use of the assets in Trust B during C's life and at C's death is consistent with the manner in which C's own assets would be used. C, therefore, is considered to have received the unitrust amounts directly from Trust A for purposes of § 664 (d)(2)(A). Accordingly, the term of Trust A may be for the life of C and is not limited to a term of years. [9] The same result would apply if Trust A were a charitable remainder annuity trust.

PLR 199903001 A mother of a disabled child (mom) created the following estate plan for her disabled son with the goal of providing her child with a safe and secure living situation.

PLR 199903001 After the Grantor's death, a one-half undivided interest in Grantor's residence distributed outright to Charity.

PLR 199903001 A life estate in the other one-half interest is to be distributed to a Special Needs Trust for the life of Grantor's Child (Child). The remainder interest in this one-half interest is to be distributed outright to Charity at Child's death. After the Grantor's death, a one-half undivided interest in Grantor's residence distributed outright to Charity.

Use Agreement In the Special Needs Trust the Grantor requests, but does not require, that after her death, the trustee of the Special Needs Trust and the Charity enter into a "use agreement" with respect to the residence.

Use Agreement The use agreement provides that during Child's lifetime, Child will have complete use of the first floor, the back yard, and the pool located in the back yard, as well as access to the second floor for any reasonable purpose with the consent of Charity.

CRAT After the Grantor's death, any property remaining in the Trust is to be distributed to a charitable remainder annuity trust (CRAT) which is to be established after the Grantor's death. CRAT

CRAT 8 percent Special Needs Trust CRAT The CRAT is to distribute annually an annuity amount of 8 percent of the net fair market value of the assets, valued at the date of inception of the CRAT, to the Special Needs Trust.

CRAT CRAT At the death of Child, the CRAT will terminate and the remainder interest is to be distributed to Charity. Charity

SNT The Special Needs Trust is to be established after the Grantor's death for the lifetime of Child, who is totally and permanently disabled. The stated purpose of the trust is to provide financial aid to supplement, rather than replace, the government benefits provided to Child. Special Needs Trust

SNT The child has a general power of appointment over the trust assets. If the child fails to exercise the general power, the balance of the SNT is to be distributed to the Charity when the trust terminates. Special Needs Trust Charity

SNT 8 percent Special Needs Trust CRAT Pursuant to the PLR, the SNT will receive and administer payments from the CRAT for the child’s benefit. Accordingly, the payments will be paid to a named person or persons within the meaning of Section 1.664-2(a)(3). Charity

SNT 8 percent Special Needs Trust CRAT In addition, in the present case, Child has a general power of appointment over the assets of the SNT. Thus, the assets of the trust will be includable in the child’s gross estate, as they were in child’s gross estate in the revenue ruling. Charity

SNT 8 percent Special Needs Trust CRAT Therefore, the payment of the annuity to the SNT will not disqualify the CRAT as a charitable remainder annuity trust under Section 664. Charity

NOW LET’S TALK Are we interested? How can we support each other?