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January Newsletter 2010

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Planned Giving Mentor

Of Counsel: Winton C. Smith, Jr., JD

Quotes for today:The aging process has you firmly in its grasp if you never get the urge to throw a snowball --Doug Larson


IRS Publication 526 NEW for 2010.....The IRS has released a revised pub. 526 - Charitable Contributions, this 23 page guide should be available in every development office. To download the publication click here.


Two Documents every Boomer Needs....A health-care proxy appoints someone else to make decisions on your behalf. Ideally, the person who makes those decisions (often one of your children) is in tune with your own thinking about how you want to go out. You can even make your wishes known in the proxy itself – for instance specifying that you don’t want to be kept on life support. Ultimately, your doctor, once he determines you can’t make decisions on your own, defers to the proxy and the agent you appointed.

A living will allows you to lay out in detail how you want to be treated in dire medical situations, and it takes the decision making out of other peoples’ hands. The drawback is that it is often not specific enough to deal with every eventuality.

There are two things to remember about both living wills and health-care proxies. First, consult a lawyer when you’re drawing them up because there are different laws for different states.

Second, remember to make sure the right people get copies of either document. Doctors and hospitals need to see the documents for them to work. Don’t draw them up and leave them in a side-table drawer.

Will panels ultimately decide whether we live or die? Will we have to be reminded by our doctors every year that death is around the corner? Can we trust our kids not to the pull the plug at the first sign of a sniffle? Who knows.

Link to full article from FoxBusiness


Real Estate Gift and Exit Strategy.....Many charities do not accept real estate gifts because of the complexity of the transaction. Valuation of real estate is always an issue especially during a difficult real estate economy.

I recently have had several inquiries which led to a strategy that may work for some gift situations.

Here is a very simplified example. Mr. and Mrs. donor, both age 70, wish to/must sell their house to move into a retirement community. They want to dictate the date of their move and are flexible on the home value. If they sold the home outright to a new buyer, after expenses, they would pay no taxes as the home would qualify for the $500,000 married capital gain tax exclusion. The retirement community is qualified charity but does not want to bother with a real estate gift. The donors turn to another charity for a solution.

I have previously written a Memo and created a Worksheet on how to use a discounted gift annuity to convert real estate to income for prospects.

One insightful charity offers the following for the donor’s mortgage free home valued at $200,000.

The charity offers to purchase the home at a for a 15% discount to it $200,000 appraisal or $170,000$, $90,000 cash and a $80,000 charitable gift annuity. The cash is used as a down payment to purchase their retirement unit and the gift annuity provides a life income for expenses.

The 15% discount ($30,000) is considered an outright charitable gift and reportable on IRS form 8283, providing additional economic value from the charitable deduction ($7,500, 25% tax rate).

Because the charity is concerned about the market wait and market value risks plus transfer expenses the charity will experience until the home is sold, offers a fixed rate of 4.0% not the ACGA (American Council on Gift Annuities) normal rate for a couple both aged 70 which would have been 5.4%.

In addition to a fixed, guaranteed lifetime income the donors receive an additional charitable deduction of $34,593 for the annuity annuity which generates additional savings($8,648, 25% tax rate).

The charity eventually sells the home for $175,000 net after expenses.

It repays itself the initial cash purchase price of $90,000.

The gift annuity is reinsured at a cost of $64,000 using a specialty designed Jackson National Life annuity agreement. The agreement provides for the full 4% donor payments plus a 1% bonus payment to the charity.

There is an initial profit/gift on the gift annuity of $21,000 ($85,000 - $64,000).

Upon the last to die the charity receives the full amount of the initial annuity deposit ($64,000) OR the current account value whichever is more.

Summary: Think about dividing your approach to real estate gifts into different parts and benefits. It may help meet donor objectives while increasing long term support.

Thanks to Mark A. Vergenes, President Mirus Financial Partners for the Jackson National Life annuity calculations.

New York Times cites benefits to charities in new tax law.....
Link to story to reprint and share with your board, donors and key prospects.


American Association of Daily Money Managers.....Planned gift development is often faced with a situation of a donor that need professional help beyond the scope or interest of their attorney, accountant or investment advisor. Check out the services of the AADMM a national membership organization representing individuals and businesses in the growing profession of daily money management. These professionals provide personal financial/bookkeeping services to senior citizens, the disabled, busy professionals and others.


News and Notes....A 2010 study by the Alzheimer's Association found that 1 in 8 Americans 65 and older suffer from Alzheimer's disease, with a new diagnosis occurring every 70 seconds. By 2050, the rate of new cases will occur every 33 seconds. The likelihood of baby boomers needing some kind of long term care is great, whether it be assisted living or skilled nursing care.

Retirement calculator: Have you ever wondered what you will be worth in your retirement years? Or maybe your donors in their retirement? Use this link to access the calculator.

Fidelity Investments Traditional to Roth IRA conversions soared 368% in 2010 to 220,000 while Vanguard converted 230,000 accounts. Note: IRA conversions are fully taxable but an opportunity to work with donors and suggest gift strategies to offset taxes.


Kudos Corner

This is a new section where I will be periodically highlighting some gift expectancies and gift program elements I think will be helpful and informative, not all gifts are included.

Susan C. Fleck, Director of Major Gifts and Planned Giving at Children's Hospital of the King's Daughters, Norfolk, VA writes about donor stewardship and the wayward check.

In early October, we received an annuitant’s check returned to us – it had been inadvertently sent by our CGA administrator to someone else, who fortunately was an honest individual. We contacted our administrator, who immediately reissued a check to the proper annuitant.

This particular gentleman and his wife each have annuities with CHKD, and choose to receive their quarterly checks by mail. I knew he would wonder why his wife had received a check for the 3rd quarter and he had not. I called and explained the situation, apologizing for the mistake and letting him know the “check was in the mail.”

During the conversation, he began asking about current annuity rates. I gave them to him, and ran a few illustrations which I mailed to him within a few days. After several discussions over the next few months, in mid-December he and his wife each established another $50,000 CGA – for a $100,000 total. A lesson in being up front with donors, apologizing when a mistake is made, and keeping the dialogue going.


James E. Connell and Associates is a national consulting service devoted to increasing resources for charities using the power of charitable estate and gift planning techniques.

Pinehurst office: PO Box 3335, 15 Pinewild Drive, Pinehurst, NC 28374
Phone: 910-295-6800

Northeast office: 20982 Bayside Avenue, Rock Hall, MD 21661

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