2. using a Community Foundation Allyson Baumeister, C.P.A. John Hunter, J.D., C.P.A. Nancy E. Jones October 4, 2011 Charitable Planning...

3. Community Foundation of North Texas Top 10% Established in 1981 Assets: $145,000,000 Total grants 2010: $ 8 million Total grants since 1981: $130 million

4. CFNTx Assets 1985-2010

5. 2010 CFNTx Grant Dollars

6. When should you be thinking about using a Community Foundation ?

7. Trigger points Client is selling a business Wants to establish a private foundation with less than $5 – 10 million. Closely held shares or highly appreciated non cash assets Client is transferring wealth to generations Client is making charitable gifts in a will

8. Deductibility Gifts of cash are deductible up to 50% of AGI (30% AGI in PF ) Gifts of appreciated property are deductible up to 30% of AGI. (20% in PF) Gifts of closely held stock are deductible up to 30% of AGI (limited to COST basis in PF)

9. Additional considerations NO 5% minimum spend rate from a CF fund NO excise tax on investments in a CF NO separate audit NO mandatory Form 990-PF filing Self-dealing issues minimized

10. Comparison Advantages Ease, little paperwork No 990, no separate audit Anonymity or recognition Choices of Investments Family Involvement Maximum Tax Deductibility Local knowledge No minimum 5% payout Self dealing not an issue Disadvantages No ultimate control Investment choices Some Grants not possible (tables, scholarships, grants to individuals) Donor does not have prestige of own Foundation

11. Designated Fund Client can assist a charity without giving the charity ultimate control of gift Can set up “If, then” constructs CF as 3rd party ensures compliance with restrictions

12. Bequests Often easier to use the foundation to make all the charitable distributions for an estate; Use a side letter to provide detailed instructions and conditions (Client’s will cites the Fund)

13. Private Foundation Transfer Private foundation administration may become burdensome or costly Transfer assets to a donor advised fund at the Community Foundation and terminate private foundation status. Foundation’s name carries over to the donor advised fund

14. Procedures for Converting a Private Foundation Execute a donor advised fund agreement to name fund and advisor(s) Pay any investment excise taxes owed prior to dissolution The private foundation files a Form 990-PF for the termination year.

15. John D. Hunter, J.D., C.P.A. The Blum Firm, P.C. Vice-Chair, Professional Advisor Outreach Committee for the CFNT

16. Benefits of Using Community Foundation of North Texas Local Leadership and administration are just down the street Knowledgeable Nancy Jones understands! Uses sophisticated counsel Client-Friendly 2-3 page agreements (not 14!) Wants to sit down with and get to know client Clients have all had positive feedback

17. Benefits of Using Community Foundation of North Texas (continued) Consistency Flexibility Can use own investment manager if assets large enough Will base investment decisions on timing of expected distributions

18. McCord Transfer: Sale of Shares Client sells X shares to the Dynasty Trust in exchange for a Promissory Note $Y Million = FMV of X shares less charitable gift amount (C) as determined by appraisal Promissory Note for $Y Million Stock with FMV = $Y Million Client Community Foundation of North Texas Estimated $C Dynasty Trust No Net Gift Amount Above $Y Million

19. McCord Transfer: Valuation Agreement Community Foundation of North Texas Dynasty TrustValuation Agreement

20. McCord Transfer Technique (to Donor Advised Fund with Valuation Agreement) Provides third party confirmation of value Transfers wealth to the next generation Establishes a donor advised fund There is some 4958 risk if the value is too low Estate/Gift Tax auditors are not tax-exempt auditors

21. McCord Transfer Technique (to Donor Advised Fund without Valuation Agreement) Provides third party confirmation of value Transfers wealth to the next generation Establishes a donor advised fund Avoids Gift Tax Risk that more goes to charity because of audit

22. McCord Transfer Technique (to CFNT Designated Fund or CFNT Field of Interest Fund) Same facts but establishes designated fund or field of interest fund Provides valuation certainty Tested in Fifth Circuit

23. Allyson B. Baumeister, CPA, Partner Sanford, Baumeister & Frazier, PLLC Chair, Professional Advisor Outreach Committee for the CFNT

24. The Community Foundation as a Partner in a Business Sale Sale Scenario Business owner is selling stock in closely-held company Owner wants to make a charitable gift of company stock prior to the sale Owner wants to maximize the charitable contribution to the organization as well as his contribution deduction for tax purposes

25. The Community Foundation as a Partner in a Business Sale (Cont.) Steps for Owner to take for tax deduction purposes Must obtain appraisal of company stock prior to sale by qualified appraiser Must make charitable gift prior to sale Must work with Community Foundation in accomplishing the above steps Community Foundation sells the stock that they have received for full fair market value as of date of sale Gift can be spread out over period of time as sales proceeds are received

26. The Community Foundation as a Partner in a Business Sale (Cont.) Results of charitable transfer prior to sale Owner receives a tax deduction for the full fair market value of the stock as of the date of contribution Owner does not recognize gain on sale of the stock that is transferred to the Community Foundation Foundation receives full sales proceeds related to the stock that they have received at the time of sale and at the time of any future payments associated with the sale

27. The Community Foundation as a Partner in a Business Sale (Cont.) Results of charitable transfer prior to sale Community Foundation receives a larger contribution since no tax is paid on the gain resulting from the sales transaction Owner is able to accomplish charitable goal and withstand IRS scrutiny as long as the Community Foundation receives proceeds equal to or greater than the amount of the appraised value and charitable deduction claimed.

28. Questions and Comments