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Charitable Estate Plans Using SRI Investments: Stewardship in Practice

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Title: Charitable Estate Plans Using SRI Investments: Stewardship in Practice


1
Charitable Estate Plans Using SRI Investments
Stewardship in Practice
  • Bill Hartman
  • MMA Trust Co.
  • SRI in The Rockies
  • October 18, 2002

2
Stewardship Planning What Is It?
  • Identify what is important to you and your




    family.
  • Plan according to your faith and values.
  • Share values across generations.
  • Incorporate SRI investments in life and




    testamentary plans extends the good.

3
Stewardship Planning Important Questions
  • How much is enough for descendants ?
  • Is it too early or too late for leaving an




    inheritance ?
  • How can I give back from my accumulated




    wealth ?
  • How can accumulated wealth celebrate my




    life and witness ?
  • Can my estate plan include SRI-invested




    charitable tools ?

4
The road less traveled.an opportunity
  • Choosing the enriching journey over the toll
    road often takes just a bit more planning.
  • You already offer your client this choice you
    can offer more through their estate planning.

5
Traditional Approaches to Estate Planning
  • Nothing more than a series of unpleasant




    business decisions to minimize the
    damage.
  • May ignore the income needs of the
    donor/subject.
  • Based on the net worth statement and beating
    the



    tax man.

6
Familys Net Worth
7
Social Capital
Personal Capital
8
Personal Capital
Social Capital
9
Change in Unified Credit in EGTRRA 2001 vs.
1997 Law
I.e. the vanishing repeal
Year Applicable Exclusion Amount 97 TFRA
01 EGTRRA
2001 675,000 675,000 2002-3 700,000
1,000,000 2004-5 700,000
1,500,000 2006-7-8 1,000,000
2,000,000 2009 1,000,000
3,500,000 2010 Unlimited 2011
1,000,000
10
Federal Income Tax on IRAs distributions
1993 13 billion to IRS 1998 55 billion
2001 100 billion
11
Case Study of Jonas and Mary
Leatherman
  • Good retirement income flow supplement desired
  • Three children
  • Want to provide for children and charity
  • Jonas is 68 and Mary is 66
  • Total estate 4,000,000

12
Qual.Plan 1,000,000
Farm Land 1,000,000
Other Assets 2,000,000
First Death
3,000,000 Spouse Estate
1,000,000 Bypass Trust
Second Death
  • Trust document (will) recommends Trustee invest
    corpus in SRI assets

850,000I R S
2,990,000 Family
13
Leatherman Family Appreciated Farm Real
Estate
  • Desire to sell farm land and home.
  • Need some cash to purchase new home.
  • Very low basis in the property.
  • Desire to minimize taxes on disposal

14
Substantial appreciation results in
over 161,000 in Capital Gain Tax on sale
1,000,000 Sale Price 192,000 Cost Basis
808,000 x 20 161,000
15
Solution Leatherman Family Charitable Remainder
Uni-Trust
  • Gift 60 undivided fractional interest to




    charitable remainder uni-trust
  • 40 sold outright for cash
  • Zero-Tax sale
  • (Family recommends) trustee invest solely in




    SRI assets after sale

16
Zero Tax Sale of Property
60 Leatherman Family Charitable Rem.
Uni-Trust 600,000
40 Cash to Leathermans 400,000
245,000 Tax Deduction x 27 Tax
Bracket 66,150 Tax Savings Subject to 30
AGI deduction limit
400,000 76,800 Adjusted Basis 323,200
Capital Tax Gain x 20 Capital Gains Rate
64,640 Capital Gains Tax
17
Benefits to Family and Charity of a Zero Tax Sale
of Real Estate
  • Gift to Charity Current year 600,000
  • Estimated 875,000 at death
  • Annual income from Trust
  • at 5 per year 30,000, Year 1
  • (with 23 year life expectancy) 766,000 through
    life
  • Cash Available from Farm Proceeds 400,000
  • Tax Paid on Sale - 0
  • Trust Corpus Invested in SRI assets (mutual
    funds and individual issues.)

23 year life expectancy, 2 annual average
growth of trust
18
The charitable beneficiaries of the Leatherman
Family Uni-trust
Projected Share Community Library 25
(218,750) Church 25 (218,750) College 25
(218,750) Land Preservation Fund 25
(218,750)
19
1,000,000 Asset Transfer
Farm Land 1,000,000
Sale of Assets CRT

600,000 Gift
248,860 Deduction
Investment/ Purchase new home 400,000
First Death
Second Death
600,000 Charity
719,500 I R S
2,280,500 Family
20
Qualified Retirement Plans Gifts That
Keep on Giving
  • Jonas and Mary have accumulated over 1,000,000
    of



    qualified retirement plan assets.
  • Current plan direct plan assets at death of
    surviving



    spouse to children.
  • Children are in high income tax brackets and do
    not



    need income.
  • Desire to have assets and benefits assist with
    education



    and environment.
  • What are the options?

21
Qualified Plan Value 1,000,000
100 bequest
Leatherman Family Endowment 1,000,000
22
Asset Transfer
Farm Land
Qualified Plan 1,000,000
Sale of Assets CRT
Asset Replacement Trust 1,000,000
Annual Gifts of Premium
Income
Deduction
First Death
1,000,000 IRA
Second Death
1,000,000 By Beneficiary Designation
136,257 I R S (includes effect of CRUT)
Family Endowment Fund 1,000,000 income
2,144,000 Family
23
Leatherman Family Endowment
  • Qualified Plan Assets are directed to endowment.
  • Trustee instructed to invest solely in SRI funds
    and assets.
  • Distribution directed by Leathermans
  • Income annually to charities directed by
    Leatherman children.
  • Up to 5 of principal annually to local high
    school scholarship for student in life
  • sciences or environmental curriculum.
  • Corpus after 20 years to college scholarship
    fund.

24
Multiple IRAs
IRA Two
IRA Three
IRA One
Bequest to Children
Gift to Endowment Fund
Children Beneficiaries
Gift to Charity
25
Donor Benefits Financial
  • Creates income sources
  • Eliminates or reduces tax burden
  • Income/capital gain
  • Estate, gift
  • Increases inheritance for family
  • Returns and performance of investments improved
  • Helps favorite charities and causes grow and
    thrive

26
Donor Benefits Values
  • Assets speak to values for family and others
  • Redirects social capital
  • Investments of charitable gift plans continue
    with SRI difference.
  • Creates legacy of stewardship that keeps on
    giving.
  • Direct participation in philanthropy.
  • Increased personal significance.

27
Contact Information
  • Bill Hartman, Trust Advisor
  • MMA Trust Co.
  • 201 E. Oregon Rd., Ste 103
  • Lititz, PA 17543
  • Email
  • bill.hartman_at_mmapartners.org
  • Phone 800-494-6622
  • MMA Trust Co./ Mennonite
    Foundation
  • Rod D. Diller, CEO
  • 1110 No. Main St.
  • Goshen IN 46527
  • Web www.mma-online.org
  • Phone 800-348-7468
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