Estate Planning 2018 by Crain's Cleveland Business

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www.ClevelandFoundation.org/Purpose

Turning Passion Into Purpose W I T H T H E C L E V E L A N D F O U N D AT I O N

A Prescription for Charitable Giving HOW A RETIRED HEALTHCARE

INNOVATOR AND CEO IS FINDING PURPOSE IN PHILANTHROPY Values have always been a key part of Ed Rivalsky’s life and the way he ran his business: respect, excellence, accountability, communication and honesty. After 27 years at the helm of Clinical Specialties Inc. (CSI), a home IV infusion pharmacy and home health network he founded in 1988 and sold to a subsidiary of Walgreens in 2015, Rivalsky is finding he can apply the same principles to philanthropy.

complex care needs after discharge,” Rivalksy said. “Then we expanded services to offer payers a network of home health agencies, and this combination of desirable offerings allowed CSI to expand to six states.” At its peak, the business was growing 20-30 percent year-over-year, managing contracts for 350 agencies and taking on 300 new patients a day, Rivalsky said.

“The sale was influenced by the The former hospital pharmacist market, the potential changes coming started the company as a provider down the road in healthcare, and my of IV infusion own limitations,” therapy services Rivalsky said. “I for the home had an illness in a f ter seeing 2010 that was a “My long-term goals the challenges awakening. are born out of where real patients faced I always held I think real value can a high level of w hen s e l fr e s p on s i bi l it y managing be delivered at the to our patients, c o m p l e x community level. customers, conditions My pillars are basic employees and the out side t he human services, region. As a result, hospital. He to ok on a education, healthcare the decision to was far from business partner and other community exit easy.” in 2009, and initiatives.” they worked Managing the sale Ed Rivalsky and keeping an together on IT solutions that eye on the day-tohelped build day quality and processes was complex a network of home health services and exhausting, Rivalsky said. So was to receive referrals from contracted adjusting to life after walking away hospitals and payers. The company from the business. provided value to the organizations “One day, you go from being the CEO and patients it served by providing an of a vibrant and dynamic organization alternative to extended hospital stays to suddenly being on the outside. and improving outcomes. It’s humbling,” he said. “As the sale “We partnered with hospitals to occurred sooner than expected, I failed assist patients with various financial to plan the ‘next chapter.’ I explored working with nonprofit organizations and health insurance challenges and

and advising start-up businesses. My desire was to align my giving with my passions, but I found this to be more challenging than anticipated.” His own advisors referred him to the Cleveland Foundation, where Rivalsky, his team, and foundation staff put together a customized, multi-faceted donor-advised fund and planned gift strategy. “My long-term goals are born out of where I think real value can be delivered at the community level,” he said. “My pillars are basic human services, education, healthcare and other community initiatives.” With these values in mind, Rivalsky plans to keep his philanthropy in Cleveland, where he ran his business, and Youngstown, his hometown. He’s also involving his two children in charitable giving by establishing donor advised funds for them now and an estate gift that will help add additional funding down the road. “I’m bringing them in, reinforcing that it’s their responsibility to be philanthropic,” he said of his children. “Their causes will be different because of their exposures in life, and they may not always live in Cleveland, but one of my wishes is that at least half of their grants stay in Cleveland.” Part of R ivalsky’s charitable investment also includes an unrestricted designation to the Cleveland Foundation. “I’m aware that the world evolves, and I didn’t want to limit the opportunities for impact based only on what was true today,” Rivalsky said. “The Cleveland Foundation has a winning formula, and it’s constantly being refined and adjusted.” In addition to his encore in philanthropy, Rivalsky is already working on his next business idea: a portal to help patients with chronic disease states learn about their conditions and better self-manage.

Downtown resident and retired pharmacist Ed Rivalsky is enjoying an encore career in philanthropy after 27 years as a healthcare entrepreneur and CEO.

Philanthropic Estate Planning Solutions Offered Through the Cleveland Foundation •

Bequest by Will: A bequest to the Cleveland Foundation is the simplest means for providing for the future of your community and your favorite charities.

•

Life Insurance: Life insurance policies are a unique planning tool; you can name the Cleveland Foundation as a beneficiary of an existing policy or even create a new policy as you develop your philanthropic legacy.

•

IRA or Qualified Plan: Naming the Cleveland Foundation as the beneficiary of retirement assets is one of the most effective ways to include philanthropy in your estate plan.

•

Charitable Gift Annuity: A charitable gift annuity allows you to receive income for your lifetime in exchange for a gift today that will provide future benefits to the charities of your choice.

•

Charitable Remainder Trust: A charitable remainder trust allows you to provide for multiple beneficiaries and receive an income tax charitable deduction today and benefit your favorite nonprofits in the future.

•

Charitable Lead Trust: Assets transferred to a lead trust pay income to the Cleveland Foundation annually, for a term of years or your lifetime, and the remainder is typically paid for the benefit of you or your heirs.

To learn more about giving through the Cleveland Foundation, please call 877-554-5054.

GROWING WITH PURPOSE FOR 105 YEARS Established in 1914 as the world’s first community foundation, the

For more information on the Cleveland Foundation, please visit

Cleveland Foundation has helped Greater Clevelanders turn their

www.ClevelandFoundation.org and follow us at

passion into purpose for more than a century. The foundation is Ohio’s

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largest grantmaker and one of the largest community foundations in the

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country, with assets of $2.45 billion and 2017 grants of more than $101 million.

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president’s letter

Estate Planning Council members can help you create a roadmap of wealth growth, preservation By JULIE A. TAFT

he Estate Planning Council of Cleveland is pleased to once again partner with Crain’s Cleveland Business in presenting our annual estate planning special section. The purpose of this section is to provide the community with timely information and valuable resources reflecting our multi-disciplinary approach to planning, including financial, insurance, business succession, and estate and charitable planning matters. The articles and commentary on the pages that follow have been provided by some of the region’s most experienced professionals in these fields. They may help you to address your financial and estate planning concerns, or spur further discussion with your team of advisors. Estate planning is an often overlooked aspect of personal financial

management. Millions of Americans do not have a current estate plan and medical directives in place, leaving them vulnerable in the event of unexpected illness, accident or untimely death. Committing a modest amount of time to executing these important documents can save time, expense and hardship for families, loved ones and businesses. Life can change at any time and we must Taft prepare ourselves and our families for that possibility. 2018 started out with a bang, with U.S. stocks hitting record highs and the implementation of significant changes to the tax code that were passed at the end of 2017. While many tax-planning strategies that were implemented for decades are now gone, many new opportunities have been created. As we

CONTENTS estate

planning

ret irement planning

insurance planning

charitable planning

MANAGING EDITOR, CUSTOM AND SPECIAL PROJECTS: Amy Ann Stoessel, astoessel@crain.com

approach the end of the first reporting cycle under the newly minted tax laws, it is important to meet with your advisors if you haven’t already. With the ever-changing political and economic landscape, it is imperative that people protect and preserve the assets they have spent a lifetime building. It is wise to seek and rely upon the advice of experienced professionals who are familiar with income, gift and transfer tax laws and have expertise in making prudent financial and investment recommendations. Plenty of such experienced professionals make up the membership of the Estate Planning Council of Cleveland. They are prepared to help you evaluate how your personal financial goals could be affected by the changing tax, economic and legislative environment, as well as geopolitical risks. These professionals will provide a wide array of planning services to ad-

dress the complexities of your financial life and guide you toward a path of financial independence. They will assist you in making sound financial decisions to propel you toward your estate and financial planning goals. Perhaps you have family members with special needs. You may have a family business that you wish to transfer to a future generation or prepare for sale. Maybe you have charitable legacies that you wish to fulfill. The members of the Estate Planning Council of Cleveland can help you with the advice, tools and techniques that will enable you to attain these and other goals. Founded in the 1930s, the Estate Planning Council of Cleveland is composed of more than 400 members working in the Greater Cleveland area, including attorneys, accountants, bankers and trust officers, financial planners, insurance agents, appraisers

and representatives from charitable organizations. Our members are committed to their clients and their community and are able to provide you with the assistance you will need to safeguard your financial future. Our website, www.epccleveland.org, is a valuable resource that can help you to identify the professionals you will need to assist you with your unique situation. We are pleased to present you with this special section in Crain’s Cleveland Business, which contains important insights and commentary on a variety of estate planning issues. We hope that you will find it to be an indispensable resource as you work with your advisors to plan a sound financial future. Julie A. taft is a partner at Mansour Gavin LpA. Contact her at 216-5231500 or jtaft@mggmlpa.com.

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S4 November 12, 2018

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Selecting the perfect trustee By JOSEPH M. MENTREK

he choice of a trustee is perhaps the most important, yet underappreciated component of formulating an effective estate plan. Selection of an appropriate trustee to carry out the important duties of trust administration can significantly impact the experience of the trust beneficiary. And anyone asked to serve as trustee must carefully weigh whether they want to assume the potential liability that comes with the “honor.” Under Ohio statute, the trustee is charged with the overarching duty to administer the trust in good faith, in accordance with its terms and purposes and in the best interests of the beneficiaries. In defining the nature of the duty, the statute speaks to standards of loyalty, impartiality and prudence, as well as the duty to keep the current beneficiaries of the trust reasonably informed about the administration of the trust. Essentially, the trustee is obligated not to place the interests of others above those of the beneficiaries. Conflicts involving the duty of loyalty are more apt to arise when the trustee is also a beneficiary, friend, family member, or shareholder/employee of a related company. Practical issues regarding impartial-

estate

planning ity occur most frequently in the context of relationships with beneficiaries, understanding that the trustee is dutybound to treat beneficiaries equitably, not necessarily equally. A trustee satisfies his or her duty of prudence when exercising ordinary prudence as he or she would with his or her own property. Perhaps the most fundamental duty of the trustee is to keep the current beneficiaries of the trust reasonably informed of the Mentrek administration of the trust and of the material facts necessary for them to protect their interests. From a practical perspective, this means the trustee must make appropriate investments, plan and execute appropriate distributions on behalf of beneficiaries, prepare and provide proper trust accountings and file appropriate tax returns. Failure to do so exposes the trustee to liability for breach of fiduciary duty. Such a commitment is not to be taken lightly. When selecting the trustee, the settlor must balance the degree of control to be imposed upon trust beneficiaries with the flexibility necessary for ease of administration, while at the same time understanding that the trustee is duty-bound and faces real potential liability. Significant controls might facilitate certainty regarding management, tax issues and creditor protection. Such controls, however, may tend to stymie the financial flexibility enjoyed by trust

beneficiaries. As one court expressed the issue, “the cost of holding onto the strings may prove to be a rope burn.” The gating issue considered by most settlors when naming trustees and successor trustees is whether to enlist the services of an individual or those of an institutional trustee. Many will opt to engage the services of a professional (institutional) trustee because of the complex nature of the role and their understanding of the nature and scope of liability involved with serving as trustee. Often, trust companies, banks and attorneys are better suited to handle the investment and administrative duties and find it easier to manage beneficiaries’ expectations when it comes to distributions. Family members, on the other hand, have the unique advantage of knowing and caring about the beneficiary, and may be preferable despite the great burden of serving as a trustee imposes. It is incumbent upon the settlor to carefully choose the type of trustee most appropriate for the unique circumstances of his or her family. And though it adds complexity and expense, in some instances, what is most appropriate is the appointment of co-trustees, including a family member and an institutional trustee, to achieve the benefits associated with each class of trustee. Other important issues surrounding trustee selection include trustee succession and removal and replacement powers. Appointing an unbroken line of succession is critically important when you consider the fact that a trust enjoys a life of its own and will continue its existence as long as the property is commended to the care of the trustee. CoNtiNued oN Next page

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It is best to provide for a string of successors so that the trust is never left without a trustee. In such a case, the trust will be subject to the control of the probate court, and the court will appoint a successor, substituting its best judgment for that of the settlor. Such a course of action, obviously, can frustrate the settlor’s intent to control the narrative for as long as the assets remain in the trust, and can totally thwart the inherently private nature of a trust by thrusting the matter into the public eye. In a similar vein, the settlor must carefully consider whether to give the beneficiaries the flexibility of allowing the ability to remove and replace their carefully selected trustee. Changed circumstances sometimes make such a power valuable to the beneficiaries, particularly if the well-meaning judgment of the settlor at the time the document was drafted results in an untenable situation. Finally, it is important to mention the emerging notion of utilizing a directed trust. While tradition

vests investment, distribution and management powers in a singular trustee, a directed trust departs from tradition by granting certain powers over a trust to someone who is not the trustee. Such a person may be known by a variety of names including “trust protector,” “trust advisor,” “investment advisor,” or “special trustee.” If such a separation of the trustee’s duties is employed, it is important to note that both duty and liability can be shifted and shared among the multiple individuals fulfilling the role traditionally assumed by a single trustee. The bottom line is to carefully contemplate decisions regarding the selection of trustees, understanding that the responsibilities and accountability inherent in the role must be carefully balanced to identify the parties responsible to protect and manage the well-being of loved ones. Joseph M. Mentrek is a partner and chair of the estate and Succession planning practice group at Calfee, Halter & Griswold LLp. Contact him at 216-622-8866 or jmentrek@calfee.com.

november 12, 2018 S5

Five years later, legacy trusts remain vital for Ohio business owners By KEN LAINO ANd KyLE MORdEW

estate

planning

t has been five years since Ohio positioned itself at the forefront of asset protection planning by passing the Ohio Legacy Trust Act. Legacy trusts under Ohio law allow the trust creator (settlor) to create a trust, place his or her own assets into the trust, and in doing so insulate those assets from personal judgments against the settlor. Prior to this law, Ohio residents could only try to get some degree of protection in some other select states or in offshore jurisdictions. The requirements for a legacy trust are relatively simple: the trust must have a qualified trustee (Ohio resident other than the settlor), be irrevocable, be governed by Ohio law and have adequate spendthrift provisions applicable to all beneficiaries. Notably, the settlor can retain the ability to replace the

Laino

Mordew

independent trustee for any reason, thereby allowing the settlor to “watch” the independent trustee’s actions. This combination of asset protection, ease of creation and degree of settlor oversight makes legacy trusts an outstanding vehicle for asset protection. While the benefits of a legacy trust are numerous, there is one important caveat that should not be overlooked. A settlor cannot transfer assets to a legacy trust after the

settlor has knowledge of a pending claim against herself or himself. Ohio’s fraudulent transfer statute will unwind that transfer and subject the assets to the pending claim. As a result, it is critical that Ohio business owners and other “atrisk” professionals, like physicians, act sooner rather than later in establishing a legacy trust. Indeed, creating a legacy trust will provide much greater odds that the assets in the trust pass to the settlor’s intended beneficiaries rather than being used to pay a settlement. Ken Laino is a partner in the Business Law practice group at Schneider Smeltz Spieth Bell, LLp. Contact him at 216-696-4200 or klaino@sssb-law.com. Kyle Mordew is an associate in the trusts & estates practice group at Schneider Smeltz Spieth Bell, LLp. Contact him at 216-472-1128 or kmordew@sssb-law.com.

One legacy. Working together, we can make a difference. By assisting with gifts to The Power of Every One Centennial Campaign, you are helping clients make an important investment in their own lives and the lives of Cleveland Clinic patients. Thank you. Learn more at powerofeveryone.org or contact Stacey McKinley, Esq., mckinls@ccf.org or 216.445.8552.

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S6 November 12, 2018

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Incorporating the management of digital assets into your plan State laws vary on executor’s oversight By MARy EILEEN VITALE

ost people live through their electronic devices. E-mail, online financial statements and cloud storage are replacing hard copies. Although a virtual lifestyle is common, planning for the administration of digital assets is relatively new to estate administration. State probate laws allow executors to represent the deceased owner, administering tangible assets. However, digital assets

are different. The privacy policies of custodians like Facebook, LinkedIn and Google do not grant executors automatic access. The Revised Uniform Fiduciary Access to Digital Assets Act has Vitale given states the opportunity to establish a solution for the administration of digital assets. Under RUFADAA, the original user of a

The duties of a trustee By LINDA M. OLEJKO

very irrevocable trust creates a legal relationship between the trustee and the beneficiaries of the trust. In this relationship, the trustee carries out the wishes of the trust’s grantor as those are set forth in the trust document. Choosing who will serve as trustee of your trust is an important decision that deserves careful consideration. The trustee you select must have the skill, perspective and judgment, as well as the

estate

planning digital asset must expressly grant access to its content. This can be given either through the custodian’s access-authorization tool or in a planning document, such as a last will and testament or general durable power of attorney. Without this express consent, the custodian’s terms-of-service agreement will determine whether the executor gets access. Many states, including Ohio, have adopted the act. Therefore, it is important to

estate

time, to adequately perform a wide range of duties. Simply stated, a trustee is obligated to follow two guiding principles: 1. The duty of care: to exercise the powers granted to the trustee in the trust document and to do so in good faith, efficiently and cost-effectively. 2. The duty of loyalty: to administer the trust solely in the interests of the beneficiaries. A trust is, in many ways, similar to a per-

planning son. It is a separate legal entity that owns property and pays income taxes. All decisions made and actions taken by a trustee are guided by the terms of the trust and applicable law. Trusts require a variety of professional services due to the complexity of property ownership rules, income and transfer taxes, financial management and accounting requirements. Even if the services of related professionals are used, the responsibility for proper administra-

understand how you should plan for access to and administration of your digital assets. First, consider whether you want to give your executor access to your digital assets. If you do, as noted above, you must expressly consent either through the custodian’s access-authorization tool or through your last will and testament. You may also grant an attorney-in-fact access to your digital assets through a power of attorney. Access-authorization tools vary among custodians, and you should recognize that authorization given to one custodian would not apply to another. Create a list of account IP addresses that is updated regularly and

kept in a safe place. Alternatively, if you decide to grant access through your last will and testament or a power of attorney, be sure to discuss these provisions specifically with your attorney. Some standard powers of attorney do not cover digital assets. By understanding how to grant access to your digital assets, you can help ensure that your executor and your family are able to carry out your wishes as quickly and efficiently as possible.

tion of the trust rests with the trustee. The trustee is accountable for all money, investments and other property transferred into the trust. The trustee must keep Olejko the trust assets separate from their own, maintain records of assets, account for income and costs incurred and take care of the physical custody of the trust assets. It is an obligation of the trustee to invest trust funds so that they are productive. In many states, the individual trustee has the duty

to exercise that degree of care, skill and caution that a reasonably prudent person would exercise in dealing with his or her own property. The specific details of a trustee’s duties and responsibilities often vary from state to state. Furthermore, many of the steps that a trustee must take in administering a trust depend on the provisions in the trust agreement and the composition of the assets comprising the trust.

Mary eileen Vitale is a principal at HW&Co. Contact her at 216-378-7210 or vitale@hwco.com.

Linda M. olejko, CFp®, CepA, is a managing director of Glenmede. Contact her at 216-514-7876 or linda. olejko@glenmede.com.

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SLATs offer opportunity to save on estate taxes Strategy worth consideration given tax law changes By JOSEPH M. FERRARO And SUSAn L. RACEy

t is easy to postpone (or even ignore) estate tax planning after the increase of the federal estate and gift tax exemption amount under the Tax Cuts and Jobs Act of 2017. The exemption increased from $5.49 million to $11.18 million. However, with the recent correction in the market and the temporary high exemption amounts, which are scheduled to expire after 2025, now may be the best time to implement estate tax planning strategies that preserve wealth and save significant amounts of estate taxes. Under these conditions, inaction may prove to be a missed opportunity. A Spousal Lifetime Access Trust is a popular planning strategy that allows assets to be held in trust for a spouse while the property grows estate tax-free for the Ferraro benefit of children and later generations. The spouse, as beneficiary, is permitted to receive income and principal for certain purposes, such as health, support Racey and maintenance. If desired, children and later generations may also be permissible recipients of income and/or principal. The spouse may also serve as trustee, allowing the spouse to control investment decisions and when distributions are made. Although the trust agreement must be irrevocable — as in, it cannot be amended, the spouse may be given the right to alter how property is distributed upon the spouse’s death, which may include decisions on the manner and amounts that children or later generations will inherit. If structured and administered properly, property transferred to a SLAT, including the growth, will not be included in either spouse’s taxable estates upon death. The SLAT will also provide leverage against the impending reduction of the estate tax exemption after 2025, and potential further reduction as a result of an unpredictable future political climate. As is the case with most estate tax planning strategies, transferring property that is anticipated to appreciate will provide families with the most bang for their buck. In addition to the tax benefits, property held in a SLAT may be protected from the creditors of either spouse. All of this is coupled with the fact that property transferred to a SLAT remains available for the spouse’s benefit if needed. For married individuals, SLATs are

an opportunity worth taking advantage of.

estate

planning a flexible estate tax planning tool that can save a family millions of dollars while providing a high level of asset protection and permitting a spouse to control and benefit from the property. Given the current market and high exemption amounts, creating a SLAT is

Joseph M. Ferraro is an associate in the tucker ellis estates, trusts & probate Group. Contact him at 216-696-5872 or joseph.ferraro@ tuckerellis.com. Susan L. racey is a partner in the tucker ellis estates, trusts & probate Group. Contact her at 216-696-3651 or susan.racey@ tuckerellis.com.

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S8 November 12, 2018

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It’s rampant, invisible and lethal: the financial exploitation of the elderly By DAVID P. MEyER

hile investment fraud is a concern for every individual investor, the risk is particularly troubling for the elderly because they are increasingly targeted as victims of financial exploitation. Exploiting the elderly has become so common that it is estimated that at least one in five elderly investors has been the subject of elder financial exploitation. In light of this growing problem, it is critical that elderly investors are aware of the many different forms of senior investment fraud and know of steps to take, including estate planning, that minimize the risk of losing hard-earned money through financial exploitation. Broadly defined, fraudulent exploitation is the unlawful act of using a senior’s resources for monetary or personal gain through intimidation, threat or deception. Senior investment fraud can be difficult to detect given that it takes many different forms and often involves a relative, close friend or a trusted advisor. For example, there are numerous cases involving Alzheimer’s patients having their finances exploited by their trusted financial advisors or close family members who take advantage of

the senior’s mental health condition. Investors between the ages of about 50 to 64, who are facing imminent retirement, are also frequently targeted as victims of Ponzi schemes, investment scams and stockbroker misconduct. Preretirees may be more susceptible to this type of fraud as they may be concerned about the financial strain of upcoming retirement and might be more trusting if they are Meyer acquainted with the con-artist. The growing concern of elder financial fraud is reprehensible, life threatening, and most importantly, invisible. There are many steps that can help prevent seniors from falling victim to financial exploitation. The first is knowing what to look for. With regard to family members taking advantage of their elders, red flags may include pressure from relatives to give loans, or finding that money has mysteriously disappeared. Investment advisors may also target senior clients to earn high commission by soliciting high-risk investments that are unsuitable for retirees.

estate

planning Red flags of churning and stockbroker misconduct include unauthorized transactions and significant decline in investments. Rogue advisors and fraudsters may also target seniors for Ponzi schemes and investment fraud. If the advisor is not returning phone calls, provides little information about the investments, promotes “private” or “special deals,” or offers side investments, these may all be signs to take caution. One of the most effective measures in preventing senior investment fraud can also be the most difficult — recognizing vulnerability. Unfortunately, difficulty in making financial decisions coupled with an impaired ability to recognize deception can make seniors a natural target for investment fraud. Signs that you or a loved one may be vulnerable to senior investment fraud include lack of confidence in making financial decisions, having trouble keeping up with bills due to confusion, giving gifts or loans that cannot be afforded and the inability to understand

investment advice. Fraudsters target these traits in seniors who are less likely to pick up on red flags. Acknowledging vulnerability may help increase awareness in identifying these signs. Seeking the help of an estate planning professional can help ensure that a senior’s mental health will not jeopardize their finances or their estate. It is important to educate individual investors about the benefits of having a power of attorney, and encourage investors to share details of their financial affairs with estate lawyers and other professionals to help ensure that if the investor’s health deteriorates, their financial affairs will be properly handled. On top of individual measures to prevent senior exploitation, there are a number of new legal initiatives aimed at attacking the problem. For instance, Ohio has broadened the definitions of neglect, exploitation and financial harm, and expands the list of persons required to report suspected abuse or exploitation. Additionally, some states now require that certain individuals in the financial industry take specific training on how to recognize financial abuse of elder adults. These are simply a few examples among an extensive list of

legislation aimed at protecting elders from financial exploitation. Unfortunately, preventive measures and legal initiatives are not always enough to prevent senior exploitation. The last method of fighting this problem is to file a claim to recover losses through the civil legal system. Through injunctive relief, restraining orders and revocation of powers of attorney, filing a claim can stop the problem and prevent additional losses. Additionally, seniors who have suffered financial exploitation may be able to recoup their losses. If the individual behind the exploitation is a registered financial advisor, the brokerage firm where he or she is employed may be liable for losses caused by the misconduct of the broker. Financial exploitation can be devastating, particularly for senior citizens with limited income. It is important that victims of financial exploitation seek the representation of legal counsel experienced in securities fraud. david p. Meyer, esq., is founding principal with Meyer Wilson Co. LpA. Contact him at 614-358-3283 or dmeyer@meyerwilson.com.

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Getting double duty out of an IRA By DIANE M. STRACHAN

o, the market has done well and your IRA has been building. Income tax is now due on that money when you take withdrawals in retirement. You are age 70½ or older and are required to take a distribution, and if you don’t take a distribution, you could pay a 50% tax on the amount you should have withdrawn. You also have several favorite charities to which you are dedicated and support every year. Why not be really tax savvy and let your required minimum distribution do double duty by serving as both retirement income and a charitable gift? So how exactly does this work? If you meet the requirements: are age 70½, the amount of your required distribution is less than $100,000 and you do not need to take your entire distribution (partial distributions are allowable), you can mitigate the income tax on the required distribution if you make a qualified charitable donation from your IRA. If you donate

retirement planning

more than the allowable amount (up to $100,000 or up to $200,000 for married couples), it is considered income and could be subject to income tax. It pays to take a moment and calculate the tax break. A $100,000 charitable contribution from your IRA directly to a qualified charity could save you tens of thousands of dollars in taxes, depending on your tax rate. But you don’t have to make Strachan a huge donation to benefit with some significance. For a retiree in the 25% tax bracket, an IRA charitable contribution of $5,000 could reduce your income tax bill by $1,250. Even a $1,000 donation could save you $250 in taxes. You don’t need to itemize your taxes to make an IRA charitable distribution. However, you cannot additionally claim

a charitable contribution tax deduction on a charitable distribution from your IRA. You are not getting taxed on this money, so you don’t get to count it as a charitable deduction in addition. Charitable contributions can only be made from IRAs, not 401(k)s or similar

types of retirement accounts. However, you could add your favorite charity as a beneficiary of your 401(k) in whole or in part as another tax-smart gifting strategy. Because charitable contributions can only be made from your IRA, you may need to roll over funds from a

401(k) to an IRA if you want to make tax-free charitable contributions from your retirement plan. And finally, be sure to choose a qualified charity and ensure that you receive an acknowledgment for your donation if you don’t receive it automatically. The most important step is to set up a direct transfer. Funds must be transferred directly from your IRA to an eligible charity by the IRA trustee to qualify for the tax break. If you withdraw the money from your IRA and later donate it, it will not qualify as a tax-free qualified charitable distribution. You’ve worked hard to build your nest egg for retirement, but by thinking creatively about your overall financial plan, you can accomplish several goals with strategies like this, where the tax burden is lessened and you fulfill your philanthropic goals. diane M. Strachan, CFre, is director of development at the Cleveland Museum of Art. Contact her at 216-707-2585 or dstrachan@ clevelandart.org.

Helping Clients Solve Complex Estate and Succession Planning Needs The attorneys in Calfee, Halter & Griswold LLP’s Estate and Succession Planning group can help you make some of the most important decisions of your life. With deep knowledge and experience in finance and the law, our professionals provide exceptional value to clients seeking: • Sophisticated estate, gift, and generation-skipping planning • Comprehensive estate and trust administration • Business succession planning • Asset protection planning • Complex probate and trust litigation Calfee’s Estate and Succession Planning Attorneys Joseph M. Mentrek, Practice Group Chair Amy K. Friedmann | Jean M. Hillman | Fran Mitchell Schaul | James A. Singler | Jaclyn M. Vary Cleveland | Columbus | Cincinnati | Washington, D.C. | Calfee.com | 216.622.8200 | info@calfee.com ©2018 Calfee, Halter & Griswold LLP. All Rights Reserved. 1405 East Sixth Street, Cleveland, OH 44114

ESTATE PLANNING

S10 November 12, 2018

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Life insurance, a valuable gift planning option By BRIAN M. TULLIO

n the world of charitable gift planning, gifts of life insurance offer a welcome degree of certainty and flexibility. Life insurance provides a host of benefits for both the donor and charity, including: ■ Substantial leverage; ■ An almost-certain policy benefit provided for the charity; ■ No erosion of the gift due to estate and/or income tax; ■ Ease of implementation and maintenance; and ■ Great flexibility in meeting donors’ philanthropic goals, regardless of their economic status. All of these advantages make life insurance a desirable charitable giftplanning vehicle. As a result, advisors have used life insurance to structure

gifts in a variety of ways. In different situations, some options are better than others for the donor and the charity. The easiest and simplest way to make a gift of life insurance is to name the charity as a beneficiary of an existing policy. While no immediate income tax charitable deduction is provided, this gives donors flexibility, allowing them to retain control Tullio of the policy and its cash value. The donor can simply complete a change of beneficiary form provided by the policy carrier, which generally is found online. However, a major drawback for the charity if this option is chosen is that because the donors could change their minds and perhaps name someone else as the beneficiary at a later date, the charity has difficulty relying on

insurance planning

the policy benefit. A better option for both donor and charity might be to contribute a paidup policy directly to the charity. In this case, the donor would relinquish control by transferring ownership of the policy to the charity. The donor would receive an immediate income tax charitable deduction for the lesser of either the donor’s adjusted cost basis or the policy’s replacement cost. (Because this is a non-cash charitable contribution, likely in excess of $5,000, Section B of IRS Form 8283 should be filed to validate the charitable deduction.) Another good option would be to establish a new insurance policy and, shortly afterward, transfer ownership

Your Charitable Back Office

to the charity. Then, the donor would pledge cash payments to assist the charity in covering the cost of the premiums. The donor would receive a charitable deduction for making the cash contributions to the charity. In turn, the charity would benefit from immediate control of the policy and its cash value, allowing it to rely on the policy benefit. Finally, while more complex than these other gift options, premiumfinanced life insurance policies allow a donor to take full advantage of the leverage provided by life insurance for the purpose of establishing a large deferred gift. For a premium-financed life insurance gift, a donor would set up an irrevocable life insurance trust (“ILIT”) to serve as the owner of a single or joint life survivorship insurance policy. The ILIT then would secure financing for a loan, normally renewed annually, covering the policy’s premium costs. To accomplish this, the trust will pledge the policy as collateral, and the donor may decide to post additional out-of-pocket collateral, as well. Premiums typically will continue for several years. When the policy benefit is distributed to the trust, the trust will use a portion of the benefit to pay the loan principal and interest, while the remaining benefit will be distributed to the charity. Although no charitable income tax deduction

will be generated for the donor, the particular type of policy used for this (a modified endowment contract) will appreciate during the life of the donor. This will generate a larger benefit than is produced by a conventional policy. There are other variations of this strategy that can be used to maximize the policy benefit, reduce collateral requirements or provide for cash distributions. Therefore, although premium-financed policies can be very complex, the benefits for charities are substantial, making this an attractive option for them and for more affluent donors. All of this information is only the tip of the iceberg when devising a charitable plan with life insurance. These contributions also can be facilitated with gift annuities and charitable remainder trusts, whereby the income generated can be used to pay premiums on an insurance policy. Also, incorporating life insurance into a blended gift provides for the charity both now and in the future. With this brief glimpse into charitable planning with life insurance, you can see the many ways in which such a flexible gift vehicle can help your clients meet and achieve their philanthropic goals. Brian M. tullio, J.d., LL.M., is associate director of gift planning at Cleveland Clinic. Contact him at 216-442-5358 or tulliob@ccf.org.

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ESTATE PLANNING

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Be aware of your long-term care options By JEFFREy WASSERMAN

iven current tax laws, fewer families are concerned about paying a large estate tax upon death. Because of this, the planning focus has shifted from estate tax planning to estate preservation.

november 12, 2018 S11

Technology can help expedite life insurance coverage process By CHRISTINE MILLEN ANd RAyMONd NASH

insurance planning

ife insurance companies are working to improve an all too cumbersome process to help more people get the coverage they need in a much faster and streamlined way. Finally, it is getting easier for many people to acquire the life insurance they need to protect their families and their businesses.

Millen

Nash

Traditionally, to acquire a life insurance policy, life insurance buyers must complete a physical exam, and

life insurance advisors must track down years of medical records, regardless of the policy size or the age of the insured. This process takes time — a lot of time, as it can take a month or more to uncover the necessary

medical information. No wonder there is a disparity between those who say they need life insurance, and those who have it. In fact, 52% of potential life insurance buyers said they would be more likely to purchase life insurance if they didn’t have to go through a physical exam, according to a 2018 study by LIMRA, a global financial services research firm. Continued on next page

insurance planning

The cost of long-term care is skyrocketing, and with people living longer, the cost of care can be a drain on family wealth. A private room in a nursing home facility is projected to cost more than $170,000 per year in 20 years, which has many individuals in their 40s and 50s very concerned. The traditional long-term care insurance policies that were available in the 1990s and 2000s did not have guaranteed premiums. Most people who bought these policies have seen premium increases of over 100%, which is why most insurance carriers have exited the long-term care market all together. For those who are considering the purchase of longterm care insurance, there are a few things to know. First, if you are considering a traditional long-term care insurance policy, be aware: premiums Wasserman are not guaranteed and, like their predecessors, premiums can increase. The second thing to know is that there are alternatives to traditional long-term care insurance that offer rates guaranteed to never increase. One is life insurance with a longterm care rider. These are permanent life insurance policies that allow the insured to take an advance of the death benefit to pay for qualified longterm care expenses. Another long-term insurance alternative acts more like an annuity in that a lump sum is placed with an insurance carrier. In return, the insured has a cash balance, a longterm care benefit and a death benefit that pays to the insured’s selected beneficiaries if the long-term care benefit is never used. These newer hybrid long-term care products offer clients flexibility and other benefits that work well with traditional estate preservation or wealth transfer plans. Jeffrey Wasserman is executive vice president and managing director, life insurance, at oswald Companies. Contact him at 216367-5996.

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ESTATE PLANNING

S12 November 12, 2018

CoNtINUed from prevIoUS paGe

Through significant investments in technology, life insurance carriers are finding ways to automate and optimize underwriting processes to remove barriers like insurance physical exams and the retrieval of medical records. Eliminating these obstacles can take a process that used to take months down to a matter of weeks. To take full advantage of the efficiencies available in an automated underwriting program, the insurance buyer needs to be in good health. Life insurance companies require the insured to complete a brief telephone interview to gather pertinent details about their health history before issuing a policy. This allows the insurance carrier to evaluate the risk at hand and, at their discretion, possibly divert from the streamlined course of action and request additional medical information, such as the completion of a physical exam. Most insurance carriers limit the amount of coverage they are willing to issue through automated programs to $1 million, with a maximum issue age of 50 or 60 to limit their exposure. As more policies are issued and more data is collected, life insurance companies will likely increase the coverage they are willing to write and increase their maximum issue ages through their automated programs.

‘‘

finally, it is getting easier for many people to acquire the life insurance they need to protect their families and their businesses.

However, when it comes to large, complex needs for wealth transfer, asset allocation strategies and business planning purposes, automated underwriting programs likely won’t come into play anytime soon. The risks are just too great for the insurance companies to bear. For needs such as these, it is important to get the help of a trusted insurance advisor to navigate the life insurance landscape. Knowing what approach to take is an art, not a science. Christine millen is vice president at Heirmark. Contact her at 440630-9400 or cmillen@heirmark. com. raymond Nash is Ceo and principal at Heirmark. Contact him at 440-630-9400 or rnash@ heirmark.com.

SpoNSored CoNteNt

Charitable gift annuities accomplish financial and philanthropic goals By JESSICA RUBIN GRASHOFF

ach year, thousands of caring and financially savvy individuals choose charitable gift annuities as a way to provide support to the charity most meaningful to them. In many cases, charitable gift annuities have enabled individuals to make gifts that would not otherwise have been possible. A CGA is a split gift — part charitable gift and part annuity. When Grashoff you fund a CGA, the charity agrees to pay a percentage of the gift amount on a regular basis to one or two beneficiaries for life. Approximately half of the gift supports the charity’s mission and half is paid back through annuity payments. The amount of the annuity payment is based on the age of the beneficiary (either you or another beneficiary) and the amount or value of the gift. The older the beneficiary, the higher the

charitable planning

payout rate. And with the American Council on Gift Annuities recently raising its suggested maximum payout rates, individuals can take advantage of even greater benefits than before. CGAs are flexible as they can: ■ Be funded through a variety of assets such as cash and long-term appreciated property, including real estate; and ■ Provide a steady stream of income to you, you and your spouse, or to other family members or loved ones — for life. Annuity payments can be made now or deferred to a later time. Deferred charitable gift annuities increase the annuity payment and charitable tax deduction while supplementing your retirement income. CGAs are simple to establish. Often easier and less expensive to set up than charitable remainder trusts, CGAs do not require initial fees, and charities

usually require smaller minimum gifts. Individuals may even set up multiple CGAs, rather than making a significant gift all at once, resulting in increased cash flow. Since a CGA is a split gift, individuals can take advantage of important tax benefits such as: ■ Income tax savings through an immediate charitable deduction; ■ Secure, fixed income for life, a portion of which is tax free; and ■ Reduced capital gains tax when using appreciated assets to fund the CGA. A charitable gift annuity is a gift plan that can help you secure your future while making a meaningful, long-term impact on the charity most significant to you. CGAs truly provide an opportunity to make a difference in your life and in the lives of so many others. Jessica rubin Grashoff, esq., is a gift planning officer in Institutional relations & development at University Hospitals. Contact her at 216-983-5143 or Jessica.Grashoff@ uhhospitals.org.

Transformative. Imagine the opportunity to open minds forever. Our Legacy Donors do just that. Consider adding the Cleveland Museum of Art to your estate plan either by bequest, trust, or other planned gift. Contact Diane M. Strachan, CFRE, at 216-707-2585 or dstrachan@clevelandart.org, to create your lasting legacy for generations to come.

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Charles F. Adler, III Richard A. Ahrens DeAnna Alger Ronald S. Ambrogio William Ambrogio Thomas D. Anderson Graham T. Andrews Heather A. Archdeacon Gary S. Archdeacon Kemper D. Arnold James S. Aussem Charles J. Avarello Andrew G. Bacharach, Jr. Molly Balunek Peter Balunek Mary Lynne Baranek Kimberly J. Baranovich Lawrence C. Barrett Stephen Baumgarten Alexandra G. Beach Edward J. Bell Steven Berman H. William Beseth, III Mohammed J. Bidar Michelle M. Bizily Alane Boffa Tami M. Bolder Daniel L. Bonder Nicole K. Bornhorst David J. Bosak Jill A. Branthoover Sandra J. Brantley Herbert L. Braverman Christopher Paul Bray James R. Bright Don P. Brown C. Richard Brubaker Robert M. Brucken Bethany J. Bryant Martin J. Burke, Jr. Eileen M. Burkhart Samuel V. Butcher J. Donald Cairns Carl Camillo Peter Carfagna Leigh H. Carter William G. Caster Jennifer Chess James R. Chriszt Trevor R. Chuna Gina M. Ciani Mark A. Ciulla R. Michael Cole Katherine E. Collin Jeffrey P. Consolo Barbara J. Cottrell Greg S. Cowan Steven Cox Thomas H. Craft Joseph R. Crea Deborah P. Cugel M. Patricia Culler Tia Marie D’Aveta William Davis Elizabeth F. De Nitto Dana Marie DeCapite W. Edward Decker Thomas A. DeWerth Carina S. Diamond David S. Dickenson, II James G. Dickinson Sarah M. Dimling Nicholas P. DiSanto Mary Ann Doherty Lynda Doland Alex Doll Terry Ann Donner Timothy Doyle Therese Sweeney Drake Emily A. Drake Jill Dugovics William A. Duncan Carl J. Dyczek Howard B. Edelstein Elaine B. Eisner Michael E. Ernewein Erin C. Eurenius Christina D. Evans

Susan M. Evans Todd M. Everson Frank Fantozzi Mario J. Fazio Charles E. Federanich Joseph M. Ferraro J. Paul Fidler Julie E. Firestone Mary Kay Flaherty Linda Fousek Amy K. Friedmann Patricia L. Fries Robert R. Galloway Naomi D. Ganoe Stephen H. Gariepy Rao K. Garuda James E. Gaydosh Kyle B. Gee Christopher Geiss

William E. Karnatz, Jr. ESTATE PLANNING Howard Kass Toby Kaye John D. Kedzior Marta L. Kelleher Jonathan M. Kesselman W. Todd Kiick Alexis Kim Elizabeth D. Klein Paul S. Klug Victor G. Kmetich Daniel R. Kohler James R. Komos Beth M. Korth Harvey Kotler Roy A. Krall Frank C. Krasovec, Jr. Thomas W. Krause Deviani Kuhar

Daniel A. McGowan Erica E. McGregor Daniel J. McGuire Jamie E. McHenry Sarah E. McIntosh Kevin R. McKinnis Catherine A. Mekker Ervis Mellani Joseph M. Mentrek Margaret M. Metzinger Lisa H. Michel Charles M. Miller William M. Mills Wayne D. Minich Ginger F. Mlakar M. Elizabeth Monihan Michael J. Monroe Robert C. Moore Kenneth R. Morgan

The esTaTe Planning CounCil of cleVeland

Thomas M. Genco Arthur E.Gibbs, III Thomas C. Gilchrist Caroline Gluek Ronald J. Gogul Scott A. Gohn Daniel M. Goldfarb James A. Goldsmith Susan S. Goldstein Benjamin M. Golsky Laura Joyce Gorretta Lawrence I. Gould David A. Grano Karen L. Greco Sally Gries Nancy Hancock Griffith Elizabeth C. Griffiths James P. Gruber Marie L. Gustavsson-Monago Amy M. Gyetko Ellen E. Halfon Patrick A. Hammer Sarah Hannibal Brian R. Hassett Dana G. Hastings Lawrence H. Hatch Janet W. Havener Albert G. Hehr, III Theodore N. Hellmuth Kimberly Heman James M. Henretta Jean M. Hillman Joanne Hindel Mark L. Hoffman Harold L. Hom James M. Horkey Brent R. Horvath Michael J. Horvitz Douglas Ingold Lynnette Jackson Paula Jagelewski Christopher P. Jakyma Barbara Bellin Janovitz Theodore T. Jones James O. Judd Matthew F. Kadish Stephen L. Kadish Matthew A. Kaliff Joseph W. Kampman Karen J. Kannenberg Lori L. Kaplan

President

Julie A. Taft Vice President

Peter Balunek secretary

Dana Marie DeCapite treasurer Elaine B. Eisner Program chair

Laura B. Springer immediate Past President

Emily Shacklett Craig A. Kukla Anthony C. Kure Kristen Kuzma Louis D. LaJoe Gary E. Lanzen Steven P. Larson Donald Laubacher Paul J. Lehman Maureen Leneghan Kevin J. Lenhard David M. Lenz Wendy S. Lewis Keith M. Lichtcsien David C. Ligan Dennis A. Linden James Lineweaver Jennifer R. Loan Ted S. Lorenzen Amy R. Lorius Janet L. Lowder Lisa K. Lowy Robert M. Lustig David S. Maher Stanley J. Majkrzak Chad Makuch Timothy Patrick Malloy Laura J. Malone Michelle Mancini Karen T. Manning Monique W. Marinakos Douglas Mathey Michael W. Matile Nancy McCann Karen M. McCarthy

Philip G. Moshier Michael J. Moss Joseph L. Motta Susan C. Murphy Hoyt C. Murray Norman T. Musial Christine A. Myers Raymond C. Nash Jodi Marie Nead Robert Nemeth Michael H. Novak Michael T. Novak Anthony J. Nuccio Eric A. Nye Michael J. O’Brien Lacie L. O’Daire Linda M. Olejko Matthew S. Olver Leslie A. O’Malley Robert J. O’Neil Richard M. Packer William A. Payne James B. Perrine Dominic V. Perry Ivan Petrovic Marla K. Petti Jennifer N. Pinkerton Douglas A. Piper Patrick M. Polomsky Rebecca Yingst Price Douglas Price Matthew M. Pullar Maria E. Quinn Susan L. Racey Joseph Radigan Uma M. Rajeshwar Timothy L. Ramsier Melissa Anne Register Linda M. Rich R. Andrew Richner Radd L. Riebe Elton H. Riemer Kathleen K. Riley Michael G. Riley Theodore J. Robbins Lisa Roberts-Mamone Julie K. Robie Kenneth L. Rogat Carrie A. Rosko Lisa J. Roth Debbie Rothschild

Larry Rothstein november 12, 2018 S13

David Rubis Alexander I. Rupert Kenneth J. Sable Patrick J. Saccogna Jennifer A. Savage Ronald S. Schickler Bradley Schlang Michele Schrock Jennifer B. Schwarz June A. Seech John S. Seich Doris A. Seifert-Day Emily Shacklett Stanley E. Shearer Douglas E. Shostek Roger L. Shumaker Michael A. Simmons Mary Jean Skutt Mark A. Skvoretz John M. Slivka Sondra L. Sofranko James Spallino, Jr. Richard T. Spotz, Jr. William L. Spring Laura B. Springer Zachary James Stanley Justin L. Stark Stacey Staub Daniel N. Steiger Kimberly Stein Laurie G. Steiner Saul Stephens E. Roger Stewart Beverly A. Stiegele Karin Maloney Stifler David J. Stokley Diane M. Strachan Thomas E. Stuckart John E. Sullivan, III Linda DelaCourt Summers Joseph T. Svete Scott E. Swartz Julie A. Taft Richard Tanner Barbara Theofilos Kurt M. Thomas James K. Thompson Donna Thrane Floyd A. Trouten, III Mark A. Trubiano Stephenie Truong Diann Vajskop Robert A. Valente Jaclyn L.M. Vary Missia H. Vaselaney Amy Vegh Catherine Veres Carmen M. Verhosek Mary Eileen Vitale Michael A. Walczak Kimberly A. K. Walrod Robert W. Wasacz Neil R. Waxman Ronald F. Wayne Julie A. Weagraff Michael L. Wear Stephen D. Webster David G. Weibel Jeffry L. Weiler Miles P. Welo Heather L. Welsh Katherine E. Wensink Elizabeth Wettach-Ganocy Terrence B. Whalen Frederick N. Widen Erica K. Williams Geoffrey B.C. Williams Scott A. Williams Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz Carol F. Wolf Brenda L. Wolff James D. Yurman Michael J. Zeleznik David M. Zolt Gary A. Zwick Donald F. Zwilling

ESTATE PLANNING

S14 November 12, 2018

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Supporting organizations maximize charitable resources on a grand scale By KAyE M. RIDOLFI

or individuals and families with charitable resources exceeding $5 million, the supporting organization is a fantastic structure to help maximize philanthropic impact while minimizing overhead and other expenses that can be associated with private foundations. At the Cleveland Foundation, supporting organizations operate as “foundations within a foundation,” maintaining their own board of trustees and grantmaking identity while enjoying public charity status. This special relationship with a public charity, such as the Cleveland Foundation, is the hallmark of supporting organizations, allowing tax-deductible gifts at a higher rate than private foundations. A supporting organization may be established with a gift of cash or appreciated securities, and tax-deductible contributions may be added at any time. As such, there are many tax planning advantages of supporting or-

charitable planning

ganizations, and this structure is also useful in estate planning. Some donors establish a supporting organization during their lifetime and then augment it through their estate, thus laying the groundwork for family legacy planning and involving successive generations in philanthropy. The board of directors of a supporting organization has full grantmaking and fiduciary authority. Ridolfi Typically, the board of a supporting organization is composed of five to nine members, including the donor family as well as members of the public whose expertise aligns with the supporting organization’s mission. At the Cleveland Foundation, our staff provides highlevel support with project research,

ideas ideals impact

docket preparation and regulatory filings. The supporting organization benefits from the foundation’s century of grantmaking experience and community insight. In addition, foundation staff handle all back-office functions. Because operational resources are maximized and not replicated, the donor and their family are saved the burden of hiring their own staff, securing office space and funding other operational expenses. In fact, the first supporting organization in the country was invented in 1973 by the Cleveland Foundation. The donor couple partnered with us in petitioning the IRS to formalize this model of philanthropy due to the efficiencies that could be gained by donors and the community alike. Today, there are more than 600 supporting organizations associated with community foundations nationwide, according to the Foundation Center. In addition to conserving precious charitable dollars, the supporting or-

ganization model frees the donor and family from the details of day-to-day operations, allowing them more time to enjoy a focus on giving itself. A supporting organization’s board selects its financial investment manager at the outset. We offer more than 20 investment options through the Cleveland Foundation, or a board may elect an outside investment manager. We share annual reviews with each supporting organization, and a board may

elect to change its investment manager at any time. As grants are made, supporting organization earnings help replenish the dollars available for community benefit. It’s gift — grant — earn — repeat! Kaye M. ridolfi is senior vice president of advancement at Cleveland Foundation. Contact her at 216-685-2006 or kridolfi@ clevefdn.org.

For results that resonate, change the equation. Partner with Glenmede, an independent, privately owned trust company offering investment and wealth management services. Founded in 1956 by the Pew family to manage their charitable assets, we provide customized solutions for individuals, families, endowments and foundations. To learn how our culture of innovation and experienced thinking can help you make your unique imprint on the future, contact Linda M. Olejko at 216-514-7876 or linda.olejko@glenmede.com.

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november 12, 2018 S15

Charitable giving under the 2017 Tax Cuts and Jobs Act By HOWARD ESSNER

any individuals who itemized deductions on their federal tax returns will no longer do so because of the 2017 tax reform act, which increased the standard deduction and reduced the deductible amount of state and local taxes, among other changes. Individuals who do not itemize receive no Essner tax benefit from their charitable contributions. Most people give without consideration to the tax benefit, but here are some ways to find some tax benefits even without itemization. Use Your IRA Someone older than age 70½ who has a traditional IRA can have the custodian

charitable planning

make direct gifts to a charity in lieu of some or all of the required minimum distribution. The distribution to charity does not appear on the federal tax return as income, putting the taxpayer in the same (or better) position had they made a deductible contribution after taking the required distribution. Bunch your contributions It may be advisable to consider bunching multiple years’ worth of contributions to a charity into a single year to allow itemization in that year followed by the use of the standard deductions in other years. Of course, the charity should be informed not to expect contributions in later years.

Use appreciated securities The tried and true approach of using appreciated long-term securities to fund your gifts remains valid even without itemization. By using appreciated stock, you avoid the capital gain tax on the sale, even if you do not get a deduction. This idea can also save state income taxes in states that use the federal taxable income as the starting point for state income tax (like Ohio).

Use a donor-advised fund The rationale behind this idea is the same as the one for bunching contributions, but now future donations are “prefunded” in a single year through a donoradvised fund (DAF). Many charities sponsor DAF programs and can provide more information on how they work. Use a trust It may be possible to use a specialized trust to make charitable contributions in

a tax-efficient manner, while still preserving the corpus for the next generation. This topic is beyond the scope of this article and should be reviewed with a competent estate planning attorney. Howard essner, Jd, is general counsel and a family wealth and retirement plan advisor at Ancora. Contact him at 216-8254000 or hessner@ancora.net.

Deciding to give Identify charities that align with your values, and prioritize giving accordingly By JULIE A. WEAGRAFF

hy do people decide to give to charitable organizations? The reasons range from having a personal connection to the charity or just simply being asked by a friend to give. Currently, there are more than 1 million nonprofit organizations in the U.S. That’s an overwhelming number of worthy organizations that are all looking for supporters to help advance their mission. Where do you start when you’re deciding where to give?

‘‘

Are there organizations where you have been asked to volunteer on a committee or a board of directors?

To choose a worthy charity to support, start by thinking about what is most important to you. Are there organizations that have helped you or your family in a time of need? Are there organizations whose missions align with your beliefs and values? Are there organizations where you are a member? Are there organizations where you have been asked to volunteer on a committee or a board of directors? Think about these questions, and develop a list of organizations you could potentially support. Then think about how much you would like to contribute

charitable planning

annually to charity. Review the list to determine which organizations are your priorities. You may have only one organization which is a priority, or Weagraff you may have more. Reorganize the list to reflect your priority of giving. You can revisit the list of organizations each year and edit it based on your circumstances and your priorities. You can engage your family members in this process and let them vote on which charity should be a priority. Even young children can be involved in this process. It teaches them about giving and how each of us can make an impact on the lives of others through our philanthropy. By sharing your decision-making with others, you have an opportunity to have meaningful discussions and educate the next generation about the benefits of giving. Deciding to give doesn’t have to be a difficult process. It can be a rewarding experience for all involved. Giving can enrich your life as much as your giving enriches the lives of others. As Winston Churchill said, “we make a living by what we get but we make a life by what we give.” Julie A. Weagraff, Mno, CFre, is director of fund development at Girl Scouts of north east ohio. Contact her at 330-983-0399 or jweagraff@gsneo.org.

Your legacy helps create a healthier community. Gifts to University Hospitals enable us to live our mission every day and continue the legacy of giving from generation to generation. With your support, we’ll continue advancing the science of health and the art of compassion for the benefit of our patients and our community. Join the many who are leaving their legacy.

To learn more, contact our Gift Planning Team: UHGiving.org | 216-983-2200

S16 November 12, 2018

ESTATE PLANNING

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Not all donor-advised funds are created equal Community foundations can help shepherd meaningful investment

Join the Girl Scout Network! It may have been years since you earned your first badge, but the skills you learn through Girl Scouts stay with you forever. Follow us on LinkedIn to connect with other Girl Scout alums. For more information, visit gsneo.org or call 330-983-0399.

Connect with us on LinkedIn: @GirlScoutsofNorthEastOhio and @GirlScoutNetwork

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By COMMUNITy FOUNDATION OF LORAIN COUNTy STAFF

f your client is thinking about starting a private foundation, consider an endowed donor-advised fund as an excellent alternative. At the Community Foundation of Lorain County, endowment is fundamental to stewarding our assets, which include our donor-advised funds. This means that we invest the gifts received and use the interest earned to make grants, every year, forever. A community foundation is dedicated to supporting local organizations; it also provides benefits to its donors that private foundations cannot. We share a special philanthropic partnership with donors. Philanthropic advisors thoughtfully engage, challenge, educate and support donors by matching the donors’ philanthropic passion(s) with grant requests for projects and programs in their local community. Recently, the Community

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Foundation of Lorain County worked with several private foundations to gift their assets to endowment funds, including endowed donor-advised funds. This decision will dramatically ease their administrative burden while maximizing their philanthropic potential. Here are some reasons why: An endowed donor-advised fund at a community foundation is easy and free to establish. A private foundation requires you to apply for tax-exempt status and pay annual taxes and expenses.

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A gift of cash to a community foundation allows a deduction of up to 60% of your Adjusted Gross Income (AGI). A gift of cash to a private foundation only allows you to deduct up to 30% of AGI.

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Funds grow tax free. No tax is

By KATHERINE E. WENSINK

MORE INFORMATION: Contact Amy Stoessel at 216.771.5155 or astoessel@crain.com.

Many community foundations charge a foundation support fee of less than 2%, inclusive of investment fees. This fee is taken from the interest earned.

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Most donors to a community foundation may remain anonymous. A private foundation must make available to the public the name and address of all substantial contributors.

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■ There are few investment restrictions

for a community foundation. A private foundation may not make certain types of investments.

An endowed gift is unlike any other gift because it has permanence. Your client’s gift will continue to grow, make grants annually in their name and have lasting impact on their community forever. For more information, please contact the Community Foundation of Lorain County at 440-984-7390.

Perpetuate generosity while deriving income advantages these trusts drive desire to give

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imposed on the investment income for a community foundation. A private foundation pays up to 2% federal excise tax on its net investment income and realized gain.

here is a certain balance to providing for charitable and non-charitable beneficiaries. Charitable lead trusts (CLT) and charitable remainder trusts (CRT) are vehicles that provide for both, while mitigating income taxes. A CLT is a trust that makes distributions to charity for a certain period and at the expiration of the period, the remainder is either Wensink returned to the donor or distributed to non-charitable beneficiaries. A portion of the CLT contribution may be taken as an income tax deduction, depending on the CLT structure. For example, an athlete receiving a large signing bonus funds a 15-year CLT with $1 million. The athlete receives approximately $600,000

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as an income tax deduction which offsets the signing bonus, and each year the charity receives $50,000. In this type of structure, the athlete also pays the income tax generated on the CLT income. At the end of 15 years, the athlete receives the remainder of approximately $400,000. This is a terrific technique to provide a return of principal when the athlete’s peak earning years are over. It also allows the athlete to witness the distributions fulfilling the charitable purpose. A CRT is the opposite of a CLT in that the distributions over the CRT term are made to non-charitable beneficiaries. At the end of the CRT term, the charity receives the remainder. Again, a calculation is made as to how much is deductible. CRTs are generally income tax exempt, so contribution of low

basis assets can generate additional tax savings. For example, an individual wants to provide for her brother and brotherin-law at their retirement for the rest of their lives. She funds a CRT with $1 million of stock with $200,000 of basis. The CRT pays the beneficiaries $50,000 annually and terminates on the death of both beneficiaries. She receives approximately $300,000 as an income tax deduction, never pays tax on the $800,000 gain, and is treated as making a gift to the beneficiaries of approximately $700,000. The beneficiaries pay income tax on the $50,000 annual distribution, which may be at a lower rate than the donor. At their deaths, the remaining CRT assets are distributed to her favorite charity. CLTs and CRTs are terrific ways to balance charities, individuals and tax deductions. Katherine e. Wensink is an attorney with Mcdonald Hopkins LLC. Contact her at 216-348-5729 or kwensink@mcdonaldhopkins.com.