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October Newsletter 2011

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Planned Giving Mentor

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

Quotes for today: Thanksgiving Grace: Time is...Too slow for those who wait. Too swift for those who fear. Too long for those who grieve. Too short for those who rejoice. But for those who love, Time is eternity. Hours fly, flowers die. New days, new ways pass by. Love stays. ---Henry Van Dyke, American writer and clergyman (1852-1933)


New Gift Annuity Rates Effective January 1, 2012.....The American Council on Gift Annuities has announced new gift annuity rates for 2012. This is the result of the decreasing return on fixed income bond component of the ACGA investment return assumption. Handouts from both the Sharpe Group and Crescendo further explain the rational for change.

If you would like a laminated rate chart for the 2012 rates simply request one using the following E-mail request.


Overview of Gifting Basics.....Working in the planned giving world we often are asked basic gifting questions, and mostly they are tied to family issues or concerns about the type of assets individuals may contribute.

Many gifts are not subject to gift taxes. Gifts to a spouse or to a charity are never taxed. Gifts paid directly to educational institutions for tuition or to pay medical expenses are not taxed, no matter what the amount of the gift.

If you make a gift to someone else, a gift tax usually does not apply until the value of the gifts the individual receives exceeds the annual donee exclusion amount currently $13,000, and the lifetime gift tax exclusion is currently $5 million.

If a gift exceeds the annual exclusion amount ($13,000) for any year, the excess may be applied to the lifetime exclusion ($5,000,000), but the IRS form 709 return must be filed.

With the unification of the gift and estate tax exemptions, if a person uses up some or all of the lifetime exemption then it is not available to reduce estate taxes at death.

A gift must be of a present interest and enjoyment. If a gift has a deferred component, or a future interest an individual cannot actually possess and enjoy or receive income until some future time, then the gift needs to be reported. This especially effects deferred gift annuities established for a child by a parent.

A gift received is not subject to income tax but if appreciated assets are transferred then the recipient picks up the carryover cost basis from the donor and the sale of appreciated assets for the new owner will be subject to capital gains tax.

You and your spouse may split a gift which allows for double donee exclusion but a split gift must also be reported on form 709 to take advantage of the gift splitting election

Gifting is a valuable tool to reduce future estate taxes as spouses may gift up to $26,000 to as many individuals as they choose; 3 children and 6 grandchildren equals a potential removable of $234,000 from a taxable estate. Both the gift and the future appreciation on the gift is removed.

A popular gift leveraging strategy is for an individual to make a gift to an Irrevocable Life Insurance Trust (ILIT) to be used by the trustee to purchase life insurance on the donor so the proceeds payable to the beneficiaries are completely income and estate tax free.


Senior Home Equity Remains Greater Than $3 Trillion.....The estimated senior home equity aged 62 and over stood at $3.14 trillion as of the end of the second quarter of 2011 as measured by the National Reverse Mortgage Lenders Association (NRMLA)

Senior mortgage debt levels fell for the 9th straight quarter to $1.02 trillion, leaving seniors with $3.14 trillion in equity.

Comment: Charities would be wise to explore with seniors who are anticipating a lifestyle change, such as moving into a retirement community, the benefits of a charitable gift annuity agreement based on the equity value of the home. When the appropriate discounts are taken (I recommend a 15% discount from the appraised value and a 0.5 discount to the ACGA rate up to a maximum of 7%) the benefits may be attractive to both the donor as they receive payments from a non-producing assets, plus they receive the immediate government bonus with a reduction in taxes when they use the charitable deduction.

The long range charitable return is estimated to be in excess of 20% for most agreements.


Sharpe article quote.....In the November issue of Give and Take page 6, there was a paragraph that I emphasis to clients. "Accelerating a planned bequest with an outright or income generating gift can provide donors with tax benefits and increased cash flow that would not be available with a bequest."

This creates a long term ownership relationship with donor and your charity. It will a springboard in your relationship for future gifts.


News and Notes....The highest marginal tax bracket was in 1960 at was 91% (source: Tax Foundation).

BUFFETT RULES - Warren Buffett had $62.9 million of adjusted gross income (AGI) in calendar year 2010, $39.8 million of taxable income (TI) and paid $6.9 million of federal income tax (FIT). Thus, the FIT that he paid last year was 17.4% of his TI and was 11.0% of his AGI (source: House of Representatives).

NERVOUS FOLKS - 88% of 800 Americans surveyed indicated that they are concerned about their ability to maintain a comfortable standard of living throughout their retirement years, an increase from 73% that were concerned just 1 year ago (source: Americans for Secure Retirement).

LUMP-SUM NEEDED - A present value (PV) amount of $1.96 million in a pre-tax retirement account is required today to fund a future payment stream of 30 years of $100,000 annually (with a 2.5% increase for maintenance of purchasing power) assuming that a 6% rate of return (ROR) can be maintained into the future. If the ROR falls to 5%, the PV amount rises 13% to $2.21 million. If the ROR rises to 7%, the PV amount falls 11% to $1.75 million These calculations do not account for the payment of federal income taxes which would be due as a result of withdrawals from any pre-tax retirement funds (source: BTN Research).

HAVE A SEAT - If the USA had annual health care expenditures as a percentage of our economy at the same level as Canada, we would spend $900 billion less on health care than we currently do. We spend $2.6 trillion on health care, equal to 17.4% of our $15 trillion economy. Canada spends just 11.4% (source: OECD).

STOCKS AND BONDS - The total return of bonds has beaten the total return of stocks on a trailing 5-year basis at the end of 7 of the last 9 years (2002-10). But in the previous 21 calendar years (1981-2001), stocks beat bonds 20 of 21 times on a trailing 5-year performance basis. The S&P 500 was used as the stock proxy and the Barclays Capital Aggregate Bond Index was used for the bond proxy. The Barclays Capital Aggregate bond index, calculated using 6,000 publicly traded government and corporate bonds with an average maturity of 10 years, was used as the bond measurement (source: BTN Research).

SENIORS TAKE FLIGHT FROM FACEBOOK - reports only 13% of seniors over age 50 use Facebook since it does not fulfill all the needs of the 50+ demographic and are wary of Internet related security issues while they are more receptive to the good, old fashioned press release.


Seminar for Professional Advisors....If you work with professional advisors I am currently offering a new seminar called: Case Study Approach to Integrating Charitable Gift Annuities into Wealth Preservation, Wealth Enhancement and Portfolio Diversification. It includes 16 case studies and related material to encourage professional advisors to discuss charitable solutions to their clients.

This seminar will help professional advisors unlock the hidden potential in donor assets and increase your gift annuity program.

The cost is $2,500 plus travel expenses for the two hour presentation which has been previously approved for CEU credits in some states. To discuss available dates send me an email requesting further information.


Kudos Corner

In this section I periodically highlight some recent gift expectancies and gift program elements I think will be helpful and informative, not all gifts are included.

Kudos to Jason Chandler, Gwinnett Medical Center Foundation, Lawrenceville, GA for expanding the Foundation's charitable gift annuity program with solicitation of two additional gift agreements. One two-life agreement (67 and 72) for $1,000,000 payable at the reduced CGA rate of 5.00%, and a one life agreement (80) each for $15,000.

The latest member to sign up for the Foundation's Legacy Circle is a 80 old donor who changed the beneficiary designation of their Merrill Lynch IRA account to be payable to the Foundation, estimated amount is $1,300,000 to honor his late spouse. The gift will establish a permanent endowment.

Kudos to John Wilbur, Senior Major Gifts Officer, Chapters Health System, Inc.(formally Lifepath Hospice) three gift annuity agreements totaling $70,000. One two-life agreement for $10,000 payable to spouses (age 83 and 87). Two $30,000 one-life agreements for donors aged 88 and 84. John has one additional gift annuity for $20K+ awaiting stock transfers.

Kudos to Sheila Steger, Gift Planning Director, Spectrum Health and Helen DeVos Children's Hospital Foundations, Grand Rapids, MI established a gift annuity for a donor age 89 with a $10,000 gift, donor requested annual payments beginning on January 1st each year. Spectrum also received a bequest of $350,000 for the Helen DeVos Children's Hospital.

Kudos to Susan Keenan, Executive Director of the Roper St. Francis Foundation, Charleston, SC and Liza Turcotte, Director of Annual Giving, they established two $12,500 ($25,000 total) 2-life gift annuities for the same donor pair, a father (age 85) and a relative (age 66). The father (age 85) was the donor of both agreements and received the $6,577.50 charitable deduction. He wanted one agreement to pay his relative first and then pay to him if he survived her. Since it is unlikely the donor will survive the relative it was important to include language which allowed him to revoke her payments by will only so the present value of the income interest would not be considered a completed current gift.

The Foundation has received notice of a bequest notification (still in probate)…it has been valued at $700,000 and is un designated which will allow the Foundation to direct it toward one of its strategic priorities. Keenan said, "I wish we knew more about the donor; however, she was involved with the Foundation years ago. She was an elderly lady who thankfully remembered us in her estate!"

Beaufort Memorial Hospital Foundation, Alice Moss, Executive Director, received a bequest from a former nurse and found itself in a unique situation this past summer… responsible for liquidating the assets of a former nurse’s estate. With about 6 weeks of planning and 40 volunteers, the BMH Foundation staff pulled off a weekend long estate sale in the donors’ home and sold all contents. The estate sale alone netted over $60,000 for the BMH Foundation Endowment Fund! It was not only an interesting project with successful financial results, but it was also a great way to involve volunteers, both new and old, and get to know people in the community!

The Foundation issued two charitable gift annuity agreements totaling $50,000. One $25,000 immediate annuity for a female donor age (67), and one $25,000 flexible deferred CGA for a male age 59 with a target date of age 71, but with the option of receiving the payments between ages 60 to 80. They also enrolled a new member in the Kate Gleason Society, a beneficiary designation of his IRA account.

Habitat for Humanity of the NC Sandhills, Elizabeth Cox, Executive Director established a $10,000 one-life flexible deferred CGA for a 67 year old donor who was a frequent attendee at their special events. The donor is deferring receipt of payments until age 71 in order to increase his charitable deductions as an offset to the tax liability of converting a Traditional IRA to a Roth IRA.

Kudos to York College of Pennsylvania, Mark Rank Senior Director of Principal and Planned Gifts for securing a $163,766 two-life (ages 71 & 73) charitable gift annuity funded with appreciated stock. The gift annuity plus cash gifts will fulfill a $250,000 pledge and name a unit in a new campus facility.

Mark also secured a $50,000 one life annuity for a donor age 63, another one life annuity for $40,000 from a donor age 69, and a $50,000 annuity for a couple ages 77 & 85. All of the above gifts were stimulated and credited to the College's current capital campaign.

Kudos to McLeod Health Foundation, Florence, SC, Jill Bramblett, Executive Director and Roxanna Tinsley, Development Officer. The Foundation is in the middle of a $10,000,000 "One Vision, One Future" capital campaign and has used planned gift strategies to maximize gift potential and fulfil the endowment portion of the campaign. This has included gift annuity agreements and single premium life insurance policies totaling over $300,000.


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, Pinehurst, NC 28374
Phone: 910-295-6800

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

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