Wednesday, January 9, 2013


The 2012 Taxpayer Relief Act
Impact on Charitable Giving
Part 2



Effective January 1, 2013 addressed the gift and estate tax provisions of the Internal Revenue Code as well.  The following concepts have been made permanent (caveat – “permanent” is a term of art that means until Congress changes its mind):

The Gift and Estate Tax regimes are unified (the exemption amount is the same and gifts to individuals over the 2013 $14,000 annual exclusion amount reduce the estate tax exemption);

The exemption amount is $5 million and indexed for inflation starting in 2011 (so it is $5.25 million in 2013);

The portability of the estate tax exemption for a married couple;

And the top marginal rate is set at 40%.

What does this mean for us?

A single individual will not have to pay estate tax until their estate is worth more than $5.25 million.  A married couple will need to have an estate greater than $10.5 million to pay federal estate tax.  With the increase in the maximum rate charitable gifts from estates over the $5.25 or $10.5 million become “cheaper” for our donors.

Perhaps we need to adjust our conversation with donors from the “taxes” to how much do the children really need and how that impacts on the family legacy?

For example, if a couple have 3 children and an estate of $10 million,each child will receive about $3.3 million.  If the donor gives UC $1 million dollars, how adversely affected with the children be by only receiving $3 million?

Friday, January 4, 2013

Charitable IRA Rollover


The 2012 Taxpayer Relief Act
Charitable Impact
Part 1



The Charitable IRA Rollover is back for 2012 and 2013.  A couple of points to keep in mind:

1)    If your client had his/her IRA custodian make a transfer directly to UC in 2012 that would have qualified as an IRA rollover under the expired law, that is retroactively covered by this law.

2)    If your client took the Required Minimum Distribution (“RMD”) in 2012 and wants to make a Charitable IRA rollover now there are two options:

a)    Direct a Charitable Rollover Contribution  up to the $100,000 limit in January to the UC Foundation.  It can be deemed a December 31, 2012 contribution.  (Note – this does not eliminate the taxable RMD distribution; it is an additional distribution/contribution)

b)    If your client took his/her IRA RMD in December 2012 he/she can now contribute part or all of that RMD to UC before February 1, 2013 and it will be deemed a qualifying contribution for 2012 if the client elects that treatment. 

Since a client electing second option will be writing a personal check it is imperative that they tell the charity they are electing this provision so the charity can get the acknowledgement correct.

As always, we are happy to talk with you and any clients to explore options for their gifts.  Call Jeff Dundon directly at 513-556-6147 or toll free at 888-556-8889 and ask for Jeff Dundon or Brian Nielson.

Monday, April 2, 2012

Life Income Gifts: The 'Perfect' Way to Give & Receive

Beginning with her arrival on campus as a UC student in the early 1960s and continuing throughout her life as a College of Education alumna, Arlene Brill loves being part of the UC Bearcat Bands family. That passion has recently taken shape through a gift annuity,which allows Arlene to support future band students through a scholarship and still protect her own financial well-being.

Life income gifts allow donors to make a significant charitable gift with the comfort of knowing they will receive an income from the annuity or trust they establish to do so. Watch this video to see why this was the "perfect" solution for Arlene, who was seeking a way to give back to the program that truly shaped her experience at UC.

You can also check out this brochure for tips on why a life income gift may be your "perfect" solution too.

Arlene's passion was Bearcat Bands, but tell us where your passion lies at UC by commenting below!

Thursday, March 22, 2012

Charitable Remainder Trusts payout rates and gifts

Charitable Remainder Unitrusts – Do lower payout rates benefit the donor, the charity or both?

Most donors we discuss CRTs with are interested in helping UC and receiving a stream of income for a period of time, usually for their lives. The question they always ask is how high a payout rate they can use. While that may make some sense when they are creating an annuity trust is it beneficial for a unitrust?

A recent analysis I saw from State Street Global Advisors made me think that maybe we should dedicate some time in discussing the alternatives and the consequences based on history with them. The analysis covered two $500,000 CRUTS established in 1989 thru December 31, 2011.

The first was a 5% CRUT with a 65% equity/ 35% fixed income asset allocation through 2007 when it changed to 70% equity/ 30% fixed income. After 22 years, the results were as follows:

Historical rate of return: 7.15% (annualized)

Initial value: $500,000

Cumulative payouts: $805,705

Portfolio growth: $238,465

12/31/2011 value $738,465

The second was a 7% CRUT with a 50% equity/50% fixed income asset allocation through 2007 when it changed to 60% equity/40% fixed income. After 22 years the results were as follows:

Historical rate of return: 7.16% (annualized)

Initial Value: $500,000

Cumulative payout: $876,020

Portfolio growth: ($37,113)

12/31/2011 Value $452,887

If the trusts terminated on December 31, 2011 the cumulative benefit to the donor and the charity from the 5% payout CRUT would have been $1,544,170 and $1,328,907 for the 7% payout. The lower rates results in over $215,000 more money to charity at the cost of $71,000 to the donor over 22 years.

We are going to run a similar analysis on some of our CRUTS and will post them later.

Your thoughts and observations are welcome.

Friday, March 9, 2012

How Can I Protect Assets That I Transfer to My Children an Grandchildren?


The following is a Guest Post from William L. Montague, an Attorney with Frost Brown Todd LLC. Mr. Montague is also Chair of the UC Foundation Subcommittee on Gift Planning. In this post he discusses various options for leaving assets in an estate plan to children.  For more information about planning, please request a brochure here.
As part of the estate planning process, I ask my clients about how comfortable they feel with the ability of their children to properly manage assets that the children will inherit or receive as a gift from my clients. Quite often, the clients express confidence in their children’s ability to properly manage the assets, and for that reason indicate that they would prefer to transfer assets directly to the children. However, when we weigh the advantages and disadvantages of passing the assets outright to the children versus putting the assets in lifetime trusts for the children, clients most often will select the lifetime trust alternative. Why?
Let’s look at the different factors:

© William L. Montague 2012
Outright Transfer to Children
Lifetime Trust for Children
Who will control the assets?
My child will own and control the assets
My child can be designated as the trustee of his or her own trust, and as trustee will control the investment and distribution of trust assets to the child and the child’s children for the child’s lifetime.   If I have more than one child, each child can have his or her own separate trust.
What if my child is responsible, but is too young or inexperienced?
Traditionally, parents have distributed assets to children at certain ages.  However, when the child reaches that age and receives distribution of trust assets, the assets lose all protections
I can designate a third party as trustee for the child until a future date, such as when the child attains a certain age.  Instead of terminating the trust at that age and losing all protections, the assets would stay in trust for the child’s lifetime, and the child can become the trustee
What if my child is irresponsible with money, or if my child has special needs?
An outright transfer does not make sense
Because a third party can serve as trustee for an extended period of time (or for lifetime), the assets can be properly managed for the child in order preserve the assets for the child’s future living needs


©William L. Montague 2012 
Outright Transfer to Children
Lifetime Trust for Children
What will reduce estate taxation the most?
Assets transferred outright to my children during my lifetime (whether immediately or at some future age) will be protected from estate taxation at my death, but will not be protected from estate taxation at my children’s deaths or at my grandchildren’s deaths
Assets transferred to a lifetime trust for my children will be protected from estate taxation at my death, and can also be protected from estate taxation at my children’s deaths and at my grandchildren’s deaths.  In fact, under the laws of many states (Ohio, Kentucky and Florida included), these trusts can pass through the generations entirely free of estate taxation
What provides better protection from creditor claims?
If I transfer assets outright to my children (whether immediately or at some future age), those assets can be reached by my child’s creditors
Assets transferred to a lifetime trust can be protected from the creditors of my children and my grandchildren
What about divorce?
If I transfer assets outright to my children (whether immediately or at some future age), those assets may initially be protected from divorce, but tend to lose their protection over time
Assets transferred to a lifetime trust for my children will be protected from divorce as long as the assets remain inside the trust
Will my child have full access to the assets?
My child will be free to spend the income and principal of the assets as the child wishes
As trustee, the child can distribute income and principal from the trust to its beneficiaries (the child and his or her children) as the child wishes from time to time.   The child’s “rule of thumb” should be to withdraw the funds only if the child wishes to spend the money.   If the child wishes to invest the funds, it is better to leave the funds inside the trust, where they will be protected from future estate taxation, from creditors and from divorce
How flexible is the arrangement?
Maybe too flexible, because the assets will be subject to estate taxation at the child’s death, subject to creditor claims and possibly subject to divorce
It can be very flexible.   The child, as trustee, can have the trust acquire vacation homes, businesses and artwork or other appreciating assets for the child’s use, retaining the protection from estate taxation, creditor claims and divorce
©William L. Montague 2012
Outright Transfer to Children
Lifetime Trust for Children
How will the income taxation work?
Although my child will not pay income tax on the assets that I transfer to my child (unless the transferred assets are retirement accounts or other items on which I have never  paid income tax), my child will report the income generated by the transferred assets on my child’s individual return
If I transfer the assets to lifetime trusts for my children after my death (or after the death of the survivor my spouse and me), the lifetime trust will be required to file its own income tax return, and pay its own tax.  If the income generated by the trust assets is retained inside the trust, the trust will pay the income tax on that income.   If the income generated by the trust assets is distributed to the beneficiaries (the child and the child’s children), the income will generally be taxed to the recipient beneficiary.


If I transfer assets to irrevocable lifetime trusts for my child during my lifetime, I have two alternatives for income taxation:


(A)  I can elect to have the trust file its own income tax return and pay its own income tax.  If the income generated by the trust assets is retained inside the trust, the trust will pay the income tax on that income.   If the income generated by the trust assets is distributed to the beneficiaries (the child and the child’s children), the income will generally be taxed to the recipient beneficiary.


(B)  I can elect to have the irrevocable trust be a “grantor trust” for income tax purposes, which means that all income will still be taxed to me, rather than to my child or to my child’s lifetime trust.   Although this sounds like a bad deal, it can be very attractive, because the income taxes I pay reduce my estate and save future estate taxes, and increase the protected assets held in the lifetime trust.  It also eliminates the need to file a separate income tax return for the trust, saving paperwork.

©William L. Montague 2012
Outright Transfer to Children
Lifetime Trust for Children
What if I want access to the assets after I transfer them?
Although my child could gift some of the assets back to me, I cannot be assured that my child will do so.
An alternative for the lifetime trust would be to design the trust to make my spouse eligible for distributions during my spouse’s lifetime.   If I have financial reversals in the future, my spouse could receive distributions of income and principal that could be spent on the two of us
What if I change my mind on how I want the assets distributed to my children or divided among my children in the future?
I cannot change how the assets are to be divided among my children and grandchildren after I make the transfer
I can designate a “trust protector” who can change the plan of distribution, and other features of the irrevocable trust, after I make the transfer
How much can I transfer as a lifetime gift?
For 2012, if I have not used any of my exemption for gifts in prior years, I can transfer up to $5,120,000 free of gift tax (in excess of the $13,000 annual exclusions).  If I am married and my spouse and I act together, we can transfer up to $10,240,000 free of gift tax (in excess of the $26,000 annual exclusions).  These gifting amounts could drop to $1,000,000 / $2,000,000 in 2013 and future years.
For 2012, if I have not used any of my exemption for gifts in prior years, I can transfer up to $5,120,000 free of gift tax (in excess of the $13,000 annual exclusions).  If I am married and my spouse and I act together, we can transfer up to $10,240,000 free of gift tax (in excess of the $26,000 annual exclusions).  These gifting amounts could drop to $1,000,000 / $2,000,000 in 2013 and future years.
How much can I transfer at my death?
If I die in 2012, and I have not used any of my exemption for gifts in prior years, I can transfer up to $5,120,000 free of estate tax.  This amount could drop to $1,000,000 if I die in 2013 or a future year.
If I die in 2012, and I have not used any of my exemption for gifts in prior years, I can transfer up to $5,120,000 free of estate tax.  This amount could drop to $1,000,000 if I die in 2013 or a future year.