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September Newsletter 2012

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Planned Giving Mentor

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

Professional Partnerships: Hospice Philanthropy Group L.L.C.

Quote for today: May we all remember our lives are not measured by the number of years and days we exist, but by what we accomplish while we do live, and the good we may render our fellow man.
Henry Wells (1805-1878)

As of publishing date October 4, 2012 there are only 88 days to receive a charitable contribution deduction this year.

October 15 -21 is National Estate Planning Awareness Week .....69% of adult Americans do not have a Living Will or Advance Medical Directive, 58% of adult Americans do not even have a basic Last Will and Testament, Only 21% of adult Americans have established a trust for estate planning purposes (Source:


Past issues of Newsletter are available in the Newsletter Archives _____________________________________________________________

Headline: Home prices in 20 U.S. cities..... climbed in June for the first time since a tax credit boosted sales in 2010, indicating the industry at the heart of the worst recession in the post-World War II era is starting to rebound. (Source: Bloomberg, Aug 28, 1212)

In June the number of houses listed for sale nationwide dropped 24% compared with the year prior, sending the supply of homes relative to buying activity down to levels not seen since 2006. Existing home sales in August were the strongest since May 2010. (Source:, Sept., 2012)

Property values in all the U.S. increased 1.2% in the second quarter from the same time in 2011 compared with a 1.4% drop in the year ended March. They jumped 6.9% from the previous three months before seasonal adjustment. Prices have gotten so low and affordability so high that buyers have come off the fence.

In many sections of the US real estate values are stable or increasing. Now is the time for planned gift program to consider the benefits of real estate gifts.

There are many techniques available to make real estate gifts.

Bargain sales, Installment bargain sales, Gift annuities, Simultaneous sale gift annuities, Flip charitable remainder trusts, and Life estate agreements are perhaps the most popular. There are many advantages in making real estate gifts. The most apparent are a current income deduction tax and avoidance of capital gains taxes on appreciated real estate. The hidden benefit is being able to dictate the date of the transaction plus the relief from real estate expenses, carrying costs, depreciation taxes, and mortgage obligations.

Unlike the old day curently.....

  • Many retired seniors have a mortgage on their real estate. Back in 1989, just a little over a quarter of all households (26.4%) were living as "retired with a mortgage."
  • By 2007, nearly half (46.5%) of all households could be considered as living "retired with a mortgage." This is a 76% increase in just 18 years.

The myth is not true that all retired folks have paid off their mortgage. The average mortgage, or home equity loan, for retired families where the head of household was age 75 and older increased in size 136% from 1989 ($33,900) to 2007 ($80,100).

Even more incredible, when the head of household was age 65 to 74, there was a 415% increase in the size of the loan from 1989 ($25,900) to 2007 ($133,500).

PGOs must learn the techniques to deal with mortgage issue. Gifts of partial interests and mortgage elimination or transfer strategies become paramount in dealing with real estate transfers.

I like real estate gifts because they are normally $100,000+ gifts and there are strategies to deal with the mortgage issue.

Below is a case study of a recent gift. If you would like to explore your real estate gift opportunity simply email James E. Connell FAHP, CSA


Case Study: CGA a Real Estate Gift Annuity

(Peer reviewed by Chase Magnuson, Director for Planned Giving, Real Estate, George Washington University)

Background: I first met June in August, 2011 at her home in Haines City, FL with Amanda Maynor, Major Gifts Officer for Chapters Health Systems. Amanda had visited with June to thank her for a gift in memory of her recently deceased professor husband Calvin who had died under the care of Good Shepherd Hospice, Auburndale, FL.

Over conversations, Amanda discovered that June, who is in her mid 80’s, was trying to plan for her future and thought it would be best to move into a continuing care retirement community back north in Ohio or maybe Indiana where she had close family. Another alternative was to move back to Sarasota into an assisted living facility. June felt, however, “stuck” in her home because of the soft real estate market and didn’t know what to do. Through prospect research, Amanda had also discovered a significant charitable gift annuity June and her husband had made several years ago to their alma mater.

The Plan: The purpose of my first meeting was to outline in general terms how Chapters may be helpful by offering a gift annuity in exchange for her home. June owned the home without a mortgage and had previously listed her home in 2007 for $349,900. I like to use general numbers until the qualified appraisal is completed. The Polk County Florida web site valued the property at $171,747. The home is a 3 bedroom, two bath, 2,700 square foot single story residence on a well-manicured lot half acre lot.

I brought a general outline of a Crescendo proposal showing a $100,000 property value and indicated there were two major discounts that effected real estate gifts. The maximum payout rate would be -.05% less than the ACGA rate to a maximum of 7%. Since June was born 7-7-26 (age 86) she would receive the maximum 7% payout rate. The final appraised value would also be discounted by 10-15% to compensate Chapters for market value risks, transaction costs, and market wait before the home was sold.

To start the process, June would need to have an appraisal of her home at her expense. Chapters would also commission its own appraisal. Appraisals are always a concern since brokers normally list a home higher than an appraisal. It is common for prospects to think their property is worth more then what an appraisal may indicate. Remember, an appraisal is normally done for a bank or lending company and the appraisal is normally indicating conservative fair market value to protect the lending institution.

The IRS requires a donor have a valid appraisal to receive a charitable contribution deduction. A charity is a disqualified party and cannot do or pay for the donor's appraisal. The appraisal date must be within 60 days of the deed transfer.

Internal Approvals: Since this was the first real estate CGA for Chapters, I prepared a gift annuity real estate worksheet analysis using June's original asking price of $340,000. The worksheet reflected a 15% discount to educate the Chapter’s administration on the financial benefits. Internal approvals to proceed were granted in September, 2011.

Moving Forward: Christmas season passed with June traveling to her family up North and investigating retirement communities. In the spring of 2012 June asked for recommendations on appraisers she could use. This was a good sign although June had not made a decision on whether to move. Chapters also commissioned its own appraisal after she indicated a willingness to move forward.

June’s March 30th appraisal indicated a $180,000 value, cost of appraisal $350.00. This was far lower than the original anticipated asking price. In May, the appraisal commissioned by Chapters indicated an appraised value of $185,000. After several more proposals and discussions with the donor an average value of $182,500 was agreed to and used for the gift annuity calculations, The donor agreed to a 10% fair market value discount. Therefore, the gift annuity value would be set at $164,250 with a 7% payout.

Plan Finalized: June met with her attorney, financial planner and family and made a decision to move forward with a gift and located a wonderful continuing care retirement community near relatives in Indiana.

A Memorandum of Understanding was drafted, reviewed by Chapter's internal and external attorneys and signed by Chapters and the donor. It listed the responsibilities of both parties and projected annuity payments. The target closing date was set for late August, 2012. One of the appeals for June was that she could pick a closing date that was convenient for her and for her move to Indiana.

June kept meticulous records and the cost of the home was determined as $140,900 for the home plus $16,000 for the lot for a total investment of $156,900. In order to avoid any capital gains tax the $250,000 home sale exclusion was used.

Since the prior donor appraisal dated March 30, 2012 was over the 60 day limit allowed by the IRS another donor paid appraisal was ordered using the same appraisal agency.

CGA Agreement: The CGA contract was drafted with a first quarterly payment at the end of December, 2012, skipping the first short payment amount.. All quarterly payments will be for $2,874.38, an annual payment of $11,497.52. Applying the $250,000 home sale exclusion allowed for mostly tax-free payments with an effective rate of 10.6% when you consider the tax-free income and the annuity charitable deduction of $101,215(50% of AGI). There is an additional deduction for the discount of $15,750 (30% of AGI) representing an outright gift portion of the real estate to Chapters. Total deductions of $116,965 represent a significant long term tax savings for the donor. Deductions were supported by a tax letter and completion of two IRS 8283 forms.

The gift transaction closed on August 27, 2012 and June left that night with her cousins and a U- Hall for her new home in Fort Wayne,Indiana.

State of Florida Gift Annuity Regulations: Florida regulations require a charity to have 110% of the payment liabilities for gift annuity agreements. Chapters has sufficient funds in their gift annuity account to make the required payments until the real estate is sold. The fund are sufficient to cover Florida's required liabilities.

Tax deduction papers to support the gift annuity and outright gift portion were drafted and IRS 8283 forms completed. The form requires an appraiser signature and a Chapters signature indicating a completed gift with a bargain sale benefit from the gift annuity.

The Thank You: When Amanda and I visited June in mid August she was asked why she made this great gift. “This was a big decision. I wanted to move north, since I don’t have anyone other than my cousins as close family. Chapters offered a wonderful way to take the burden of selling the property, not knowing when it would sell. I get an income to help with expenses. The tax deduction helps but I may not use it all. Good Shepherd Hospice has future funds to help with its good work”

Don’t overlook the power in real estate gift annuities to help solve personal problems and ultimately make a great six figure gift.

As of October 4, 2012 Chapters is considering an all cash offer for purchase, see November newsletter for full report. Photo tour of real estate listing click here.

Notes: "While the process is complicated, this case study shows with an experienced consultant the use of real estate to fund charitable gift annuities can be accomplished safely." Chase Magnuson, Director for Planned Giving, Real Estate, George Washington University

Laminated Gift Annuity Rate Chart for 2012.....The American Council on Gift Annuities has announced new gift annuity rates for 2012. This is the result of the decreasing return on the fixed income bond component of the ACGA investment return assumption. If you would like a laminated rate chart for the 2012 rates simply request one using the following E-mail request.


News and Notes....LONG-LIVING WOMEN - The Federal Interagency Forum on Aging Related Statistics reports that of those age 65+ in long-term care facilities, 31% are women and 21% are men. The study indicates long-term care insurance is more valuable to woman, but also supports the case that rates should differ based on gender. Women accounted for almost two-thirds of all claims filed in 2011. Also, home care is becoming more common, with cancer the leading cause of such claims. BTW, the largest long-term care insurance claim paid totaled $3 million, while the largest claim that is still being paid to an LTCI policyholder has exceeded $1.7 million.

REAL ESTATE - The average single-family home nationwide peaked in value on 6/30/07 but has dropped by 17% from that maximum value as of 6/30/12 (source: Office of Federal Housing Enterprise Oversight).

EVERY DAY - An estimated 7,600 Americans will turn 65 years old each day this year (2012). An estimated 11,400 Americans will turn 65 years old each day by the year 2029 (source: Government Accountability Office).

IN SHORT SUPPLY - The inventory of existing homes for sale in the United States declined by 750,000 in the last 12 months, a drop of 24% (source: National Association of Realtors).

HIGH AND LOW - 31% of US households have annual income of less than $30,000. 4% of US households have annual income of at least $200,000 (source: Census Bureau).

USED TO BE TAX-FREE - Social Security benefits were not subject to any federal income taxation until 1984. Depending upon your adjusted gross income, as much as 85% of your social security benefits could be federally taxable today. The first social security benefit checks were paid in 1937 (source: Social Security).

QUIT TOO SOON? - The headline in the business section of the USA Today newspaper on Thursday 9/02/10 (i.e., 2 years ago) was “Shell shocked investors quit the (stock) market.” In the 100 trading days prior to the article’s release, the S&P 500 was down 9% (total return). In the 2+ years since the article’s release, the S&P 500 has gained +38% (total return) (source: BTN Research).

69% of adult Americans do not have a Living Will or Advance Medical Directive( Source:
58% of adult Americans do not even have a basic Last Will and Testament(Source:
Only 21% of adult Americans have established a trust for estate planning purposes (Source:


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.

Will return in a future issue.


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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