1. Donating appreciated assets like stock instead of cash to charity allows donors to avoid capital gains taxes while still receiving a charitable deduction for the full fair market value. 2. Taking required minimum distributions from retirement accounts after age 70 1/2 and donating them to charity provides tax benefits as the distributions are not considered taxable income. 3. Creating charitable remainder trusts allows donors to receive an immediate income tax deduction today based on the future value of the charitable gift, even though the charity does not receive the assets until later.

1. Top 10 Charitable
Planning Strategies for
Financial Advisors
Russell James, J.D., Ph.D., CFP®
Texas Tech University
Dept. of Personal Financial Planning

2. 1. Never give cash

3. Donor Charity
$100k Cash
Donor Charity
Income tax deduction
($100,000 x 39.6%)
$39,600
+
Avoid capital gains tax
($90,000 x 23.8%)
$21,240
Income tax deduction
($100,000 x 39.6%)
$39,600
$100k Stock

4. Donor Charity
$100k low
basis stock
$100k
cash
immediately buy
identical stock
(100% basis)
The Charitable Swap
No “wash sale” rule
because this is gain
property, not loss
property

5. Donor
Charities
$100k
cash
The Charitable Swap
Simplified
Donor
Advised
Fund
$
$
$
$100k low
basis stock
immediately buy
identical stock
(100% basis)

6. Donor
Charities
$100k
cash
A FREE tax benefit you lose
every time you give cash
Donor
Advised
Fund
$
$
$
$100k low
basis stock
immediately buy
identical stock
(100% basis)

7. Did you pay capital gains taxes last year?
Did you make cash gifts to charity?
If so,
You need a new
financial planner.
John Competitor, CFP®
Financial Planning Services for the Charitably Minded
Your.Competition@EatingYourLunch.com

8. 2. Give retirement RMD
first and more at death

9. Life stages of a retirement account
Earlydistribution(before59½)
Regulardistribution (59½to70½)
Requiredminimumdistribution(after70½)

10. Giving after 70 ½
After age 70 ½ participants must take required
minimum distributions (account balance /
remaining life expectancy) or pay 50% penalty
$10,000
$10,000incomeIRA

11. Giving after 70 ½
If the income is not needed, a charitable gift
deduction might offset the income
(if itemizing and no income giving limitations
exceeded and no pease limitation effects and no
negative effects from increased AGI and not in the
wrong state)
$10,000
$10,000incomeIRA $10,000deduction
$10,000

12. Giving after 70 ½
Now permanently, congress has allowed a
Qualified Charitable Distribution (QCD),
eliminating both the income and deduction
$10,000
$0income
IRA
$0deduction

13. Qualified Charitable Distribution (QCD)
$10,000
$0income
IRA
$0deduction
$100,000
per person
maximum
Participant
70 ½ or
older
No private
foundations, donor
advised funds,
charitable trusts, or
charitable gift
annuities
IRAs or IRA
rollovers only; no
401(k), 403(b),
SEP, SIMPLE,
pension or profit
sharing plans

16. IRA(child);House(charity)
$1,000,000 House
$1,000,000 tocharity
$1,000,000 IRA
-$396,000 (39.6%federal
incometax)
-$110,000 (11%Oregonstate
incometax)
IRA(charity);House(child)
$1,000,000 IRA
$1,000,000 tocharity
$1,000,000 House
-$0(noincometax)

17. Retirement plan charitable beneficiaries
• A public charity
• A private family
foundation
• A charitable
remainder trust

18. • Not Charitable Lead Trusts
(because they aren’t tax
exempt)
• Avoid naming estate as
beneficiary with instructions in
estate documents (estate itself
may have to pay income taxes)
Bad retirement plan death beneficiaries

19. Charities are not “designated
beneficiaries”, so could
accelerate RMD’s for other
beneficiaries. Solutions:
• Separate IRAs into a 100% charitable
and 100% non-charitable account
before death (+ RMDs can be taken
from either to match desired plans)
• Beneficiaries can separate accounts by
end of year following participant
death1
• Payout charity share before
September 30 of year following
participant death.2
• If spouse is beneficiary, simply roll
that share into spouse’s IRA
Simple solutions to a potential trap
1. Treas. Reg. sec. 1.401(a)(9)-8 Q&A 2(a) 2. Treas. Reg. sec. 1.401(a)(9)-4 Q&A 4(a)

20. 3. Take deductions today
for transfers tomorrow

21. A remainder
interest in a home
or farm gives the
right to own the
property after a
set time or after
the death of a
person

22. Charitable deduction for
remainder interest deed in
$1,000,000 of farmland by age 59
donor
1.0% (Jan 13)
$804,790
11.6% (May 89)
$156,840

23. Leaving land to charity
by will
• Revocable
• $0 income tax deduction
• Impacts charity after death
Leaving land to charity
by remainder deed
• Irrevocable
• $804,790 immediate income
tax deduction
• Impacts charity after death
or immediately if charity
sells remainder interest
• Immediately increases cash
assets available for
investments (AUM)

24. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life
Charitable Remainder Trusts generate
an immediate tax deduction, even
though donor can manage assets and
receive income for life

25. 4. Match Deductions
with Roth conversions

26. Roth conversions and charitable planning
can work together to match
Income Deductions

27. $1MM in standard
IRA (withdraws
are taxable)
Roth
Conversion
$1MM in Roth
IRA (withdraws
are tax free)

28. Where can I find offsetting deductions?

29. Where can I find offsetting deductions?
Put money into a
• Charitable remainder trust
• Charitable lead trust
(grantor)
• Charitable gift annuity
• Donor advised fund
• Private foundation
Or give a remainder interest
in a residence or farmland to
a charity

30. Charitable deductions may
be limited (with five year
carryover) to 20%, 30%, or
50% of income depending
on gift and recipient

31. If I have unused
deductions, how can I
pull future income into
current year?

32. If I have unused
deductions, how can I
pull future income into
current year?
With a Roth conversion

33. $1MM in standard
IRA (withdraws
are taxable)
Roth
Conversion
$1MM in Roth
IRA (withdraws
are tax free)

34. Roth conversions and charitable planning
can work together to match
Income Deductions

35. 5. Buy life insurance with
new tax deductions

36. Charitable planning
devices such as
Charitable Gift
Annuities, Gifts of
Remainder Interests in
Homes and Farms, and
Charitable Remainder
Trusts produce
amazing tax
advantages, reducing
income taxes, capital
gain taxes, and estate
taxes

37. But, they also reduce heirs’ inheritance
Heir
Charity Donor

38. Life insurance can diminish this concern

39. Can it pay to be
charitable?
Priscilla wants to sell a
$1,000,000 non-income
producing zero-basis asset
then spend the interest
income of 5% while
leaving principal for heirs.
Her combined state and
federal tax rates are:
capital gains (23.8%)
income (39.6%)
estate (40%)

40. Sale
$1,000,000 asset
-$238,000 capital gains tax
Client uses $38,100/year
($762,000 X 5% return)
Heirs receive $457,000
($762,000-$304,800 est. tax)
CRUT
$1,000,000 asset
$0 capital gains tax
$1,000,000 in 5% unitrust
pays $50,000 annually + a
charitable tax deduction of
$300,000 worth $120,000
+ ILIT
Client pays $120,000 initially
and $10,000 annually for a
$400,000 ILIT-owned policy(including post-crummey gift taxes)
Client uses $40,000/year
Charity receives $1,000,000
remainder
Heirs receive $400,000
(tax free from ILIT)

41. John, age 59, at 39.6% income tax rate, owns
$100,000 of farmland which he would like to use for
the rest of his life then leave to charity, but he also
wants to benefit his heirs.

42. Giving the remainder interest to charity creates a
deduction of $80,479 worth $32,869. Suppose this
will purchase a paid-up policy of about $50,000+.
John keeps lifetime use of farm
Charity gets 100% of farm at death
Heirs get $50,000+ (estate tax free)

43. 6. Earn more income by
avoiding capital gains tax

44. A client holds a large,
highly appreciated asset
that generates little
income (like developable
land or non-dividend
paying stock). How can
she convert it to income
generating property?

45. Option 1: Sell it. Pay the capital gains
tax. Earn income on the remaining
amount. $1,000,000 stock
$1,000,000 gain (if zero basis)
$238,000 tax (23.8% fed + ?% state)
$762,000 left to invest AUM

46. Option 2: Transfer to a CRT. Earn
income for life on the full amount.
$1,000,000 stock
$1,000,000 gain (if $100,000 cost)
_____$0 tax (CRT pays no tax)
$1,000,000 left to invest AUM

47. A client holds a highly appreciated asset that generates little
income (like developable land or non-dividend paying stock).
How can she convert it to income generating investments?
Simple Sale
$1,000,000 asset
$1,000,000 gain (if zero basis)
$288,000 tax (23.8% fed + 5% state)
$722,000 left to invest-AUM
Or California $670,000 left
Charitable Remainder Trust
$1,000,000 asset
$1,000,000 gain (if $100,000 cost)
$0 tax (CRT pays no tax)
$1,000,000 left to invest-AUM
& $100,000+ tax deduction

48. 7. Prevent your clients
from dying (ever)

49. Client death is highly inconvenient
for financial planners
1. The government takes a
chunk of the assets
2. The kids divide up the
rest into smaller pools
• You CAN’T manage the money
(because you don’t have the
business relationships with
each of the kids)
• You DON’T WANT to manage
the money (because each
remaining pool is too small)

50. A donor advised fund or private
foundation holds money and
distributes charitable grants

51. Multi-generational management
Inheritance
• Small pools after division by
1/n children and estate tax
• Individual relationships with
each heir
• High maintenance / personal
losses
Private Foundation/DAF
• Big pool with no division and
no estate tax
• Preexisting position as pool
manager
• Low maintenance /
charitable org. losses

52. Donor Advised Fund
• No minimum payout
• Minimal setup &
administrative expense
• Expected control of grants
• Investment management
allowed with many
financial institutions
• Legislatively newer
Private foundation
• 5% minimum payout
• Significant setup &
administrative expense
• Actual control of grants
• Investment management
always allowed
• Legislatively stable

53. Advanced charitable
strategies to
preserve wealth
• Lifetime and testamentary
transfers to private
foundation
• CRT (spigot) paying for life (if
desired for consumption)
then to family foundation
• Zeroed out CLT that pays
charitable interest to family
foundation, excess growth to
children
• Multi-generational:
Testamentary CRT, income to
kids, then to private
foundation run by grandkids

54. 8. Grow tax free

55. Tax Free Growth Environments
• Growth inside a
donor advised fund
is tax free
• Growth inside a
charitable remainder
trust is tax free (only
distributions are
taxed)
• Growth inside a
private foundation is
tax limited (either
2% or 1% rate)

56. Standard Account
10% growth, 39.6% federal, 5% state
Year 1 $10,000
Year 2 $10,554
Year 3 $11,139
Year 4 $11,756
Year 5 $12,407
… …
Year 18 $25,009
Year 19 $26,394
Year 20 $27,856
Donor Advised Fund/PF
10% growth, 39.6% federal, 5% state
Year 1 $10,000
Year 2 $11,000
Year 3 $12,100
Year 4 $13,310
Year 5 $14,641
… …
Year 18 $50,544
Year 19 $55,599
Year 20 $61,159

57. No upfront capital
gains tax at sale
Tax deferred growth
(only distributions
taxed)
Immediate tax
deduction
Post-mortem
management with
DAF/PF beneficiary
A CRT increases AUM

58. Will a maximum payout CRUT (with
appreciated assets) give more after-tax
dollars to clients & heirs than a direct
investment with no charitable gift?
The Tax
Benefit
$
The
Charitable
Gift $
It depends…

59. Direct Investment v. Max-Payout CRUT
• Age 60 male & 55 female
• Vary life span (2012 IAM Table)
• Vary returns (historic large cap
std. dev.)
• Annual consumption
2.8% of initial investment
then inflation adjusted
• 20% basis asset
Monte Carlo Simulation of 3,000,000
retirement lifetimes
Yeoman, John C. (2014). The economics of using a
charitable remainder trust to fund a retirement
portfolio. The Journal of Wealth Management, 40-50.

60. (run out of money)
Failure
9.9%
(Average PV of initial $)
Consumed
52.88%
(Average PV of initial $)
for Heirs
47.12%
(any payment below
projected consumption)
Failure
7.9%
(Average PV of initial $)
Consumed
53.10%
(Average PV of initial $)
for Heirs
61.48%
Direct Investment
(No Charitable Gift)
Max Payout CRUT

61. 9. Make your wealthy
clients want to save More

62. Once my family and I
are provided for, why
would I keep working
to build wealth?

63. Do the estates of
people who
make charitable
estate plans grow
differently than
the general
population?

64. After making their plan, charitable estate donors grew
their estates 50%-100% faster than did others with
same initial wealth

65. 10. Be in a growing
market for good clients

66. 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
$2.0 million <
$3.5 million
$3.5 million <
$5.0 million
$5.0 million <
$10.0 million
$10.0 million <
$20.0 million
$20.0 million or
more
Estate Size
Estates including charitable planning
(IRS Statistics of Income 2008)

67. Coming demographic wave will
impact CRT creation first, then CGA
creation, then bequests realization
Realized
Bequest Peak
Age: 88
Franey, J. W. & James, R. N., III (2013) Trending Forward: Emerging Demographics Driving Planned Giving. National Conference on Philanthropic
Planning, Minneapolis, MN, October 15-17, 2013
CRT Creation
Peak Age:
70-74
CGA Creation
Peak Age:
75-79

68. 0
5,000,000
10,000,000
15,000,000
20,000,000
50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Key population not growing, YET
Total resident population by 5-year age groups
Temporary flat
trend in key
population

69. 5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
1998 2000 2002 2004 2006 2008 2010 2012 2014p
Age 55+ charitable recipient among those
with will/trust by family status
Grandchildren
Children only
No Offspring (unmarried)
No Offspring (married)

70. 9%
11%
13%
15%
17%
19%
21%
1976(78-83)
1977(77-82)
1979(75-80)
1980(74-79)
1981(73-78)
1982(72-77)
1983(71-76)
1984(70-75)
1985(69-74)
1986(68-73)
1987(67-72)
1988(66-71)
1990(64-69)
1992(62-67)
1994(60-65)
1995(58-63)
1998(56-61)
2000(54-59)
2002(52-57)
2004(50-55)
2006(48-54)
Year (current age range)
Percent Childless Women at Age 40-44 in U.S.

71. 0%
2%
4%
6%
8%
10%
12%
14%
16%
1998 2000 2002 2004 2006 2008 2010 2012 2014p
Age 55+ inclusion of charitable recipient
by education
Grad School
College Grad
Some College
HS Grad
<HS Grad

72. 5%
10%
15%
20%
25%
30%
35% 1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
U.S. population share with bachelor's degree+
Age 55+
Age 35-54

73. 0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1998 2000 2002 2004 2006 2008 2010 2012 2014p
Age 55+ charitable beneficiary among those with
will/trust by giving/volunteering
Volunteer Only
Donor Only
Both
Neither

74. 30%
32%
34%
36%
38%
40%
42%
44%
46%
48%
50%
Age 55+ giving ($500+) & volunteering (100+ hours)
volunteer
charitable giving

75. Top 10 Charitable
Planning Strategies for
Financial Advisors
Russell James, J.D., Ph.D., CFP®
Texas Tech University
Dept. of Personal Financial Planning