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NOVEMBER 10-16, 2014
ESTATE PLANNING
TABLEOFCONTENTS Business climate Whether you’re contemplating your estate portfolio, or looking to fine-tune your existing plan, there are a variety of resources available to help you achieve your goals. E-3 to E-4
Gifts to family, Asset protection From conversions to Roth IRAs, inherited IRAs and family philanthropy, these subsets of estate planning warrant careful consideration. E-4 to E-10
Charitable giving
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Trusts
Make sure your trustee is someone who will carry out your wishes. E-12 to E-15
Arts and collectibles
Legitimate appraisals will help you determine value and whether it’s appropriate to sell or keep these coveted items. E-15 to E-16
Insurance
Different products protect you and your assets. E-24 to E-27
Business Planning
Your business is a key part of your long-term goals. E-28
Now is the time to tackle estate planning those who are members of the Estate Planning Council, can help you evaluate how your personal n concert with Crain’s Clevefinancial goals have been affected land Business, the Estate by market and legislative changes Planning Council of Cleveland in the United States as is pleased to present our well as events on the annual Estate Planning world stage. If necessary, section. they can assist you in The purpose of this the establishment of new section is to provide the goals in order to enhance community with valuable the effectiveness of your information and resources financial plan. Specifically, regarding financial, insurthey are equipped to help ance, business succession, you with the methods, and estate and charitable SAVAGE techniques and planning matdocuments that ters. The articles will enable you to that follow — attain your goals, written by some whether they of the region’s include taking most experienced care of a loved professionals in one with special these fields — needs, transimay answer some tioning a familyof your questions owned business, or, perhaps, help fulfilling a you to formulate commitment to a questions that charitable organiyou may wish to address with your zation, planning for retirement, or financial advisor. establishing a legacy. Estate planning is an often overFounded in the 1930s, the Estate looked aspect of personal financial Planning Council of Cleveland, with management. Millions of Americans more than 430 members, has grown do not have an up-to-date estate to become the sixth largest such orplan and/or medical directives, leavganization in the country. Among its ing them vulnerable in the event of members are attorneys, accountants, illness, accident or untimely death. financial planners, investment adviEach year, this results in the exsors, bankers and trust officers, inpenditure of wasted dollars and the surance representatives, appraisers creation of unnecessary hardship for and people engaged in the operation families, loved ones and businesses, of charitable organizations. From all of which could be avoided or at personal experience, I can assure you least softened with the foresight of that our members are committed to advance planning. their clients and their community We have entered a more stable and are here to provide you with the period, at least in the transfer tax assistance you will need to safeguard arena. This relative certainty presyour financial future. Our website, ents us with some tools and opporwww.epccleveland.org, is a valuable tunities to plan for and capitalize resource that can help you to identify on the economic, financial, other the professionals you will need to tax, and political changes that we handle your unique situation. do continue to face both at home On behalf of the Estate Planning and abroad. Lower interest rates Council, I am pleased to provide you and volatile markets can provide with this special section in Crain’s opportunities to leverage transfer Cleveland Business, which contains tax benefits. It remains imperative important insights and commentary that people preserve and protect on a variety of estate planning isthe assets that they have built over sues. We hope that you will find it to the years — not only for thembe an indispensable resource as you selves, but also for their family work with your advisors to plan a members, heirs and favorite charisound financial future. table organizations. In order to do this, it is wise to rely upon the Jennifer Savage is a partner in the services of experienced professionTax & Wealth Management Secals who are familiar with income, tion at Walter Haverfield LLP and gift and estate tax laws and who president of the Estate Planning are current in their knowledge of the financial and investment world. Council. Contact her at 216-9282971 or jsavage@walterhav.com. These professionals, such as JENNIFER SAVAGE
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We hope that you will find (this section) to be an indispensable resource as you work with your advisors to plan a sound financial future.
Philanthropic contributions offer financial benefits, and perhaps more importantly, enhance your legacy. E-11, E-16 to E-23
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Our team of specialists brings an unequaled
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Disclaimer
The material presented in this special section is of a general nature and does not constitute investment, legal, tax or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. Seek the advice of an investment professional to tailor an estate plan to your needs.
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BUSINESS CLIMATE
ESTATE PLANNING
BY JOHN P. MICKLITSCH
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ike a trip to the doctor’s office, a productive personal investment checkup requires pre-planning and focus. In the days and weeks leading up to your investment checkup, it is important for you to establish your goals for the meeting and to communicate them with your advisor in advance so that MICKLITSCH he or she can prepare accordingly. You might, for example, want to communicate what personal circumstances have changed in your life since your last checkup or email specific questions you have about your portfolio. On the day of your meeting you should arrive on time, fed and well rested so that you can communicate and process what you are hearing at your highest potential level. During the meeting, it is important to review your personal goals and objectives and have your financial advisor reinforce why the portfolio you own is a reflection of those needs. In addition, you might want to ask what investment opportunities exist that you are not currently taking advantage of and then weigh their applicability to your personal situation. Lastly, the time is yours and you should not feel rushed in any way during your investment checkup. An experienced financial advisor will take the time to answer all of your questions and explain the ones he or she will have to research in order to answer properly. You should leave the checkup feeling reassured that your investments are reflective of your goals and objectives and that you understand what you own in the portfolio and why you own it. You might even leave feeling a little tired because an investment portfolio checkup can be hard work. Like most things in life, you will get out of it what you put into it.
John P. Micklitsch, CFA, CAIA, is Chief Investment Officer for Ancora Advisors, LLC. Contact him at 216-825-4000 or johnmick@ ancora.net.
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Estate planning? It’s all about control BY HOWARD J. KASS
Preparation, focus key to productive investment portfolio checkup
NOVEMBER 10-16, 2014
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ince 2010, when Congress allowed the repeal of the estate tax to briefly take effect and then reinstated it with a combination of unheard-of exemption amounts and spousal portability, we have been functioning in a very low-tax or, in many cases, a no-tax estate planning environment. The result? Many people believe that estate planning is no longer necessary, but nothing could be further from the truth. Are you concerned about any of
the following people getting your money? n Your spouse’s next love interest n Your children’s exes n Your family’s creditors Do you worry about your family’s ability to manage their money? KASS If you do no estate planning, you make all these outcomes possible, yet they are preventable. By creating a comprehensive estate plan, you can put safeguards in place to prevent all these outcomes. Through the judicious use of differ-
ent types of trusts, you can control not only what your heirs may receive from your estate but also how quickly or slowly they receive it, and you can prevent unintended parties from receiving benefits from your estate.
Where to begin
The first step is to sit down with your estate planning advisors to identify and write down your goals for your estate. Who should get what, and when? Are all of your children to be treated equally or
HOW CAN SOMEONE HAVE ALL YOUR ANSWERS BEFORE THEY ASK ANY QUESTIONS? Clairvoyance isn’t one of our skills. But curiosity is. It’s what leads us to listen to you. To think about what you’re telling us. And then ask thoughtful questions. It’s the only way to crack the puzzle. Because the answers don’t just jump out. You have to dig. Subordinated debentures, equity infusions and other solutions are all well and good, but when is the right time to use them? And why? Shouldn’t your bank want to find out? We do. Learn more at 53.com/Commercial We’re Fifth Third Bank.
The curious bank.®
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fairly? They may not mean the same thing. Once you know who is getting what, your advisor can begin to craft a strategy to protect and control your assets well beyond your grave. Still not convinced? Don’t worry. If you don’t create an estate plan, the state of Ohio has one for you. You just won’t like it!
Howard Kass, CPA, AEP, is a Tax Partner with Zinner & Co. LLP. Contact him at 216-831-0733 or hkass@zinnerco.com. Learn more about the company’s financial and consulting services at zinnerco.com.
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NOVEMBER 10-16, 2014
ESTATE PLANNING
Estate planning is not just about the tax bill.
It’s About Control. Estate planning is more than tax planning; it ensures that you control what happens to your assets after you’re gone. The estate planning experts at Zinner & Co. can help you to identify specific needs and then craft strategic plans.
BUSINESS CLIMATE
Jackpot! Contending with sudden wealth Seeking the advice of a financial planner to help you quantify your goals and quarterback the team ongratulations! You’ve just of service providers you now need had the good fortune should be your first step. of coming into a large From there, the planner windfall of money. Maybe will be able to help you you won the lottery or sold evaluate the immediate the family business. Maybe tax implications of the a long-lost relative passed wealth event and help you away and named you as the formulate a sound strategy beneficiary of his or her esfor preserving the money tate, or you received a lump throughout your lifetime – sum payout after working at AVARELLO if that is your goal. your company for 30 years. Whatever the cause of the windfall, the inevitable question that Review your estate plan comes next is: “What do I do now?� Most people’s kneejerk reaction Part of that strategy discussion is figuring out how to spend their should include bringing in an attornewfound wealth. Let’s take that ney to update your current estate expensive vacation. Let’s pay off the plan, ensuring that the money house or maybe look at upgrading to passes on according to your wishes. a bigger home. Let’s buy a fancy new Contrary to popular belief, now car or jewelry. What often gets lost in that you have significant wealth the shuffle is how to protect this new doesn’t necessarily mean that your asset and make it last. estate plan has to be complicated.
BY CHARLES J. AVARELLO
C
The right ideas The right results Achieved with the right firm 3201 Enterprise Parkway, Suite 410 Beachwood, OH 44122 216.831.0733 hkass@zinnerco.com
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Establishing a revocable trust while you are alive is the easiest way to control how assets should be distributed after you are gone. Do you have enough liability insurance if someone falls on your property or if you are in an accident? Do you now have too much (or not enough) life insurance? Protecting this asset also means evaluating with your planner whether you have the appropriate levels of insurance coverage. Finally, salesmen will be coming out of the woodwork looking to convince you that you need their financial products. An experienced planner will help you put on the brakes, navigate through the noise, and enable you to be an informed buyer making rational decisions.
Charles J. Avarello, CPA, CFP, is a senior manager for Fairway Wealth Management. Contact him at 216573-7200 or cja@fairwaywealth.com.
GIFTS TO FAMILY | ASSET PROTECTION
Strategic thinking around giving as funding needs increase BY HEIDI JARK
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ur jobs as donors, grant makers or “philanthropists� have never been as simple as we make the description sound. We make decisions that impact lives every day. Our job seems to be getting tougher though as we move forward in the days ahead. We have always stood ready for the challenges before us, but it seems that leaders at the local, state, and national level are looking to the not-for-profit world, and foundations and wealthy families in particular, to carry more weight than our shoulders can possibly handle. We can do our best to fill the gap, but we know it won’t likely be enough. So what can we do to prepare ourselves for these uncertain days ahead? Are there steps we can take to make the path of giving clearer now and in the future? Here are four recommendations we’ve put into practice in our work that have helped to make our giving more impactful: Budgeting. Instead of thinking of what’s ahead for the year, start to think in terms of a two- to threeyear window. Many organizations plan capital campaigns a year or two before they start. Encourage organizations to talk with you in the early stages of ideas rather than at the end. You still may decide to wait until the end of the campaign to
fund, but at least you made the decision knowing what lies ahead. There will still be surprises and unplanned needs along the way, but there will be less of them and you’ll feel more in control. Mission statement. Have you taken the time to think about your mission? If not, take some time as a group and put it down on paper. It may take some time but it is well worth the effort. A mission statement tells the world who you are and JARK what your focus areas will be, even if it just tells them the geographic area you’ll serve. It helps you to be laser focused in your work and, when communicated on a regular basis, will alert charities as to whether you are a viable prospect for funding. Investment Strategy. It’s important to review your investments with advisors regularly and make sure that board members understand what’s in the portfolio and why it’s there. If you don’t have a written investment policy, put it at the top of the agenda for your next meeting. This will not only help your money manager do their job, but it helps the board focus on their jobs as fiduciaries and good stewards of those funds. Learning to Say “No.� The hardest part of our jobs is saying “no� to a request; but it’s an absolute necessity if we want to have real impact in
Opinions are provided by Fifth Third Bank and may not actually come to pass. This information is current as of the date of this commentary and is subject to change at any time, based on market conditions and other events. This commentary is intended for educational purposes only and does not constitute the rendering of tax or legal advice or a specific recommendation on estate or financial planning activities. Fifth Third does not provide tax or legal advice. Please contact your
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our giving. Many people are afraid of saying “no� and fear that the organization will be disappointed in them or will think less of them because of the decline. The truth of the matter is that charities appreciate knowing a decision has been made one way or the other, because it allows them to move forward with other avenues of support. Instead of just saying “no,� add clarity to the decision by letting the organization know what led you to that decision. If the organization can come back at a later date, be clear in the timing of that future request. No matter what decision you make, the charity should respect your decision. If they don’t, that sends a message to you about your future involvement with them. Sometimes we are overwhelmed with requests and become frustrated that we can’t do more. Bringing focus and structure to your gifting can help relieve some of that stress. In the end, sometimes all we can do is believe in the words that the songstress Catie Curtis sings so eloquently, “If I can’t change the world, I’ll change the world within my reach.� Hopefully that will be enough.
Heidi B. Jark is Managing Director, Foundation Office, Fifth Third Bank. Contact her at 513-5344397 or heidi.jark@53.com.
accountant, tax advisor or attorney for advice pertinent to your personal situation.  Fifth Third Bancorp provides access to investments and investment services through various subsidiaries. Investments and Investment Services: Are Not FDIC Insured, Offer No Bank Guarantee, May Lose Value, Are Not Insured By Any Federal Government Agency, Are Not A Deposit. Insurance products made available through Fifth Third Insurance Agency, Inc.
THE ESTATE PLANNING COUNCIL OF CLEVELAND PRESIDENT Jennifer A. Savage Tanzie D. Adams Charles F. Adler, III Thomas D. Anderson Graham T. Andrews Gordon A. Anhold Gary S. Archdeacon Kemper D. Arnold James S. Aussem P. Thomas Austin Charles J. Avarello Molly Balunek Peter Balunek Kimberly J. Baranovich Albert J. Barnabei Lawrence C. Barrett Ronald E. Bates Stephen Baumgarten Maureen K. Beaver Edward J. Bell Steven Berman H. William Beseth, III Gina Marie Bevack-Ciani Mohammed J. Bidar Gary B. Bilchik Michelle M. Bizily Alane Boffa Tami M. Bolder Daniel L. Bonder Aileen P. Bost Christ Boukis Jill A. Branthoover Herbert L. Braverman Christopher Paul Bray James R. Bright Don P. Brown Kenneth B. Brown C. Richard Brubaker Robert M. Brucken Bethany J. Bryant Martin J. Burke, Jr. Eileen M. Burkhart J. Donald Cairns Carl Camillo William G. Caster Jennifer Chess James R. Chriszt Trevor R. Chuna Mark A. Ciulla R. Michael Cole Warren Coleman Katherine E. Collin Jeffrey P. Consolo James I. W. Corcoran Heather A. Cornell Barbara J. Cottrell Greg S. Cowan Steven Cox Thomas H. Craft M. Patricia Culler Cheryl A. D’Amico William T. Davis Dana Marie DeCapite Thomas A. DeWerth Carina S. Diamond David S. Dickenson, II James G. Dickinson Nick DiSanto Mary Ann Doherty Lynda Doland Terry Ann Donner Timothy Doyle Emily A. Drake Therese Sweeney Drake Jill Dugovics William A. Duncan Carl J. Dyczek
VICE-PRESIDENT Michael T. Novak
SECRETARY Michael W. Matile
Howard B. Edelstein Elaine B. Eisner Michael E. Ernewein Heather R. Ettinger Christina D. Evans Susan M. Evans Darren A. Ewaska Frank Fantozzi Charles E. Federanich Timothy Allan Ferris J. Paul Fidler Julie E. Firestone Mary Kay Flaherty Linda Fousek Kenneth J. Francis-Sable Maryann C. Fremion Patricia L. Fries Naomi D. Ganoe Stephen H. Gariepy Rao K. Garuda James E. Gaydosh Kyle B. Gee Christopher Geiss Thomas M. Genco Arthur E. Gibbs, III Thomas C. Gilchrist Catherine Klima Gletherow Ronald J. Gogul Scott A. Gohn James A. Goldsmith Susan S. Goldstein Tom S. Goodman Laura Joyce Gorretta Lawrence I. Gould David A. Grano Alexandra G. Gray Karen L. Greco Sally Gries Anne Marie Griffith Alan M. Gross James P. Gruber Ellen E. Halfon Jennifer R. Hallos Patrick A. Hammer Sarah Hannibal Ronald F. Hanson Dana G. Hastings Douglas R. Hastings Lawrence H. Hatch Thomas I. Hausman Janet W. Havener Albert G. Hehr, III Jennifer Heimlich Theodore N. Hellmuth James M. Henretta Mark W. Hicks Jean M. Hillman Mark L. Hoffman Doris Hogan Ronald D. Holman Harold L. Hom Robert S. Horbaly Brent R. Horvath Michael J. Horvitz Stuart M. Horwitz Douglas Ingold Lynnette Jackson George A. Jacobs Paula Jagelewski Christopher P. Jakyma Barbara Bellin Janovitz Theodore T. Jones James O. Judd Matthew F. Kadish Stephen L. Kadish Ronald L. Kahn
TREASURER Emily Shacklett
Matthew A. Kaliff Joseph W. Kampman Karen J. Kannenberg Lori L. Kaplan William E. Karnatz, Sr. William E. Karnatz, Jr. Bernard L. Karr Howard Kass John D. Kedzior Lesley Keller Veena Khanna William J. Kimball Woods King, III Amy I. Kinkaid Richard B. Kiplinger Andrew W. Kirkpatrick Paul S. Klug Victor G. Kmetich Daniel R. Kohler James R. Komos Harvey Kotler Roy A. Krall Frank C. Krasovec, Jr. Thomas W. Krause James B. Krost Deviani Kuhar Craig A. Kukla Anthony C. Kure Louis D. LaJoe Gary E. Lanzen Steven P. Larson Donald Laubacher Daniel J. Lauletta Paul J. Lehman David M. Lenz Herbert B. Levine Wendy S. Lewis Keith M. Lichtcsien Miranda C. Licursi Dennis A. Linden James Lineweaver David F. Long Ted S. Lorenzen Amy R. Lorius Janet Lowder Edward C. Lowe Robert M. Lustig James M. Mackey Stanley J. Majkrzak Chad Makuch Laura J. Malone Karen T. Manning Wentworth J. Marshall, Jr. Donald C. May Nancy McCann Karen M. McCarthy Larry E. McCoy Robert F. McDowell, Jr. Erica E. McGregor Daniel J. McGuire Joseph M. Mentrek Lisa H. Michel Mark A. Mihalik Lawrence Mihevic Charles M. Miller William M. Mills Daniel F. Miltner Wayne D. Minich Ginger F. Mlakar Marie L. Monago M. Elizabeth Monihan Michael J. Monroe Robert C. Moore Philip G. Moshier Joseph L. Motta Susan C. Murphy
PROGRAM CHAIR Julie A. Fischer Hoyt C. Murray Norman T. Musial Christine A. Myers Raymond C. Nash Jodi Marie Nead Lisa Wheeler Neely Chad J. Neifer Robert Nemeth Michael H. Novak Anthony J. Nuccio Eric A. Nye Kevin J. O’Brien Michael J. O’Brien Lacie L. O’Daire Linda M. Olejko Matthew S. Olver Leslie A. O’Malley Charles J. O’Toole Richard M. Packer Donesha L. Peak Jodi L. Penwell Michael D. Pepe Dominic V. Perry Craig S. Petti Marla K. Petti Thomas Pillari Timothy J. Pillari Jennifer N. Pinkerton Douglas A. Piper Candace M. Pollock Mary Ellen Potter Douglas Price Rebecca Yingst Price Matthew M. Pullar Maria E. Quinn Susan Racey Uma M. Rajeshwar Jeffrey H. Reitzes Linda M. Rich R. Andrew Richner Radd L. Riebe Elton H. Riemer Kathleen K. Riley Frank M. Rizzo Lisa Roberts-Mamone David A. Robertson Kenneth L. Rogat Carrie A. Rosko Philip B. Rosplock Debbie Rothschild Larry Rothstein Rennie C. Rutman Patrick J. Saccogna Elizabeth W. Salisbury Fran Mitchell Schaul Ronald S. Schickler Bradley Schlang Mark C. Schulman Dennis F. Schwartz June A. Seech John S. Seich Doris A. Seifert-Day Marc J. Servodio Andrea M. Shea Stanley E. Shearer John F. Shelley Lea R. Sheptak Nick Shofar Douglas E. Shostek Roger L. Shumaker Gary M. Sigman Matthew J. Silla Judith C. Singer Mary Jean Skutt Mark A. Skvoretz John M. Slivka
IMMEDIATE PAST PRESIDENT Beth M. Korth N. Lindsey Smith Cristin Snodgrass Arthur K. Sobczak, III Sondra L. Sofranko James Spallino, Jr. Richard T. Spotz, Jr. William L. Spring Laura B. Springer Timothy H. Stallings M. Randal Stancik Stacey Staub Kimberly Stein Laurie G. Steiner Saul Stephens E. Roger Stewart Beverly A. Stiegele Diane M. Strachan Thomas B. Strauchon John E. Sullivan, III Linda DelaCourt Summers Scott E. Swartz Joseph N. Swiderski Yeshwant K. Tamaskar Susan P. Taylor Mark M. Tepper Barbara Theofilos Donna Thrane Eric Tolbert G. Maxwell Toole Floyd A. Trouten, III Mark A. Trubiano Patrick J. Tulley Thomas M. Turner Diann Vajskop Robert A. Valente Jaclyn L.M. Vary Missia H. Vaselaney Joseph Frank Verciglio Catherine Veres Anthony Viola Mary Eileen Vitale Michael A. Walczak Kimberly A. K. Walrod Kittie Warshawsky Robert W. Wasacz Neil R. Waxman Ronald F. Wayne Julie A. Weagraff Michael L. Wear Wade T. Weber Stephen D. Webster David G. Weibel Jeffry L. Weiler Richard Weinberg Katherine E. Wensink Elizabeth Wettach-Ganocy Marcia J. Wexberg Terrence B. Whalen Andrew Whitehair Frederick N. Widen Erica K. Williams Geoffrey B.C. Williams Scott A. Williams J. Mark Wipper Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz Carol F. Wolf Brenda L. Wolff Alan E. Yanowitz James D. Yurman Jeffrey M. Zabor David M. Zolt Jack Zugay Gary A. Zwick Donald F. Zwilling
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NOVEMBER 10-16, 2014
ESTATE PLANNING
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GIFTS TO FAMILY | ASSET PROTECTION
Ohio Legacy Trust protects part of charity’s unrestricted endowment BY FRAN MITCHELL SCHAUL, MARCIA J. WEXBERG AND CHERYL A. D’AMICO
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he Ohio Legacy Trust statute went into effect 18 months ago. Since then, individuals have been able to transfer some of their assets to an Ohio Legacy Trust, name themselves as a trust beneficiary and protect the trust assets from their own future creditors. This represents a significant change in Ohio law and an exciting opportunity for those who are seeking ways to protect some of their assets from judgment creditors, divorcing spouses and others in this era of runaway juries and “jackpot justice.” Though relatively new, the Ohio Legacy Trust is considered one of the nation’s best statutes of its kind. The Ohio draftspersons took the best of what other states had enacted and improved upon it. This article focuses upon a lesser-known but equally valuable use for the Ohio Legacy Trust: the protection of some portion of a charitable endowment. It is a given that the members of the board of a charitable organization have a fiduciary duty to protect the organization’s endowment and to manage foreseeable risks. This is a task that charitable boards take very seriously, and it is often addressed by the
WEXBERG
SCHAUL
purchase of significant amounts of liability insurance. Yet certain types of risks may not be able to be covered by liability insurance, and those that are may have limits or exclusions, including limits imposed by the kind of shared coverage arrangement employed by many charitable organizations. Moreover, at some point the purchase of additional liability insurance may become quite costly. All of these factors contribute to the risk profile and exposure of the organization. We have all heard stories about charitable (including educational) institutions that have lost a significant portion of their endowment as a result of large, unexpected judgments. Significantly, a charitable organization’s endowment funds are not protected from the claims of the organization’s creditors unless the use of those funds has been permanently restricted by the organization’s donors. Unrestricted (sometimes referred to as “board
D’AMICO
restricted”) endowment funds, which can comprise a significant portion of an organization’s endowment — and which are generally preferred by a charity because of the programming flexibility they afford — do not have this protection. As a result, an uninsured or underinsured claim or judgment may expose the charity to the risk of a catastrophic loss that may necessitate a reduction or even cessation of services provided by the organization.
Protection from future claims
The good news is that by transferring some of its unrestricted endowment funds to an Ohio Legacy Trust a charitable organization should be able to protect those assets from the claims of future creditors. The provisions of such a trust might look something like the following:
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The charity would name an independent trustee — preferably an institutional trustee, but in any event not the organization or members of its board — to administer the trust. The trust instrument would authorize the trustee to make distributions to the organization for purposes that further its charitable mission. These purposes are typically spelled out in the charity’s articles of incorporation or other governing instrument(s). The timing and amount of these distributions would be at the discretion of the trustee (or an independent Distributions Committee named by the board). In addition, the organization could retain the right to receive some or all of the trust income each year, and/or the right to withdraw up to 5% of the trust principal each year. This may be appropriate if the organization wants to be sure that it will receive distributions equal to the annual spending policy established by the board. The decision to retain these rights would need to be weighed against the consideration that mandatory distributions and assets the organization is permitted to withdraw will generally be available to the organization’s creditors. The trustee could be authorized
to permit the organization to use property owned by the trust — a useful provision for an organization with creditor challenges. The organization can — and probably should — retain control of the trust investments, either directly or by the appointment of an Investment Committee comprised of members selected by the organization. The trust instrument is required to be in writing and irrevocable, the organization must remain “solvent” after transferring assets to the trust, and the transfer of assets to the trust must be made by the organization without any intent to defraud existing or reasonably foreseeable creditors. In addition, the organization would follow certain technical procedures designed to assure the retention of its exempt status and the tax-exempt nature of the Trust’s income. This is a valuable tool that should be of interest to everyone involved with a charitable board.
Fran Mitchell Schaul, Marcia J. Wexberg and Cheryl A. D’Amico are members of the Estate and Succession Planning practice group at Calfee, Halter & Griswold LLP. For more information, please visit Calfee.com.
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ESTATE PLANNING
NOVEMBER 10-16, 2014
GIFTS TO FAMILY | ASSET PROTECTION
Roth IRA benefits may be worth tax hit Carefully weigh your options before initiating a conversion BY CHRISTOPHER P. BRAY
R
oth IRAs have become increasingly popular because of the twofold benefit of tax-free compounding of investment income combined with tax-free distributions. The quickest way to establish a sizable Roth IRA is to “convert” a regular IRA into a Roth IRA. Large IRAs usually arise when someone “rolls” BRAY an employer retirement savings into a regular IRA upon leaving an employer. Most people, however, haven’t converted their regular IRA to a Roth IRA. Why not? Because the cost of conversion is current payment of income tax that would have otherwise been deferred without
conversion. Conventional planning wisdom tells us that it’s better to pay tax tomorrow than today. However, conversion often has significant advantages for individuals who have non-IRA funds to pay taxes related to conversion, who won’t need the funds to provide for living expenses in retirement, and who will be subject to the federal estate tax. In this case it may make more financial sense to pay taxes now related to converting a regular IRA to a Roth IRA.
Benefits of Roth IRAs Deferred distribution until death. Unlike regular IRAs, distributions from Roth IRAs can
be deferred until death. Distributions are required from a regular IRA to an individual upon reaching age 70½. The distribution is taxed when made and the funds leave the very valuable IRA environment where they were formerly growing tax-free. No distributions are required from a Roth IRA while the owner is living. Why not keep the funds growing tax-free if they aren’t needed to fund living expenses? Tax-free distributions to beneficiaries. If structured properly, the Roth IRA can continue building tax-free for the benefit of the owner’s family after the owner dies. Although Roth IRA distributions are required after the owner’s death, they can be stretched over many years and the distributions are tax-free. Taxable estate reductions. When the owner pays income taxes upon conversion, the tax payment
reduces the owner’s taxable estate. This might not seem like the best way to reduce estate taxes, but with a regular IRA not only is the value of the IRA subject to estate tax, but the inheritors also get stuck with the income tax liability related to the IRA. This is not the case with a Roth IRA. The decision to convert requires consideration of multiple variables and should not be undertaken lightly. Consider seeking help from a qualified planning professional.
Christopher P. Bray, JD, CPA, is managing director for Ariel Capital Advisors, LLC. Contact him at 239-451-6008 or CPBray@ArielCapitalAdvisors.com.
INSIGHT FROM CRAIN’S BLOGGERS Editor’s Choice: Managing editor Scott Suttell rounds up news and views about business, and stories of interest in Northeast Ohio. Weekdays Sports Biz: Assistant editor Kevin Kleps writes about the Browns, Cavaliers, Indians and much more. Weekdays
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Your legacy helps create a healthier community.
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Gifts to University Hospitals continue the legacy of giving from generation to generation – by enabling us to live our mission every day:
At Glenmede, we believe the best way to serve our clients is to give them direct access to our experts and best thinking — with no barriers or bureaucracy. Our low client-to-staff ratio means you’ll always have our full attention.
To Heal – enhancing patient care, experience and access To Teach – training future generations of physicians and scientists To Discover – accelerating medical innovations and clinical research And with your support, we’ll continue to provide the same high-quality care that we have for nearly 150 years. Join the many who are making a difference. To learn more, contact our gift planning team at 216-983-2200 or visit UHGiving.org.
www.glenmede.com Glenmede’s services are best suited for those with $3 million or more to invest. To learn more, please contact Linda Olejko at 216-514-7876 or linda.olejko@glenmede.com CLEVELAND • MORRISTOWN • NEW YORK PHILADELPHIA • PRINCETON • WASHINGTON, DC • WILMINGTON
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How to plan for, preserve your legacy
BY RAY LAMPNER AND DOUG MATHEY
O
ften, looming retirement can feel like standing on the high-dive board at the pool. You’ve just exerted everything you have climbing the ladder to reach the board. Your knees wobble a bit on your approach to the edge. When you look down, your destination seems far away and indefinite. You have to time it right so that you feel ready, and when you finally make your move, you need to be positioned correctly when you hit the water — or else, you will feel the strain. And, right before you leap, you take your last, big breath of fresh air … hoping it won’t be too long before you can breathe freely once more. So what will happen when you resurface? Did you time it right? Timing and positioning are critical to success in legacy planning and retirement. Doug Mathey, president of BCG
Wealth Advisors and a partner with BCG Legacy Advisors, says, “It’s much more complicated than adding up account balances to see if clients have reached a magic number. To begin with, there are many factors that may be trickier to quantify.” The top three legacy planning factors from our clients are: n How much is my business worth? n How much will I have after taxes? n Will I have enough to take care of my family and myself? Defining a legacy is as simple as stating what you envision for the long term. How you foresee your retirement, things you wish your family to have, and the ability to plan for potential health care problems or other unforeseen emergencies that won’t burden anyone. Achieving a desired level of a legacy plan is more complex. The company’s objectives, strategy and capabilities must be measured and aligned with the business owner’s
How to protect inherited IRAs
BY SUSAN RACEY AND PETER IGEL
T
Federal exemption
The Bankruptcy Code allows debtors to retain certain property to help start over. Most retirement assets, including traditional IRAs, are protected. Until recently, it was unclear whether an IRA inherited by a beneficiary would be protected. The Court concluded that bankruptcy law does not exempt inherited IRAs. In Clark v. Rameker, a woman established a traditional IRA. Upon her death, her daughter inherited the IRA. When the daughter later filed for bankruptcy, she attempted to exempt the IRA. The court denied the exemption due to differences between traditional IRAs, which are funded for retirement, and inherited IRAs, which are received as a result of the IRA owner’s death. These differences persuaded the court that inherited IRAs should not receive the bankruptcy protection intended for assets set aside for retirement.
State exemption
Because bankrupt debtors may opt to apply state exemptions instead of the federal exemption addressed in Clark v. Rameker,
RACEY
MATHEY
objectives. Intricate business valuations, strategies and diversified planning are going to be critical to a legacy’s success.
Understanding the value of your business
The business valuation in legacy planning is not as easy as giving you a number based on assets. The worth of your business is dependent upon knowing exactly how, when and to whom ownership will be transferred. This is the simplest way to maximize returns. Creating a business legacy, as well as planning for your personal legacy, is a complex, yet critical task. “The majority of business owners put it off thinking that they have time. But it’s important to create a long-term plan and incorporate your legacy plan into part of your overall business strategy. Positioning your business and making the right moves now can drastically increase the value of your business and legacy in the long term,” states Ray Lampner, partner with
Protecting your wealth … after taxes When the tax man cometh, it can be quite a hit on your legacy plan. For many, income taxes are the single greatest expenditure on an individual’s personal income statement. It’s very important to enlist a trusted advisor that can tap your assets in the right order to minimize your tax bill. A good advisor will be able to: n Manage investments to maximize after-tax returns. n Work within a multi-dimensional tax system and coordinate a strategy to contemplate for regular tax, alternative minimum. n Create a strategy for fund withdrawal to keep taxes low, projecting income and bracket management, and use investment vehicles that minimize income taxes (i.e., taxmanaged mutual funds). While investors can’t control the direction and returns of the market, they should be able to control for risk, expenses and taxes to a
certain degree. Through strategic tax planning in conjunction with asset protection strategies, wealth can be preserved and protected for the benefit of heirs and possibly even a charitable legacy if you desire.
Preserving your legacy
A vast majority of clients are concerned first and foremost with preserving the wealth they accumulate so that their families may benefit. Ensuring that there are enough assets to reach personal and financial goals is the critical first step in retirement planning. But don’t undermine the assessment of business and personal risks. You will need to implement strategies to avoid these risks. An advisor that has experience in the diversified steps of legacy planning with businesses can help execute strategies that can secure a safe financial retirement. So, the cautionary tale has always been to look before you leap. Time is ticking. The water is warm. It’s never too early to create a legacy plan so that one day you will be able to dive head-first into retirement knowing that everything is going to be alright.
Ray Lampner is a Partner with BCG Legacy Advisors. Contact him at 330-572-8014 or Raymond.lampner@ bcgcompany.com. Doug Mathey is President of BCG Wealth Advisors. Contact him at 330-572-8050 or Doug. mathey@bcgwealthadvisors.com.
IGEL
many debtors will look to state law for protection. Fortunately for debtors, Ohio offers protection for inherited IRAs. Still, reliance on state exemptions for planning purposes is not always dependable in our mobile society. For example, if a person funding an IRA lived in Ohio but one or more of the beneficiaries reside in another state that does not protect inherited IRAs, the IRA would not be protected in bankruptcy.
Protecting Your Company.
Preserving Your Vision.
Trust alternative
Instead of relying on Ohio’s exemption, IRA owners may protect the IRA by naming a trust as the beneficiary. In the event of the beneficiary’s bankruptcy, the trust can protect the inherited IRA regardless of the individual’s state of residence. Also, the same trust can protect the IRA against other creditors outside of bankruptcy and in the event of a divorce.
Susan Racey is a Partner of the Tucker Ellis Estates, Trusts & Probate Group. Contact her at 216-696-3651 or susan.racey @tuckerellis.com. Peter Igel is a Partner in the Tax Group. Contact him at 216-696-5084 or peter.igel@tuckerellis.com.
Estate planning, life insurance and business solutions.
www.oswaldcompanies.com Jeffrey Wasserman | 216.367.5990 | jwasserman@oswaldcompanies.com
Crain’s Cleveland Business Custom Publishing
© 2014. Oswald Companies. All rights reserved. OC2014_AD003
he U.S. Supreme Court’s recent decision in Clark v. Rameker has given individuals with IRAs a new reason to consider the use of trusts as IRA beneficiaries. The decision made clear that inherited IRAs do not receive bankruptcy protection under federal law.
LAMPNER
BCG Legacy Advisors. According to statistics, there is a 70% chance that a company will transition ownership in the next 10-15 years. If you are a key stakeholder, or business owner, your concern for this circumstance will be even greater. Yet, when the majority of business owners are asked, only about 14% have a succession plan in place.
www.ClevelandFoundation.org/Purpose
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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 R O B E R T P. M A D I S O N
Establishing a legacy of giving today and tomorrow Giving is a deeply personal decision inspired by a lifetime of experiences, passions and motivation to help solve community problems. For one iconic Cleveland native, giving to present priorities and investing in the future has been a purposeful and rewarding blend of philanthropy. Through careful design and exemplary generosity, Robert P. Madison, founder of the Cleveland architecWXUDO Ă€UP 5REHUW 3 0DGLVRQ ,QWHUnational, aims to help generations RI &OHYHODQGHUV DQG WKXV GHĂ€QH his legacy. ´, KDYH DOZD\V EHHQ FRQFHUQHG IRU those who do not have the same opportunities as others,â€? Madison said. “All of our lives are checkered ZLWK WULDOV DQG WULEXODWLRQV EXW , believe that we have the ability to overcome them and see beyond.â€? Madison selected the Cleveland Foundation as his philanthropic partner more than a decade ago, and he has worked with the foundation’s Advancement team of professionals to ensure that his passion for archiWHFWXUH DQG VRFLDO MXVWLFH Ă€QGV D philanthropic outlet close to home. “The people there are wonderful and sensitive, and they understand the intention of those who want to participate in the foundation,â€? said Madison, who jokes that he is just nine years younger than the Cleveland Foundation, which is celebrating its centennial year. Madison’s primary philanthropy has been a scholarship fund that
he established with his late wife, Leatrice, to help African-American DUFKLWHFWXUH VWXGHQWV Ă€QDQFH WKHLU postsecondary education. “My concern is helping a person who wants to study architecture, but may not have the money to attend a XQLYHUVLW\ WR HQWHU WKLV Ă€HOG LI KH RU she chooses,â€? Madison said. “Being VHOHFWHG LV DOVR D EHQHĂ€W WR VWXGHQWV¡ egos: They can see that someone believes in them.â€? For most of his early life, Madison found success by believing in himself. He grew up in Cleveland and VWXGLHG EULHĂ \ DW +RZDUG 8QLYHUVLty before leaving to serve in World :DU ,, DQG HDUQLQJ WKH 3XUSOH Heart, three combat ribbons and the combat infantry badge. 8SRQ KLV UHWXUQ KH UHFHLYHG D EDFKelor’s degree from Western Reserve 8QLYHUVLW\ LQ ² WKH Ă€UVW $IULcan-American student to graduate from the School of Architecture. He went on to attain a Master of $UFKLWHFWXUH IURP WKH +DUYDUG 8QLversity Graduate School of Design, where he studied under Bauhaus IRXQGHU :DOWHU *URSLXV ,Q KH went abroad as a Fulbright Scholar to the Paris École des Beaux-Arts. :KHQ KH UHWXUQHG WR WKH 8QLWHG States, however, he experienced a much different set of “trials and WULEXODWLRQV Âľ ,Q WKH FRORU RI his skin precluded him from securing job interviews and bank loans, so Madison set out on his own and EHFDPH WKH Ă€UVW $IULFDQ $PHULFDQ WR UHJLVWHU DQ DUFKLWHFWXUDO Ă€UP LQ
WKH VWDWH RI 2KLR ,W ZDV /HDWULFH working as a school teacher, who proYLGHG WKH VHHG PRQH\ IRU WKH Ă€UP The company Madison founded has SDUWLFLSDWHG LQ D QXPEHU RI GHĂ€Qing Cleveland projects, including the Rock and Roll Hall of Fame and Museum, Quicken Loans Arena, FirstEnergy Stadium and the Great Lakes Science Center, as well as ofĂ€FH EXLOGLQJV DQG FROOHJH FDPSXV SURMHFWV 0RUH UHFHQWO\ WKH Ă€UP GHsigned the stations on the Regional Transit Authority HealthLine and worked on the Cleveland Convention Center and the Global Center IRU +HDOWK ,QQRYDWLRQ “Success in a profession is one thing, but when you couple that success with the ability to be helpful to others, it becomes far more meaningful,â€? Madison said. 7R GDWH VWXGHQWV KDYH EHQHĂ€WHG from his scholarship fund, which KDV DZDUGHG VFKRODUVKLSV RYHU WKH ODVW \HDUV Madison is already part of Cleveland history, but he knows that one of his biggest contributions to the community is yet to come. Madison is securing his legacy through a planned estate gift with the Cleveland Foundation that will leave a lasting impact, benefiting the causes he cares about most after he passes away. ´,W ZDV LPSRUWDQW IRU PH WR SODQ now so that others won’t have to GR LW DIWHU , DP JRQH Âľ KH VDLG ´, feel very safe and secure with the IRXQGDWLRQ DQG , NQRZ P\ ZLVKHV
Robert P. Madison: architect, pioneer and philanthropist. The company Madison founded has participated in the development of many Cleveland landmarks including the Rock and Roll Hall of Fame and Museum and Great Lakes Science Center, but his philanthropic partnership with the Cleveland Foundation will leave its mark in the next century and beyond.
will be carried out to the full extent.â€? )RU WKHLU VHOĂ HVV GRQDWLRQV WR WKH FRPPXQLW\ ² SDVW SUHVHQW DQG IXWXUH ² WKH &OHYHODQG )RXQGDWLRQ presented the Madisons with the Frederick Harris Goff Philanthropic Service Award, named for the orgaQL]DWLRQ¡V IRXQGHU LQ “Bob Madison has generously embraced lifetime giving and planned JLYLQJ Âľ VDLG .D\H 5LGROĂ€ VHQLRU vice president for Advancement at the Cleveland Foundation. “His philanthropy has been an encore to his groundbreaking architectural
career, and we are honored to have been his partner on this journey.� Madison also gives his time, serving the community as an honorary cochair of the Cleveland Foundation’s African-American Philanthropy Committee. ´%\ JLYLQJ LQ P\ OLIHWLPH ,¡YH EHHQ able to see and enjoy how the contributions are helping the commuQLW\ ¾ KH VDLG ´, IHHO UHVSRQVLEOH to help build a better society now ZKLOH , DP DOLYH DQG WR FRQWLQXH WKDW DIWHU , DP JRQH ¾
To learn more about giving through the Cleveland Foundation, please call 877-554-5054.
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GIFTS TO FAMILY | ASSET PROTECTION
Family philanthropy preserves your values for the next generation BY PATRICIA FRIES
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mart financial and estate planning ensures that your assets will be handled and protected in accordance with your wishes. But how do you preserve and grow the family values that you hold so dear? How can you ensure that future generations of your family will continue to be guided by these values? One of the best ways to FRIES pass on your values is to engage in philanthropy as a family. At charitable organizations, development professionals are available to help achieve your philanthropic goals and suggest various creative ways to involve your family. Family philanthropy is an opportunity to live and breathe your family values while establishing a legacy for the next generation. It starts with a conversation about what causes are important to you and what this has meant for your family. Engaging the younger generation can be as simple as holiday gift shopping for sick children or volunteering as a family at chari-
table activities. Older children and young adults enjoy impacting social causes through social media. As time goes on, you may want to encourage and enhance the impact of financial support from the younger generation by offering to match their gifts with gifts of your own. Involving the next generation in philanthropy exposes them to the amazing feeling of helping others and making a difference in the world. This is the power of philanthropy to transform lives. Family philanthropy can also provide a forum for talking about money management, which is not considered nearly enough in today’s world. Strategic giving vehicles can be an important part of your family philanthropy and provide income, gift and estate tax benefits. Establishing a current use or endowed fund at a particular charitable organization is one of the most straightforward options for family philanthropy. Many charitable organizations provide engagement opportunities for families and bring the family together to learn more about the use and impact of
You may want to encourage and enhance the impact of financial support from the younger generation. the family philanthropy. Donor-advised funds, private foundations, supporting organizations or perpetual trusts are alternative vehicles for supporting charitable causes. Contact your attorney to discuss these options. These giving vehicles vary in complexity and flexibility and your advisors can help ensure alignment with your financial and philanthropic goals. Engaging with your family in philanthropy helps preserve your values for the next generation. It all begins with a conversation. Talk with your family today.
Patricia Fries, Esq., MBA, is the Director of Gift Planning at University Hospitals. Contact her at 216-844-0430 or Patricia.Fries @UHhospitals.org.
Private foundation considerations
BY MARY EILEEN VITALE AND MICHAEL G. DUFFY
C
onsidering starting a private foundation? Establishing one allows the most control of your philanthropic assets, versus donating to a supporting organization or a donor advised fund. The choice will be influenced by future family involvement and cost. Once instituted, administration and continuation are key. Management can be by either professionals or family members, or a combination. Many begin with the founders doing all. They may also involve their children and grandchildren. Professionals can be hired; however, this can be costly. Professionals are recommended to manage the foundation’s assets, legal, tax and accounting issues. At the outset, the founders need to determine its focus. These can be diverse or narrow, providing financial assistance alone or broad support. Two critical areas include financial and administrative management.
VITALE
DUFFY
Financial management. How will the assets be invested and distributed? These functions can be handled by hired professionals or family members, depending on skill and interest. Private foundations have minimum distribution requirements based on asset values each year per the IRS Tax Code. Additionally, there is an excise tax ranging from 1% to 2% of the net investment income. Both are recorded and tested on the annual tax filing. Administrative management. Who will make decisions? What processes will be used? Will the foundation accept grant applications or will funding decisions
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solely be internal? This may change over time. Continuation is generally a concern of founders. Early on, the private foundation is typically run by the founder’s family. Who will be involved after their passing? Planning and thought are important to this question. Early involvement of new family members is important in order to allow those that follow to be the decision makers. To keep family involved as time passes, allowing for limited and/or higher time commitment at different periods may be a solution. Participating individuals may be able to donate more or less time as their situations permit. The foundation should allow for this. Foundation bylaws are important to provide guidance to future generations.
Mary Eileen Vitale, CPA, CFP, AEP is Principal with HW&Co. Contact her at 216-378-7210 or vitale@ hwco.com. Michael G. Duffy, CPA, is Senior Tax Manager. Contact him at 216-378-7291 or duffy@ hwco.com.
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CHARITABLE GIVING
Supporting organizations: family philanthropy at its best BY ANN GARSON
A
supporting organization, often called a supporting foundation, is a wonderful philanthropic vehicle that combines thoughtful philanthropic planning with family engagement, taking into account financial objectives and donor values. Many families choose the supporting foundation as GARSON the preferred vehicle for their participatory philanthropy. Participatory philanthropy vehicles are those that allow for engagement of donors with each other in grantmaking. Other examples of participatory vehicles are donor advised funds and private foundations. The supporting foundation may be the recipient of lifetime and testamentary charitable gifts designed to achieve tax reduction objectives. The family may then work together across generations with non-family trustees to support causes that benefit the community by making grants consistent with the familyâ&#x20AC;&#x2122;s values and charitable interests. A supporting foundation is a charitable organization that qualifies as a public charity because of its control by a public charity. It is administered by its own board of trustees with a majority of the trustees appointed by the controlling public charity and a minority of the trustees, generally family members, appointed by the family. In some cases, only individuals from the older generation serve as family-appointed trustees. In other cases, there may be a multigenerational board. The Jewish Federation of Cleveland has 50 affiliated supporting foundations, which collectively made grants last year of more than $90 million. Trustees meet at least once per year to decide on grantmaking and investment matters, as well as other issues of policy and operations.
Supporting foundation differences
The supporting foundation is different from a private foundation in several ways. There are no excise taxes on investment income and there is no
Can I protect my assets without paying premiums every year?
Charitable gifts offer tax benefits and invaluable impact minimum distribution requirement of 5% of the investment assets as there are for private foundations. For purposes of deductibility, gifts to the supporting foundation are treated more favorably than those to the private foundation. Because a private foundation is an independent entity, it must engage its own attorneys and investment managers, tax specialists to make IRS and state filings and administrators to keep grant, payment, and corporate records. Someone must conduct due diligence on grantees. The family that establishes a supporting foundation does not have to address any of these concerns because the Federation assumes responsibility for all of these functions. Another benefit that a supporting foundation has compared to a private foundation is the participation of the non-family appointed trustees. The family-appointed trustees and the non-family appointed trustees work together. The non-family appointed trustees are not strangers to the family and they are all very involved in the community. These trustees contribute to the family discussion by sharing inspiration, experience, and insights about philanthropy and grantees. They validate the impact that the family is having with grantmaking as well as reinforce and encourage the transfer of philanthropic values across generations where there is a multigenerational board. This kind of multigenerational involvement is a fulfilling family endeavor where each member honors the other and a shared vision can be made a reality.
foundation manager may facilitate these conversations and help a family to articulate philanthropic goals based on shared values. Then, the foundation manager may help the family tackle the
actualization of those values through the supporting foundationâ&#x20AC;&#x2122;s grantmaking. Additionally, the foundation manager may be responsive to requests for research from the family
or trustees into a particular field of interest or about a particular grantee. Causes may be researched and proposals may be anonymously solicited with conditions. Best due diligence practices are used with all proposed grantees. The foundation manager prepares all of the minutes and agendas for meetings and keeps track of grant payments, reporting, and records. A family establishing a supporting foundation may focus all of their attention on the change they want to make in the world without bearing the burden of day-to-day operational responsibilities. A supporting foundation provides a vehicle for financial and tax planning as well as a meaningful vehicle for family members to actively engage with each other in a collaborative philanthropic enterprise.
Ann Garson is Assistant Managing Director of Funds and Foundations for the Jewish Federation of Cleveland. Contact her at 216-593-2814 or agarson@jcfcleve.org.
Foundation manager assistance
Each supporting foundation has a staff member who acts as the foundation manager and whose focus is on facilitating the familyâ&#x20AC;&#x2122;s philanthropy. The foundation manager adds value in several ways. The foundation manager helps the family develop a mission statement for the supporting foundation, reflecting the familyâ&#x20AC;&#x2122;s values and history. Families of wealth often have not been offered an emotional â&#x20AC;&#x153;safeâ&#x20AC;? space or meaningful process in which to tackle the complex family dynamics that emerge in the context of grantmaking. The
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TRUSTS
Weigh all your options when selecting a trustee
as your trustee sees fit is a lot of responsibility and can create challenges especially when there are aming a trustee to be responmultiple beneficiaries. Complex assible for protecting your legacy sets, like closely held business indemands thoughtful considerterests or real estate, may require ation and an open-minded examinaa trustee with specialized business tion of available options. Should and financial skills. you choose an individual trustee When considering an individual or corporate trustee as part of your to serve as trustee, such as a famwealth transfer strategy? What ily member or trusted advisor, ask questions should you ask when yourself essential questions: Does seeking the ideal candidate? Where he or she have the time, expertise, do you begin? experience and desire to take on this Before you start, recognize that responsibility? Will changes in the your situation is unique. What trustee’s life, such as retireproved a successful stratment or a move to another egy for your neighbor may location, affect his or her not be a suitable approach ability to continue serving based on your needs. Sein this capacity? Will he or lecting a trustee is an imshe be comfortable putting portant decision that could personal assets at risk for significantly impact your decisions made regarding family and estate plan, so the trust? do your research to make If you have reservations an informed choice. REBER about naming an indiTake the time to grasp vidual as trustee, you may what you will be asking want to explore naming a corporate your trustee to do. Specific respontrustee. Corporate trustees have sibilities include taking custody of extensive experience handling and safeguarding assets, making ordinary and complex fiduciary appropriate investment decitasks. Knowing that many years of sions, understanding and reactexperience have been drawn on to ing to changes in applicable laws, develop consistent approaches to making discretionary distribution decisions, communicating with ben- decision-making may provide you a certain level of comfort. Families eficiaries, preparing trust accountcan also benefit from having the ings, and handling tax matters. same corporate trustee provide unThe complexity of your plan and interrupted service for successive assets also factor into what you are generations, eliminating mortality asking your trustee to do. Absolute issues that come with opting for an discretion to make distributions BY AARON REBER
N
Selecting a trustee is an important decision that could significantly impact your family and estate plan. individual trustee. Keep in mind that selecting a corporate trustee does not exclude your family from being involved: n You can appoint a family member as co-trustee to serve with a corporate trustee. n You can give your beneficiaries the power to remove and replace the corporate trustee. n You can name a family member as a trust advisor for the trust, to be consulted on investment decisions, distributions to beneficiaries, or both. Whatever path is ultimately taken, many people find that consulting an experienced trust advisor puts the selection process on solid footing. I invite you to visit with a FirstMerit PrivateBank trust advisor to learn how we can provide you with an objective perspective on your circumstances and help you select a trustee that will achieve the objectives of your legacy plan.
Aaron Reber is Head of Trust, Senior Vice President for FirstMerit PrivateBank. Contact him at aaron.reber@firstmerit.com.
LEADING THE WAY TO A
Minimizing taxes through discretionary trust distributions for 2014). As a practical matter, most trusts will have adjusted gross income comprised entirely discretionary distribution of net investment income, and of income (and, potentially, thus all undistributed income capital gains) from a non(including capital gains) in excess grantor irrevocable trust to one or of the threshold generally more of its beneficiaries would be subject to the can minimize taxes — spesurtax. cifically the 3.8% Medicare For individuals, the surtax on net investment applicable threshold income, and the tax on is based on modified long-term capital gains and adjusted gross income, qualified dividends. which includes an A non-grantor irrevoindividual’s salary, and cable trust reaches the is $250,000 for a marthreshold levels of income VERCIGLIO ried couple filing jointly, that result in the imposi$200,000 for a single filer, tion of the surtax and the or $125,000 for a married person highest tax rate for long-term filing separately. capital gains and qualified diviWith respect to the tax on longdends at much lower levels than term capital gains and qualified individuals. The trustee of such dividends, the maximum tax rate a trust should consider making of 20% applies to a trust’s longdiscretionary distributions to the term capital gains and qualified trust’s beneficiaries to carry out dividends when a trust’s taxable the trust income (and, potentially, income (which includes capital capital gains) to them (which such gains) exceeds $12,150 (for 2014). beneficiaries would report on their Whereas, for individuals, in 2014 personal income tax returns) if the maximum tax rate of 20% the higher individual thresholds applies when an individual has would reduce the overall surtax more than $406,750 of taxable and tax on long-term capital income or a married couple filing gains and qualified dividends. An jointly has more than $457,600 of overarching consideration for the taxable income. trustee is that any such distribuTrustees should, therefore, tion must be consistent with the consider the potential tax savings terms of the trust. associated with permissible disFor such a trust, the surtax is cretionary distributions of income imposed on the lesser of (i) undis(and, possibly, capital gains) to the tributed net investment income, trust’s beneficiaries. which includes capital gains, and (ii) the excess of adjusted gross income over the applicable thresh- Joseph Verciglio is a Partner with old (i.e., the amount at which BakerHostetler. Contact him at the highest trust/estate income 216-861-7713 or jverciglio@ bracket begins, which is $12,150 bakerlaw.com.
BY JOSEPH VERCIGLIO
A
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ESTATE PLANNING
NOVEMBER 10-16, 2014 E-13
TRUSTS
You’re the named trustee – now what? New responsibility requires careful consideration of several factors
BY ANDY WHITEHAIR AND DON LAUBACHER “My brother passed away a few weeks ago. He had created three trusts —one for each of his young adult children — and named me as his successor trustee. I know a bit about investing and taxes, but what are my duties and responsibilities as trustee? Can I delegate some of my tasks?”
WHITEHAIR
LAUBACHER
liabilities, receipts and disbursements — including the source and amount of the trustee’s compensa-
tion, and a listing of trust assets and their respective market values. Investment Duties: While Ohio law gives a trustee broad latitude concerning investments, it also requires prudent diversification in most cases. A trustee must exercise reasonable care, skill and caution when managing the trust assets, and must consider its purposes, terms and distribution requirements. Delegation of Duties: Ohio law provides that a trustee may
delegate his duties, as long as he exercises reasonable care, skill and caution in: 1) selecting an agent to manage the trust; 2) establishing the scope and terms of the delegation; and 3) periodically reviewing the agent’s performance. The above list merely scratches the surface of a trustee’s role. Many feel they can, or should, take on the responsibilities by themselves. While it’s certainly possible in some situations,
adding an experienced advisor to your team can help manage the complexities that may arise along the way.
Andrew Whitehair, CPA/PFS, is Director, Tax at Cohen & Co. Contact him at 216-774-1121 or awhitehair@cohencpa.com. Don Laubacher, CFP, CPA, is Executive Vice President, Wealth Planning for Sequoia Financial Group. Contact him at 330-225-2130 or dlaubacher@sequoia-financial.com.
I
t’s common for newly tapped trustees, many of whom have little experience in trust matters, to feel an overwhelming sense of anxiety regarding the uncertainty of their new role. And rightfully so, since there are potential risks and liabilities that must be handled appropriately to protect both themselves and the trust. The good news for new trustees? You’re not alone. Below are some initial considerations to help you get started.
Basic Understanding: Begin with the understanding that a trustee’s duties are to administer the trust in good faith, pursuant to the terms and purposes of the trust, and according to applicable state law. Duty of Loyalty: The trustee must manage the trust solely in the interests of the beneficiaries and remain impartial between each. This can become complicated when there are multiple beneficiaries, mixed marriages and feuding family members. Recordkeeping Duties: Trustees often fall short in this area. Proper recordkeeping means that: 1) trust assets are not commingled with the trustee’s assets; 2) beneficiary requests for information are promptly responded to; 3) trust tax returns are accurate and timely; and 4) reports to beneficiaries are provided at least annually and include a report of trust property,
Legacy William
*
Family is a top priority for us. Which is why we want to know that the decisions we make now will ensure a bright future for us, our children and our grandchildren. Our FirstMerit Client Advisor understands our aspirations and helped us develop a long-term investment plan. He also helps us manage our day-to-day banking needs so we can focus on what’s important. We have peace of mind knowing our legacy will live on.
Though related entities, Sequoia Financial Group, LLC and its affiliates, and Cohen & Company, Ltd. are separate companies with common, but not identical ownership. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Certain third–party money management offered through ValMark Advisers. Inc., an SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. 3500 Embassy Parkway, Akron, OH 44333, 330-375-9480. Certain insurance products offered though Sequoia Financial Insurance Agency, LLC. Sequoia Financial Group, LLC and related entities are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc. Cohen & Company, Ltd and related entities are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.
TO L E A R N MOR E A B O U T F I R S T M E R I T P R I VA T E B A N K , C O N T A C T :
Tom Anderson, Senior Vice President, at 216-694-5678 or tom.anderson@firstmerit.com. Follow the latest market trends @firstmerit_mkt *William reflects a composite of clients with whom we’ve worked; he does not represent any one person. Non-deposit trust products are not insured by the FDIC; are not deposits or obligations of FirstMerit Bank, N.A, or any of its affiliates; are not guaranteed by FirstMerit Bank, N.A or any of its affiliates; and are subject to investment risk, including possible loss of principal invested.
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E-14 NOVEMBER 10-16, 2014
ESTATE PLANNING
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TRUSTS
Is AB Trust planning a notion of the past? Trust, and incorporating the ability to achieve a second step-up in tax basis upon the death of the surviving rior to the American Tax Payer spouse. An OBIT is similar to an AB Relief Act of 2012 (ATRA), the Trust in that the surviving spouse’s use of a Marital Trust (Trust A) access to the assets is limited — howand a Credit Shelter Trust (Trust B), ever, these limitations exist for asset commonly referred to collectively as protection purposes instead of estate an “AB Trust” was considered stantax planning purposes. dard procedure in estate planning Based on current tax law, an for wealthy married couples. OBIT functions as follows: ATRA established changes that Upon the death of the first spouse, brought a much-desired federal estate $5.34 million in assets (less tax permanence by setting the amount of any unified the unified credit amount at credit used during lifetime) $5 million indexed for inflais directed to the Credit tion ($5.34 million in 2014) Shelter Trust (Trust B) for and introduced the concept the benefit of the surviving of portability. Prior to the spouse. Similar to an AB concept of portability, if a Trust, this amount will pass spouse’s unified credit was tax-free pursuant to the use not used at death, the unified DECAPITE of the deceased spouse’s $5.34 credit was lost. After portamillion exemption. bility, the surviving spouse In an OBIT, Trust B is is able to use a deceased spouse’s uncarefully drafted to include a testaused exemption amount by electing mentary general power to appoint portability on the federal estate tax appreciated trust assets, thereby return. As a result of this decrease in allowing for the appointed assets estate tax exposure, the use of an AB to be includable in the surviving Trust has become much less useful in spouse’s estate for federal estate tax planning, as a bypass trust is not tax purposes. The general power necessary to preserve the deceased of appointment is granted only if it spouse’s exemption amount. While will not cause the appreciated the AB Trust remains functional in assets to incur estate tax liability. the estate planning arena, there are Upon the surviving spouse’s death, other forms of trust planning that can this arrangement provides for an be used to achieve complex income additional step-up on assets that have tax planning strategies. appreciated in value from the date of death of the first spouse to the date OBIT as an option of death of the surviving spouse, and prevents a step-down on assets that The Optimal Basis Increase Trust have decreased in value. Without the (OBIT) allows for income tax planning OBIT provisions, a traditional AB strategies that are notably absent in Trust would only guarantee a step-up the traditional AB Trust structure. in basis upon the first spouse’s death. The OBIT takes a hybrid approach Another drafting approach used to by combining the benefits of an AB BY DANA DECAPITE
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accomplish an OBIT involves the use of a Delaware Tax Trap technique, under which a limited power of appointment is granted to the surviving spouse. The surviving spouse can then appoint appreciated assets into an additional trust that allows for an exercisable general power of appointment. This technique creates the same tax advantage wherein appreciated assets are stepped up, depreciated assets are not stepped down and asset protection is achieved. However, there are a number of complex planning considerations in determining which technique is best, such as: gift tax considerations, access by the powerholder’s estate creditors, ease of disclaiming/decanting and the hassle of future documentation and upkeep upon the death of the first spouse. Regardless of the drafting approach, it is clear that the planning techniques have taken a dramatic shift since the implementation of ATRA. While the necessity for estate planning has not diminished, tax incentives have shifted clients from traditional estate tax planning to a new focus on income tax planning. These techniques are particularly attractive to high-income taxpayers who wish to utilize strategies to minimize income tax liability while also preserving asset protection for beneficiaries. As a result, the traditional AB Trust has become less useful in certain contexts, and complex trusts similar to the OBIT are now being used to maximize income tax savings at death.
Dana DeCapite is an Associate in the firm’s Business Succession Planning/ Wealth Management Practice Group. Contact her at 216-383-4443 or ddecapite@beneschlaw.com.
The non-tax benefits of trusts
The planner should follow up that concept with many associated questions. For example, do you have minor children or any chiln the past, the estate planning dren from a first marriage? Is there discussion between attorney a possibility that a child might get and client regarding the use divorced or declare bankruptcy? Is of trusts was often centered on getting a large lump sum of money the way a trust may be able to in the best interests of your child, help save on estate taxes. Howor might that deter them from findever, with the federal exemption ing their professional and economic for estate taxes currently being way on their own? What if your $5,340,000 per person and the surviving spouse remarries and, if repeal of the Ohio estate tax, planthey do, would you care if your asners are often asked by clients “Do sets are available for that I really need a trust?” The new spouse and family? answer generally is that Generally few, if any, while you may not need clients can answer no to a trust to save on estate all of the questions raised taxes, you might want a above. If he or she can, trust for a variety of other then trusts may not be reasons. for them. If any of the A funded trust provides answers are yes, then the privacy and avoids the options of how a trust can DELACOURT probate process. A funded assist them in their situaSUMMERS trust streamlines asset tion should be explored. management and distribuA trust still might not tions upon the incompebe the correct, or only, estate tency and/or death of the creator of planning vehicle for that client, the trust and names a succession but at least the option should be of trustees, presumably, ready to discussed and the planner and cliserve. Most notably, however, is ent can delve into the client’s own that a funded trust allows you to unique personal situation – instead maintain control of your assets while you are alive and dictate how of just discussing tax savings. The non-tax benefits of trusts they are to be used and for whom have always been there, they just after your death. were not in the spotlight as they Many times, when a planner are now. asks a client what should happen with their assets upon their death, Linda DelaCourt Summers is the client replies that their assets counsel for Ulmer & Berne LLP. should be distributed to their Contact her at 216-583-7212 or spouse, if there is one; otherwise, ldelacourt@ulmer.com in equal shares to their children.
BY LINDA DELACOURT SUMMERS
I
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ESTATE PLANNING
TRUSTS
Using charitable trusts in your retirement planning
BY LINCOLN FINANCIAL ADVISORS/ SAGEMARK CONSULTING
J
im and Angela are land “rich” and cash “poor.” They live comfortably on their professional incomes, but as they near retirement age, they are looking for ways to supplement the income expected from their retirement plans. The largest asset they own is a tract of land inherited from Angela’s parents, which has increased in value over the years, but provides no current income. Angela could sell the land and invest the proceeds in incomeproducing investments. But, a substantial portion of the property’s appreciation would be lost to capital gains tax. A better strategy might be establishing a charitable remainder trust (CRT), where Angela transfers the land to an irrevocable trust created to provide lifetime payments to her and Jim. At the death of the surviving spouse, the trust property transfers to the charitable organization of Angela’s choice. With a CRT, the trustee can sell the property and reinvest the proceeds without paying any immediate tax on the gain and can claim a current income-tax charitable deduction
for the value of the trust property, which the charity will eventually receive (within tax law limits). A CRT can be structured either as an annuity trust or a unitrust. If Angela chooses a charitable remainder annuity trust (CRAT), she and Jim receive annual payments of a set percentage of the trust’s initial fair market value (between 5% and 50%). A charitable remainder unitrust (CRUT) would pay Jim and Angela an annual income based on the fair market value of the trust property, revalued each year. Again, the percentage must be between 5% and 50%. If the trust investments perform well, the income increases. Some prefer CRUTs because they can provide a hedge against inflation and can accept additional gifts. CRUTs also limit the annual payments to the trust’s income when it is less than the fixed percentage amount (a net-income CRUT or NICRUT) and includes a “makeup” provision (a net-income makeup CRUT or NIMCRUT) requiring the trustee to make higher payments in years the trust income exceeds the fixed percentage amount, to the extent that payments in prior years were less than the fixed percentage. With a CRUT, Angela could transfer the land and Jim could
Marcia Wexberg Cheryl D’Amico 216.622.8858 216.622.8555 mwexberg@calfee.com cdamico@calfee.com
transfer a small amount of incomeproducing investments or cash to be invested. The trust could hold the land, paying them income from their investments until Jim and Angela are ready to retire. Then, the trustee could sell the appreciated land and invest in securities that would produce income for their retirement. If the investment income exceeds the fixed percentage for their CRUT, the makeup provision would require the trustee to pay the excess to Jim and Angela to compensate for the earlier years of low income. Complex legal requirements must be met to secure many of a CRTs benefits. So, you’ll want to consult with your advisor before deciding to use one and consider using an experienced professional trustee (bank or charity) to administer your trust.
For more information, contact 216-765-7400. Securities offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC). Investment advisory service through Lincoln Financial Advisors Corp. or Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. It is not our position to offer legal or tax advice. CRN1028833-100614
James A. Singler 513.693.4875 jsingler@calfee.com
NOVEMBER 10-16, 2014 E-15
ARTS AND COLLECTIBLES
A primer to the proper appraisal of art, collectibles BY LORIE HART
D
o you or your clients own high value art or collectibles? If so, then you have probably been through the art appraisal process. However, if you or your clients are new to collecting or have just inherited a significant piece of artwork, this process can be mystifying. Following are the basics of appraising artwork and collectibles. n A personal property appraisal is a formal written document that provides a value for an item based on research, past sales and HART current market trends in the market where the item is typically sold. A formal appraisal is also written according to the Uniform Standards of Professional Appraisal Practice (USPAP). This assures that your appraisal is written properly and meets IRS guidelines. n The value used in an appraisal depends on the client’s needs. The most common value is for insurance coverage. High value art and collectibles, including wine collections, often require a special rider on a homeowner’s policy. An appraisal will be required to determine the replacement cost value of the items. This value is usually the highest value an item will have. Other reasons to have
Jean Hillman 216.622.8298 jhillman@calfee.com
Fran Mitchell Schaul 216.622.8351 fschaul@calfee.com
an appraisal are for resale, charitable donation and equitable distribution. Values used could be resale, liquidation or fair market value. n The appraisal process itself is painless. The appraiser will typically inspect the items where they are located. The inspection includes taking photographs and measurements and assessing the condition. Any receipts, documentation and past appraisals will assist the appraiser in determining value. It is important to remember that appraisers are not authenticators and a specialist may need to be consulted to determine the authenticity of an item. n Finally, be aware that personal property appraisers are not licensed. A qualified appraiser is a member in good standing of one of the three U.S. appraisal societies — the International Society of Appraisers, the Appraisers Association of America and the American Society of Appraisers. Membership in these organizations requires formal testing and education along with USPAP compliance.
Lorie Hart, ISA AM, is co-owner of L&L Estate Liquidation & Appraisal Services, LLC in Solon. Contact her at 216-470-7002 or lorie@llestateliquidation.com.
Maureen Beaver 216.622.8322 mbeaver@calfee.com
The attorneys of Calfee’s Estate and Succession Planning practice can help you make some of the most important decisions of your life. We provide experienced counsel for high net worth individuals and families:
Calfee, Halter & Griswold LLP
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The Calfee Building 1405 East Sixth Street, Cleveland, Ohio 44114 Calfee.com
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E-16 NOVEMBER 10-16, 2014
ESTATE PLANNING
ARTS AND COLLECTIBLES
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CHARITABLE GIVING
How estate planning can help you reach philanthropic goals
To Sell or Not to Sell?
Art and collectibles in the estate planning process houses are required to preserve valuations, which conform to Uniform Standards of Professional ersonal collections of fine art, Appraisal Practice (USPAP), on file for a minimum of seven years. antiques and decorative art Another added bonus is that when comprise a vitally important it comes to deciding whether or but often overlooked asset in a not to sell the advice of a client’s total asset makeup. trusted, licensed auctionAs the estate plan is eer is invaluable. formulated, an up-to-date The decision to sell is valuation of the collection predicated on a number of is critical in identifying different circumstances, the correct fair market but most usually the death values, followed by a plan of the collector. However, for the eventual dispersal any change of circumstancof the collection either by es — the decision to downbequest, donation or by HARRAGIN size, the desire to liquidate sale. Valuations need to funds, the need to resolve be updated at least every a dispute as to the disposition of five years to make sure they are as an item or the whole collection, or accurate as they can be. the desire to take advantage of an Using a reputable, licensed upturn in market conditions — can auction house for the initial valulead to a desire to sell. There are ation will ensure the accuracy of significant advantages to using a values assigned, together with a licensed and globally recognized full explanation of current compaauctioneer for the sale of a collecrables, and will allow values to be tion, or even a single item. Namely updated quickly with a minimum to achieve the collection’s maxiof expenditure. Licensed auction
BY SERENA HARRAGIN AND ALEX BUDDEN
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mum value by reaching the most number of potential buyers globally, to have it insured throughout the selling process, and to receive the settlement within an agreed time period, all of which are assured when an auctioneer licensed by a state authority is engaged. Just like the financial markets for equities and fixed income instruments, the selling of fine art and collectibles requires detailed planning informed by trusted, licensed professionals from the fine art and collectibles auction industry. Knowing the value of what you or your client has and understanding the market trends is critical in planning how, where and when to sell.
Serena Harragin is CEO of Gray’s Auctioneers & Appraisers, LLC. Contact her at 216-458-7695 or email serena@graysauctioneers. com. Alex Budden is Director of Trusts & Estates. Contact him at 216-458-7695 or appraisals @graysauctioneers.com.
Making a Difference in Students Lives Takes More Than Quality Education
BY STELLA DILIK
W
hat kind of donor are you? One who wants to see your assets put to good use during the course of your lifetime? Or one who wants to make an impact with your estate? Leaving a legacy defined by charitable giving is an important life goal. An estate that is not properly structured can be stressful and expensive for beneficiaries. For philanthropic individuals and their heirs, there are several unique ways to leave a charitable legacy as part of an estate plan. Planned gifts provide creative and flexible strategies for donors to pursue both charitable and financial goals. Estate planning is a tremendous benefit to benDILIK eficiaries as well as to charitable organizations. Oftentimes, fees and taxes can be avoided with some simple planning and many people don’t realize the tremendous income tax benefits available now against current income for their future commitment to charity. By arranging a donation now, your charity of choice benefits from your kindness immediately and also after you have passed away. Planned gifts can include bequests, gifts of life insurance policies, donations of charitable gift annuities, charitable lead trusts, charitable remainder trusts and numerous other estate planning vehicles. Some of these gifts provide lifetime income for you, a family member or friend; some allow you to enjoy the benefits of an immedi-
By arranging a donation now, your charity of choice benefits from your kindness immediately and also after you have passed away. ate charitable income tax deduction, eliminate long-term capital gains tax on appreciated securities, remove assets from your estate, pass assets to your grandchildren free of estate taxes or use real estate or other tangible assets to create a stream of income for you or your family. Through creative planned giving you can secure your own financial future as well as the charity’s future of your choice. In fact planned gifts can provide the resources for extraordinary opportunities and transformational giving. If you find yourself thinking about your future a lot more than you used to — along with the future of your children, your grandchildren and your favorite charity — then it’s time to assess your personal budget and your longterm legacy goals to determine an appropriate amount for giving and the estate plan that will fulfill your wishes. Best of all, estate planning allows you to make a gift that is likely far larger than you could have anticipated with an outright cash donation.
Stella Dilik is Executive Director of Foundation and System Philanthropy for the MetroHealth System. Contact her at 216-778-5004 or sdilik@metrohealth.org.
Wealth Management and Estate Planning Group
Through a unique partnership with OhioGuidestone, Stepstone Academy students and families have immediate access to a full spectrum of treatment, skill building and prevention services that can meet the needs of the entire family. No wait list or being sent all around town – just high-quality education and support provided in one location, by caring and trustworthy professionals.
Want to learn more? Contact Dana Ness at 440.263.2874 or dana.ness@ohioguidestone.org to support us today! www.StepstoneAcademy.org
Through meaningful client relationship, we provide comprehensive and strategic estate planning, business and tax services uniquely tailored to individuals, businesses and fiduciaries. With decades of combined experience, we counsel clients in navigating current circumstances, accomplishing personal, business and charitable goals, optimizing wealth transfer against tax impact, and in anticipating and preparing for future circumstances. For more information, please contact our Wealth Management and Estate Planning Group. Thomas M. Turner, Esq. Julie A. Fischer, Esq.
Sandra J. Brantley, Esq. Julie E. Firestone, Esq.
Cleveland Office ǀ North Point Tower ǀ 1001 Lakeside Ave., Suite 1400 ǀ Cleveland, Ohio 44114 Chagrin Office ǀ 100 Park Place, Suite 150 ǀ 527 East Washington Street ǀ Chagrin Falls, Ohio 44022 p. 216.523.1500 f. 216.523.1705 w. mggmlpa.com
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ESTATE PLANNING
NOVEMBER 10-16, 2014 E-17
CHARITABLE GIVING
Charitable giving strategies for women Be prepared to be inundated with myriad requests
BY ANNE-MARIE E. CONNORS
A
ccording to the Women’s Philanthropy Institute at Indiana University, women in the Boomer generation and older are significantly more likely to give to charitable causes than their male counterparts. Fund-raisers know this and are likely to reach out to women, especially women of means, as potential donors, volunteers and board members. Women can avoid being overwhelmed by solicitations and invitations by developing a strategy for charitable giving. Benjamin Rose Institute on Aging Board Member Emily Drake, Partner with Fairport Asset Management, offers several tips for her peers. She suggests setting up criteria for charitable giving that parallels personal priorities and values. Some things to consider include the mission of the organization, the percentage of funding that goes directly to the targeted population, transparency in the use of the funds, and clearly stated short- and long-term organizational goals. Women should set a strategy at the beginning of each year, she says. “How much will you give this year and to what types of organizations? You might think about giving more to fewer organizations, rather than many small gifts to different organizations. This will make you feel much better about the impact you are having to affect change in your key areas of interest.” With a strategy in place, donors should evaluate the list of donations they have made in the past and develop a “quit list.” “As you review your gifts, what made you feel good and what did not?” Drake says. “Quit giving out of guilt and give because you care.” Having a clear strategy for charitable giving also makes it easier to say no to well-meaning friends and colleagues who solicit donations for their causes. “If an organization does not meet the profile you’ve developed, turn them down in a courteous way by telling them quite simply what your priorities are,” Drake suggests. After deciding which organizations or causes make the cut, women should consider how they want to maximize their giving potential. Using highly appreciated stock or investments can prove to be a successful strategy. A donor can achieve tax savings on these appreciated securities by not having to pay capital gains tax, while at the same time enabling a larger gift because it reflects the before-tax dollar amount. Setting a target of investment returns to give away each year is another successful strategy. Women should determine what percentage falls within their comfort level. “For example, if your investment portfolio is achieving a return
CONNORS
Setting a target of investment returns to give away each year is another successful strategy. Women should determine what percentage falls within their comfort level.
of $10,000 per year,” Drake says, “would you feel comfortable giving away 50% or $5,000 to charities in any given year? You will still have $5,000 to reinvest in your portfolio and increase its value. The key is deciding in advance the percentage
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with which you are comfortable.”
Anne-Marie E. Connors is Vice President of Development, Benjamin Rose Institute on Aging. Contact her at 216-373-1608 or aconnors@benrose.org.
For more information, contact Nicole Mastrangelo at 216-771-5158 or nmastrangelo@crain.com.
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E-18 NOVEMBER 10-16, 2014
ESTATE PLANNING
CHARITABLE GIVING
Evaluating charities using the Internet
Beyond the pledge drive … leaving a meaningful legacy
BY ALEX PETRUS
H
Considerations involved in making appropriate planned giving decision
generation of tax-wise, financially savvy donors whose giving practices are based on business acumen lanned giving is simply as well as philanthropic concern. finding the best method of making a gift. The distinction The financial needs, interest, and expectations of the 75-yearbetween planned gifts and old are not the same as other giving is that most those of the 45- or 50-yearcharitable giving is incomeold donors that are forming oriented while planned the new donor prospect giving is asset-oriented. pool. In a nutshell, donors Planned gifts can be are looking for ease, choice, considered once-in-aand expertise. lifetime gifts. Most often A frequent “go-to” list planned gifts are made by individuals who have given HERRINGTON includes the following ways to give a planned gift: regularly every year to n Prepare a will. Withan organization’s annual out a will, you lose control of the operating fund. The size of the anpossessions you worked a lifetime nual gift is less important than the to acquire. constancy of the commitment. n Leave a gift in your will for As organizations compete for the charitable organizations that available dollars, planning and made a difference in your life. broad fundraising efforts assume Consider simple language such as I greater importance. Today’s legacy give _____ [the sum, percentage, or donors are more sophisticated, they request more information, and description of property] to [charity name] in [city, state] to be used for they are younger. Their interests, its general tax-exempt purposes, but needs, and expectations reflect the without other restriction as to use. motivations and values of their n Consider using assets for your generations. Similarly, emerging charitable gift. These can include, demographic and economic circumbut aren’t limited to, stocks, bonds, stances are giving rise to a new BY MARY GRACE HERRINGTON
P
certificate of deposits, real estate, vehicles, art and jewelry. Such gifts may even provide tax savings. n Name your favorite charitable organization as the beneficiary of your IRA or pension plan. n Buy a new life insurance policy naming your favorite charity as the beneficiary. n Name your favorite charity as the beneficiary of an existing life insurance policy. n Remember deceased loved ones with memorial gifts to charities. n Encourage family members and friends to leave gifts to charities in their wills. As with any significant financial decision, it is recommended that donors seek counsel from their trusted advisors on timing, amounts, and type of asset to donate to maximize their charitable giving deductions and philanthropic impact.
Mary Grace Herrington is chief development officer at WVIZ/PBS, 90.3 WCPN, and WCLV 104.9 ideastream. Contact her at 216916-6270 or marygrace.herrington @ideastream.org.
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ow can you make sure that the nonprofit charity you want to support will use your gift wisely and is a well-run organization? Here are a few things to consider, as well as Internet resources that may be helpful: What percentage of your gift will go directly to the programs and services of the non-profit organizaPETRUS tion? You should expect at least 75% of their budget to go toward programs and services. The nonprofit charity should be upfront and transparent in providing this percentage for you. Does the nonprofit charity have an active and engaged board of directors overseeing its management? Does the nonprofit charity have a current independent audit with a clean opinion and no qualifications? An independent audit will confirm that controls and safeguards are in place in the handling of money, to follow the donor’s designation of gifts, and to ensure the financial statements accurately represent the operation of the nonprofit organization. The Better Business Bureau has developed a rigorous voluntary program in which nonprofit organizations can be rated on 20 best practice standards. If a nonprofit organization meets these standards, they are listed as an accredited BBB charity and are able to use the BBB Accredited Charity Seal on its materials to provide confidence to donors that they are a high-performing nonprofit organization. The following websites can be helpful in evaluating whether a nonprofit charity is worthy of your charitable contribution:
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BBB Wise Giving Alliance www.give.org Collects and distributes information on nonprofit organizations that solicit nationally or have national or international program services. BBB Wise Giving Northeast Ohio www.bbb.org/ cleveland Collects and distributes information on Northeast Ohio nonprofit organizations that solicit charitable support. If the nonprofit is accredited by the BBB it receives the BBB Accredited Charity Seal. Ohio Attorney General www.ohioattorneygeneral. gov All nonprofit organizations soliciting charitable support in Ohio are required to register and be in good standing with the Ohio Attorney General’s Office. Guidestar www.guidestar.org This site allows you to access a database evaluating more than 620,000 nonprofit organizations in the United States. Charity Navigator www.charitynavigator.org This site provides ratings of more than 5,000 charities based on their financial performance. Charity summaries provide such information as overall rating, organizational efficiency, revenue, expenses, and mission statement.
Alex Petrus, CFRE is Vice President of Advancement with OhioGuidestone, a BBB Accredited charity. He has been with the charity for 20 of his 30 years of fundraising in Northeast Ohio. Contact him at 440-260-8341 or Alex.Petrus@ohioguidestone.org.
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ESTATE PLANNING
NOVEMBER 10-16, 2014 E-19
CHARITABLE GIVING
Tips to selecting right donor advised fund
2
BY LAURA MALONE
O
Contributions
What types of assets are eligible for contribution (e.g. cash, marketable securities, closely held securities, real estate, and life insurance)? How quickly do these assets have to be sold or rebalanced?
ver the last decade, the growth of donor advised funds (DAFs) has been increasing at a rapid rate. Their simplicity to set up, flexibility and tax-saving capabilities have proven to be an excellent tool in estate planning and business exit strategies. However, choosing the best DAF for a donor’s circumstances can be as varied as the different charities that they choose to support.
3
Investments
What investment choices are available? Are contributions pooled (i.e. dollars donated are pooled with other donors for investment MALONE The following is a list of purposes) or can the dollars questions that a potential be separately managed in donor and their advisor their own investment account by the need to consider when determining donor’s existing financial advisor? which DAF may be best for them and their interests:
1
Affiliations
Is the organization that sponsors a DAF affiliated with another entity (for-profit or non-profit)? How might these affiliations help or hinder the donor’s use of a fund now or in the future?
4
Grant distributions
Are there restrictions on grant distributions (e.g. geographic, religious, etc.)? Is there a minimum annual distribution requirement that the donor must give, or a maximum annual limit that restricts how much can be given away?
5
Succession
How flexible are the provisions for succession upon the donor’s death? Is involvement limited to the donor and their spouse or can unlimited successor advisors be named?
6 7
Online access
Does the program offer the ease of secure online access to your account?
Costs
Are there set-up or termination fees? What is the annual administrative fee? Are there minimum account level charges? Does the organization require a certain portion of the fund to be set aside for its own purposes? Most importantly, will the organization allow you to transfer the fund in the future to another DAF administrator, or are
your funds held permanently by the initial administrator? Thinking through these seven tips before opening a DAF will give the insight needed to make charitable giving as tax-smart, flexible,
and enjoyable as possible.
Laura J. Malone, CAP®, CEPA®, is director of gift planning at American Endowment Foundation. Contact her at 877-599-8903 or email lauramalone@aefonline.org.
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from
THE ESTATE PLANNING COUNCIL OF CLEVELAND
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CHARITABLE GIVING
Designating contributions for a personal cause
in carrying out its mission. I encourage everyone, regardless f you have a passion for a cause, of his or her age or family situation, to have an estate plan (which you are more likely to support could be just a will but may also that cause financially. You may include one or more trusts if approattend fundraising events, drop a priate), and to consider a philandonation in the mail, or purchase thropic gift as part of that will or goods that contribute a percentage trust. Inclusion of a philanthropic of the purchase price back to the gift in your will or trust is organization. And if you easy to do and offers these have a personal connection main benefits: to a cause, you are much Simplicity: Just a more likely to want to consentence in your will is all tinue to support that cause that is needed. For examfar into the future. ple: “I give and bequeath For example, as an atthe (sum or description) of torney, I am keenly aware my estate to (charity name, of the importance of comlocation) a not-for-profit munication. Having dealt GOLER corporation, for its general with stuttering since third charitable purposes.” grade, I found my way Flexibility: Because the gift to Cleveland Hearing & Speech is not received until the end of Center (CHSC) soon after my son your lifetime, you can change it as was born. many times as you wish. You can I worked for many months with increase or decrease the gift a speech therapist and learned according to changes in your techniques I still use today to situation. manage my stutter. In the process, Versatility: You can structure I gained a passion for a very speyour will to leave a certain amount cial organization — CHSC. or a percentage of your estate. I have turned that passion into Tax relief: If your estate is service and support so that others subject to estate taxes, your gift could benefit from various services may be entitled to an estate tax offered by the same wonderful charitable deduction for the gift’s agency that helped me. Over time full value. I realized I wanted to make certain that support would also continue Michael D. Goler is a corporate, long after I’m gone. Therefore, I real estate, finance and probate made a personal commitment in attorney at Miller Goler Faeges the form of a planned gift. The gift Lapine. Contact him at 216-696is unrestricted and is to be used to 3666 or goler@mgfl-law.com. support and strengthen the agency
BY MICHAEL D. GOLER
I
Turning passion into impact giving. The best choice will depend on the client’s objectives, resources, ike entrepreneurs who trans- tax planning needs and desire for family involvement. late a passion into a One couple spoke to successful business, us about wanting to pass great philanthropists take their values from generainspiration from their life tion to generation, but was experiences and apply it uncertain what form their to their giving. Today’s efforts should take. After philanthropists want to considering their financial channel their desire “to do and nonfinancial objecsomething” into purposetives, we recommended a OLEJKO ful and strategic action. private foundation. Once More than writing a check, their attorney established donors frequently want to the legal structure, we facilitated invest in the people and programs educational sessions with the that can make a measurable differfamily to help them develop their ence. We believe effective philanmission and establish grant guidethropy begins with a sound plan lines and procedures. Importantly, that clearly defines objectives and areas of focus. From there, the plan we remain available to guide the family as new issues arise and builds with relevant procedures needs evolve. When donors feel and guidelines that are structured secure that all the right pieces are and sustainable, yet flexible for in place, they can focus on fulfilling changing times. their philanthropic intentions. One of the most challenging Like an investment portfolio, steps is selecting an appropriphilanthropic plans can benefit ate giving vehicle for the desired from diverse strategies. In addition outcome. Some of the many posto financial support, many philansibilities we recommend to clients thropists wish to donate their time include private foundations, and professional resources. Others charitable trusts, giving circles, may leverage connections among donor-advised funds and personal
BY LINDA M. OLEJKO
L
individuals and organizations with complementary missions. Clients can further diversify their giving by incorporating philanthropic goals into their portfolios. A growing trend is to employ impact investing, an investment style that blends financial performance with a measurable social benefit. These vehicles allow investors to align market participation with their philanthropic mission and objectives, often without sacrificing returns. Those with the resources and inclinations to pursue a hands-on approach to philanthropy undertake a deeply personal journey. Putting philanthropic intentions into effective practice is best navigated with the help of an experienced advisor, implemented through a team of specialists and supported by family members. By turning vision into action, donors can make a significant impact and leave the world a better place.
Linda M. Olejko, CFP® is a Managing Director of Glenmede. Please contact her at 216-5147876 or Linda.Olejko@glenmede. com.
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NOVEMBER 10-16, 2014 E-21
CHARITABLE GIVING
The power and simplicity of endowed giving BY BRIAN FREDERICK
I
magine making one gift to your favorite charity or cause that keeps on giving forever. Imagine having an everlasting impact on your community. Now, imagine that you can make a gift during your lifetime that would allow you and your family to bear witness to the change in the community you helped make. This is the power of endowed giving, and it’s within reach for everyone. To get started, donors FREDERICK simply make a permanent, tax-deductible donation to a community foundation or charity. The amount varies, but it can be as little as $10,000 deposited over a five-year period, as is the case at the Community Foundation of Lorain County. The principal is invested wisely and the income is used to provide ongoing, sustainable funding for causes or organizations. Because only a percentage of the investment earnings are
distributed as grants, an endowment allows you to give more over time, far more than a one-time gift would be worth. An endowment can be personalized to fulfill any charitable goal or passion. An endowment can also be created in your name or your family’s name, in memory or honor of a loved one, or to benefit a specific charitable organization. The endowment can be established now or at the time of passing. All funds held at a community foundation are public funds; anyone can donate to any fund at any time. By starting your fund before your passing you can encourage friends and family to support its growth. With a donor advised fund, donors are involved in recommending what grants their fund makes. An endowment is unlike any other gift because it has permanence. Your gift will continue to grow, make grants annually in your name, and have a lasting impact on your community forever.
Brian Frederick is President and CEO of the Community Foundation of Lorain County. Contact him at 440-984-7390 or bfrederick@ peoplewhocare.org.
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ESTATE PLANNING
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CHARITABLE GIVING
Why do people donate to charity? Individuals motivated by variety of reasons, incentives
BY JOSEPH P. KOVALCHECK JR. There are numerous reasons why people donate to charitable organizations:
Religion
Many religions advocate that people should give to charity as a spiritual requirement. Major religions emphasize that giving to charity is a main virtue. In many religious worship services, some type of offering is collected for the church or for the KOVALCHECK poor. Religions also promote tithing, which comes from an ancient word for tenth (as in 10%).
Feeling good
Research has shown that people donate because it provides them with a good feeling. Scientific research results showed that the pleasure centers of the brain were activated by the process of giving. Charitable giving greatly enhances personal happiness and improves the world.
Image Another research study determined one of the main reasons people give to charity is to enhance
their image; people want to be viewed as charitable. Research discovered that gifts given anonymously tended to be smaller, but gifts that were publicized were much bigger. Thus, a main incentive for giving is positive personal publicity.
Personal experience
Donors often give to charity when there is a personal experience connected to medical or health issues. For example, people who have cancer or know someone who has cancer often participate in Cancer Society fundraising activities. Through donating, people are able to contribute to a cause that has affected them personally.
Good example for children
Parents may choose to donate to charities to teach their children the concept of giving. By involving their children in the process of giving, children experience the joys of philanthropy at a young age. Parents who pass down these positive values to their children are encouraging them to continue demonstrating this generosity through their lives.
Tax Deductions
Individuals who donate to charity may deduct contributions on their federal tax return (with certain limitations). In addition, these donations reduce their taxable estate, thus reducing their federal estate tax. Also, decedents who donate to charity at death reduce their taxable estate.
Choosing the charity
Finally, choosing the proper charity is most important. Experts have advised not to impulsively respond to “crisis” or “emergency” appeals. Instead, if you are sympathetic with a cause, research the charity and discover how your donation impacts the social problem the charity seeks to solve. Remember that legitimate charities provide transparency in their financial undertaking and accountability online.
Joseph P. Kovalcheck Jr., CPA, CFP, is Chief Operating Officer & Account Manager for M+N Advisory Services (a subsidiary of Maloney + Novotny LLC). Contact him at 216-363-6489 or j.kovalcheck@advsrv.com.
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Building our bank one quality relationship at a time
Before giving, investigate the organization’s donor stewardship effort non-ask events are great communication avenues. Donors tend to stay connected t its core, donor stewardship with organizations that engage is about progressively buildtheir minds, hearts and bodies in ing deeper relationships addition to their walwith those who provide lets. Does the organization financial contributions to encourage its donors to charitable organizations. volunteer, serve on comThat means having a mittees or even join the plan for thanking, comboard? municating and interacting Do they ask what you with donors in ways that think? Solid organizations solidify their support over engage their donors and time. A major survey shed ask for suggestions on how light on the donor retention MCCANN it could be doing better. problem for nonprofits: It There are no “one-sized showed that for every 100 donors fits all” solutions for effective donor that were acquired, about 107 were stewardship. I’ve listed some of the lost. basics that you certainly need to For far too many busy nonprofkeep in mind, but beyond that it’s its, donor stewardship is an afterreally up to you. thought. As you build your estate And that’s a good thing, because plan, look carefully at the organizayou know best which organizations you are considering supporttions will not only take care of your ing to ensure they are working to contribution but also care for its build a relationship beyond simply lasting relationship with you. cashing your checks. Communication is the essential ingredient of donor stewardship. Nancy McCann is Chief DevelopHow well does the organizament Officer for the Western Retion communicate? Newsletters, serve Land Conservancy. Contact emails, videos, podcasts, websites, her at 440-528-4153 or nmccann Facebook, Twitter, Pinterest and @wrlandconservancy.org.
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ESTATE PLANNING
NOVEMBER 10-16, 2014 E-23
CHARITABLE GIVING
Flexible deferred charitable gift annuities: you decide when the time is right BY DONESHA PEAK
D
uring National Estate Planning Awareness week in October, Americans were encouraged to update their estate plans. As a result, many individuals are beginning to think more broadly about including their favorite charities as part of their long-term financial planning. Establishing a flexible deferred charitable gift annuity is a good option for those who want to PEAK make a charitable impact since it allows one to make a contribution to charity, receive the highest income in return when needed, and obtain a larger charitable deduction to save taxes now. A traditional charitable gift annuity is an agreement in which a charity, in exchange for an irrevocable gift of an asset, promises to pay a fixed income to one or two donors for their lifetime. The payout rate of the fixed annuity income is determined by the age of the donor(s) at the time the gift is made, and most charities follow the rates suggested by the American Council on Gift Annuities. The older the donor at the time of the gift, the higher the payout rate will be. With a traditional gift annuity, payments begin as soon as the agreement is established.
A flexible deferred charitable gift annuity builds upon the benefits of a traditional annuity. An annuity of this type rewards the donor for waiting to begin payments by offering a larger charitable deduction and annuity payments when income is deferred for a period of years. A flexible deferred gift annuity is especially beneficial when a donor would like to secure a larger amount of income in the future but isn’t sure of the exact date. Payments can be “turned on” during a range of elective start dates chosen by the donor,
which are included in the annuity agreement. The longer the payments are deferred, the higher the annuity payment, charitable deduction, and charitable contribution. For example, Tom wants to make a gift of $250,000 to his favorite charity to establish a flexible deferred gift annuity. He is currently 65 years old and runs his family business. He is considering retirement in the next five years but is unsure of the exact date. If Tom establishes a flexible deferred charitable gift annuity, with payments
set to begin during a range of dates between five and seven years from now, he will receive a charitable deduction based on the earliest start date of year five. By making a gift today and allowing additional time for growth, Tom can secure a larger charitable income tax deduction for use now when his salary may be at its highest and later decide when his annuity payments will begin. Taxation of annuity income depends on the type of asset contributed. When cash is used to fund an annuity, a portion of the payment is return of principal, and the rest is taxed as ordinary income. When an appreciated asset like stock is used, payments will consist of three parts: ordinary income, capital gain income as a result of appreciation, and return of principal. Furthermore, removing the funding asset from one’s estate may help to reduce estate taxes and probate costs in the future. In addition to planning for retirement, the annuity income may also be a good fall-back option should market investments not perform as anticipated, or if the donor has unexpected costs or expenses. No matter what the circumstance, establishing a flexible deferred gift annuity is the right choice as it affords the comfort of income when the time is right while maximizing charitable impact.
Donesha Peak, JD, MBA, is Assistant Director of Gift Planning at Cleveland Clinic. Contact her at 216-442-5358 or peakd@ccf.org.
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ESTATE PLANNING
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INSURANCE
The disappearing agent and the reappearing premium BY RICHARD TANNER
L
ife insurance is a complex financial asset that many affluent families own as part of a comprehensive family wealth plan. Whether held personally, in trust or by their companies, life insurance is often a misunderstood asset. Advisors who serve the very affluent are often concerned about the disappearing agent and the reappearing premium. Over the past 10 years there have been three important trends that have contributed to this problem: n Seasoned agents are retiring and dying n Young talented professionals are moving toward wealth management and investment banking and away from the insurance industry n Historically low interest rates have negatively impacted the returns earned by life insurance companies, leading to a vast pool of underperforming policies. As seasoned agents retire, die or leave the business, most do not have a succession plan that ensures quality service after the policy has been sold i.e. , the disappearing agent. If the agent is gone, the insurance company places the policies into the “orphan” category
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Richard Tanner is President of Insurance Design Group, a division of Ownership Advisors Inc. Contact him at 216-328-5534.
Through the generosity of our donors, the Jewish Federation of Cleveland is one of Ohio’s largest grantmaking organizations. Last year, through its funds, foundations, and annual Campaign, the Federation granted close to $150 million to social service, educational, and humanitarian organizations. Grants support Cleveland’s Jewish and general communities, as well as those in more than 70 countries around the world.
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ESTATE PLANNING
Families must determine what changes they can make to satisfy their overall goals and objectives.
INSURANCE
taxes, whereas, if you donate the whole life policy you may deduct the premium and the cash value of the policy. By choosing this option, you purchase a policy with the intent of naming the charity as the owner and beneficiary after the purchase, making a larger impact for the organization than imagined. For example, a healthy 50-yearold purchases a policy in her name then subsequently names the charity as the owner at the time of transfer. The donor commits to giving $5,000 annually toward the premium payments for 10 years, allowing the total $50,000 gift to grow in excess of $300,000 toward the benefit of the organization. BY DIANE TOMER Once the charity is named the proprietor of the policy, the donor agrees ou are passionate about to make the annual donation to the helping an ororganization to cover the ganization grow premium. The organization and increase its uses this to pay the premium programs, services, and so that it is not a burden on care. You donate annuthe operational budget and ally with gifts of various the donor is allowed to use sizes and have a desire to the annual tax-deductible make a greater impact to donation to achieve their the organization’s mission charitable desires. than what your current TOMER Life insurance can be a capacity allows. When self-completing gift. For a considering multiple donor committed to making annual gifting vehicles and your personal gifts, a portion of the annual gift can portfolio, you may want to consider be directed to this giving vehicle, your own insurability. guaranteeing the continuation of As a donor, you may use an existimpact in perpetuity. ing policy that is no longer needed, name the charity as the beneficiary Diane Tomer is Director of Develand owner, and deduct the premium opment for Recovery Resources. for tax purposes. If you should deContact her at 216-431-4131, cide to donate a term life policy you ext. 2501 or dtomer@recres.org. may deduct the premium from your
Your greatest asset: you
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NOVEMBER 10-16, 2014 E-25
Estate tax reform may force life insurance reassessment BY LARRY ROTHSTEIN
P
rior to recent estate tax reform measures, many families secured life insurance to provide liquidity for estate taxes. With the estate exemption now at $5,340,000 per person ($10,680,000 per married couple), many estates fall below this threshold. Families must consider whether they wish to continue making annual premium gifts, or determine what changes they can make to satisfy their overall goals and objectives. Annual Premium Gifting. If a policy is owned by an irrevocable life insurance trust (ILIT), the grantor does not have access to policy cash values. Policy surrender or a life settlement will only serve to leave cash values in the ILIT with the loss of the future death benefit. Suspending annual gifts may likely be problematic since many life insurance policies are “underfunded” due to the long-term decline in general interest rates. There may be opportunities to reduce the face
amount, but this may be restricted depending on the type of policy and the insurance carrier.
agreement. There also may be other sources of premium dollars available that had not been previously considered. For example, Restructuring the Policy. taking annual distributions Although estate tax liquidfrom an IRA may produce ity may no longer be a prifunding for the insurance mary goal, the policy may that will ultimately pay the ROTHSTEIN be restructured to provide IRD tax due. Secondly, a a different type of benefit Split Dollar arrangement configuration. Many newer life between the insured’s business insurance policies offer Long-Term- and an ILIT may provide premium Care (LTC) riders, which can profunding to maintain the coverage vide coverage for LTC expenses as with little out-of-pocket funding from well as provide life insurance. Most the insured directly. older policies do not contain these The key is to redefine the family’s provisions. The cash values of an goals and objectives to see how the older policy may be transferred to life insurance now fits into their a new policy with LTC benefits on overall plan. An experienced life a tax-free basis (Section 1035) as insurance professional can provide long as the insured can qualify in the technical support and guidance underwriting and an ILIT can do necessary to review various options this by loaning the LTC benefit and make an informed decision. payments to the insured. New Uses and Premium Sources. The policy may be used for other purposes such as funding for estate equalization, IRD taxes, or a buy/sell
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Larry Rothstein, CLU, AEP, is a Senior Advisor with Cornerstone Consulting Group, LLC. Contact him at 330-665-2376 or lrothstein @cornerstoneconsultinggroup.net.
E-26 NOVEMBER 10-16, 2014
ESTATE PLANNING
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Plan for final years now with long-term care insurance and a discount is given. Inflation riders are available at a high cost. Universal Life Insurance Policy very American has heard with a Long-Term Nursing Care about The Affordable Care Rider. This provides a pool of Act. But did you know that money for long-term care your highest cost expense in lieu of a death benefit if might be in the final years you meet two of six activiof your life? Today, the ties of daily living. high cost of long-term Single Premium Whole nursing care ranges from Life. A new option where $200 to $350 per day dea pool of dollars already pending on where you live. invested at low rates can be Based on 3% to 5% inflatransferred to a single-premition, the expected costs in KLUCHIN um whole life policy, which 20 years could be as high allows access to the death as $500 to $1,000 per day. benefit for qualifying longThe average stay at a nursterm care expenses. A well-known ing home is 2.5 years. insurance company gives a guarantee Long-Term Care can be defined of principal and a death benefit, which simply as care provided by another if never needed allows for a long-term party for the benefit of someone who conservative investment pool. is unable to care for themselves due to aging, illness or disability. There The challenge becomes protectare several ways to pay for the high ing your assets while maintaining cost of Long-Term Care: your current lifestyle. This is an Government Funded/Medicaid. opportune time to consider the value You must spend down virtually all of long-term care insurance so you of your assets prior to becoming can feel safe and secure knowing you eligible and you may not be able have some control over the cost of to receive services at the facility of long-term care expenses. your choice. Traditional Long-Term Care InRick Kluchin is president of Encore surance. The annual premium for Wealth Planning. Contact him at 216a 55-year-old ranges from $3,000 to 313-9322 or rkluchin@encorewealth$5,000 depending on the daily benplanning.com. For more information efit and length of stay. Most plans visit www.partnershipforlongtermcare. offer a pool of benefits for a couple com/ohio-partnership/index.html BY RICK KLUCHIN
E
Will you outlive your life insurance policy?
The effects of low interest rates and increased life expectancies BY JEFFREY M. WASSERMAN
I
f you look over the past 20 years of declining interest rates (more than 4% decrease at this point in history according to the U.S. Department of the Treasury), combined with the increased life expectancies of the U.S. population, you’ll see that you may outlive your insurance policy. A “permanent life” policy may not even last until death without your premiums significantly increasing. In response to increased longevity, the National Association of Insurance Commissioners adopted
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new mortality tables in In other words, if you pur2001 that had not been chase a policy to age 100, it updated since 1980. Many remains guaranteed to age insurance carriers adopted 100 regardless of interest the new table in 2003, rate fluctuation. which, for the most part If you own permanent resulted in lower insurance insurance of any kind, you costs. should have it reviewed by What does this mean WASSERMAN an insurance professional to you, the policyholder? on a regular basis. Like Simply put, if you purany asset, life insurance chased life insurance before 2003, needs to be managed and moniyou are likely paying too much. tored to ensure that the policy is Couple that with the low interest performing as expected and that it rate environment and you may is competitive relative to current be overpaying for a policy that is product. underperforming. You owe it to yourself and to One possible solution is Guaryour family to take a fresh look at anteed Universal Life Insurance. your life insurance. Developed in the early 2000s, these products have an interest rate Jeffrey M. Wasserman is component that could potentially Managing Director & Executive increase in favor of the policyVice President of Oswald Specialty holder but offer protection against Life. Contact him at 216-367-5990 a declining interest rate and reducor jwasserman@oswaldcompanies. tion in the duration of the policy. com.
Change doesn’t always come with a warning. Having a solid plan in place can help preserve what you have worked so hard for.
Christopher P. Bray, JD, CPA
Darian H. Chen, CFA
Christopher J. Squittieri, CFA, CFP
Michael A. Harris, CFA
Kimberly S. Wilmore
Marcie A. Rebardo
Naples, Florida (239) 451-6008
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Life settlements provide an ideal option for insurance management BY JOSEPH POTELICKI
A
life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party. The platform for the life settlement industry was created in 1911 by virtue of Grigsby v. Russell. In this seminal case, the U.S. Supreme Court declared insurance policies to be personal property and freely assignable, thereby granting a policyholder the right to transfer ownership to others.
POTELICKI
would result by doing a life settlement transaction. A third option would be to engage in a life settlement transaction and receive a payout greater than surrendering the policy back to the insurance company. Life settlements offer a rational and profitable exit strategy that addresses the financial objectives of the policyholder. The sale of a life insurance policy is a taxable event. You should consult your tax advisor based on your own particular circumstances. Receiving an offer doesn’t obligate you to sell your policy. You can
Life settlements are a wonderful solution to consider for funding long-term care because the policy can be settled in approximately six to eight weeks.
The policy is sold for more than the cash value offered by the life insurance company but for less than the death benefit. The purchaser becomes the new beneficiary of the policy and is responsible for all of the subsequent premium payments. You should not have to pay a fee for a life settlement evaluation or transaction. The purchasers can be large banks, hedge funds and pension funds. Each provides a higher degree of consumer protection with regard to privacy and confidentiality. There are many scenarios that might encourage a policy owner to sell a life insurance policy. One such scenario may be a key man policy that is no longer relevant after the sale or closure of a business or if the insured is retiring. Taking the policy back to the insurance company, will result in two choices: Let the policy lapse and the policy owner receives no money Surrender the policy and receive less money for the policy than
always decide to keep the policy. Furthermore, Ohio has a statutory 15-day rescission period after receiving payment for your policy. Life settlements are a wonderful solution to consider for funding longterm care because the policy can be settled in approximately six to eight weeks. There are no long-term care medical requirements to qualify for, no costs involved in applying for a life settlement, no requirements to be terminally ill, and there are no more premium payments. Once the money is received from the life settlement, that money can then be directed to pay for senior housing and long-term care. Always check with the Ohio Department of Insurance to verify Ohio licensure status of life settlement brokers and providers before engaging their services.
Joseph Potelicki is a Viatical/Life Settlement Broker for Living Covenant, LLC. Contact him at 330-3423237 or joe@livingcovenantllc.com.
NOVEMBER 10-16, 2014 E-27
BUSINESS PLANNING
Here are important steps to follow n Identify the managerial positions for which you will potentially need a successor
n Identify the talents and competencies of your employees n Involve senior leaders in the process n Analyze external sources for potential talent for continuity and efficient succession planning
Focus on details key in succession planning well-communicated succession planning process signifies that hange is inevitable. Even the current leadership is interested in the long-term development of the most seasoned and experibusiness. Investing the time and enced business leaders must effort in the process enables the face the fact that at some point, smoothest possible transition, givthe torch must be passed to the ing employees peace of mind, and next generation. offers workplace stability. Business succession is a multiA well conceived plan will also faceted and complex process that inspire confidence in cusmust simultaneously focus tomers, clients, suppliers, on ownership succession, vendors and the commumanagement succession, nity-at- large — knowing strategic planning for that the company will the business, estate and continue functioning even financial planning for the after the departure of the retiring owner, as well as current leader or leaderthe attendant tax conseship team. quences facing both the Whether your succession business and the owner. MENTREK plan involves a transition Changes in managerial to family members, key teams can often result in employees, or a sale to an unrelatmajor shocks to employees, as ed third party, developing superior well as the stakeholders in the employees for managerial and supply and distribution chain of other key positions is an essential the goods or services a business element of succession planning. offers. Embracing a formal and
BY JOSEPH M. MENTREK
C
n Commit to internal talent development through further qualification and mentoring n Choose relevant measuring metrics and turn performance evaluation into a long-term process n Establish strategies to recruit and retain talented employees n Implement strategies to maintain commitment and senior level loyalty
Most successful business owners are familiar with the grim statistics surrounding the success (or more commonly, the lack thereof) of the transition of a business from one generation of owners and managers to the next. Identifying and cultivating the talent necessary to lead the business into the future will certainly give you an edge. And while succession planning is not an exact science, a process-oriented approach utilizing the skills of your allied team of professional advisors will undoubtedly improve your chances of a successful transition, and are worth the time, effort and investment.
Joseph M. Mentrek is Vice President And The Director Of The Wealth Center At Meaden & Moore. Contact him at 216-928-5343 or jmentrek @meadenmoore.com.
Trust & Planning Together we provide fiduciary guidance, administrative support and tax consulting for business owners, executives and trustees.
THE RETURN ON THIS INVESTMENT IS HOPE. To make a gift today, contact Diane Tomer at 216-431-4131 x2501. Helping people triumph over mental illness, alcoholism, drug and other addictions.
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Crain’s Cleveland Business Custom Publishing
E-28 NOVEMBER 10-16, 2014
ESTATE PLANNING
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Selling a business? Think about charitable planning Here are a few examples of how it can work: n Donor-advised funds have hen selling a business, become popular because they what is your “IPO” provide donors an immediate and strategy? Not initial full income tax deduction at the public offering; rather, what is outset. When you are busy your initial philanthropic with the many details of opportunity? A smart IPO organizing your sale, setting assessment can pay diviup a donor-advised fund can dends if you decide to add be the simplest part of your a charitable component to transaction. Then, after the the plan. big event has come and gone, When working with you can make ongoing chariyour team – your accountable grant recommendatant, attorney and wealth tions benefiting your favorite RIDOLFI management professional nonprofit organizations, both – consider including a locally and nationally. philanthropic specialist. n Supporting organizations are Philanthropic specialists can more structured in format. If you work with your professional want the formality of a private advisers before the sale transaction foundation and the tax advantages to identify tax-saving strategies of a public charity, this approach that will also create a pot of dollars may be for you. Supporting organiyou can use for your philanthropy. zations provide all the back-office One such strategy might be support and leave the joy of grantdonating unique assets, such as making to you and your family. closely held business units or pubn Charitable remainder trusts licly traded stock, with or without provide you an immediate income restrictions. tax benefit as well as an income
BY KAYE M. RIDOLFI
W What legacy will you leave behind? The Sound for the Centennial Campaign provides an opportunity for each and every member of this ĐŽŵŵƵŶŝƚLJ ƚŽ ŵĂŬĞ Ă ůĂƐƟŶŐ ŝŵƉĂĐƚ ŽŶ dŚĞ ůĞǀĞůĂŶĚ Orchestra’s success. LJ ƌĞŵĞŵďĞƌŝŶŐ ƚŚĞ KƌĐŚĞƐƚƌĂ ŝŶ LJŽƵƌ ĞƐƚĂƚĞ ƉůĂŶƐ͕ LJŽƵ ǁŝůů ŚĞůƉ ĞŶƐƵƌĞ ƚŚĂƚ LJŽƵ͕ LJŽƵƌ ĐŚŝůĚƌĞŶ͕ ĂŶĚ LJŽƵƌ children’s children always have access to an orchestra ŽĨ ƐƚƌĞŶŐƚŚ ĂŶĚ ĚŝƐƟŶĐƟŽŶ͘ &Žƌ ŵŽƌĞ ŝŶĨŽƌŵĂƟŽŶ ĂďŽƵƚ ƐƵƉƉŽƌƟŶŐ ƚŚĞ ĂŵƉĂŝŐŶ ƚŚƌŽƵŐŚ ĂŶ ĞƐƚĂƚĞ ŐŝŌ͕ ĐŽŶƚĂĐƚ ƌŝĚŐĞƚ DƵŶĚLJ͕ >ĞŐĂĐLJ 'ŝǀŝŶŐ KĸĐĞƌ͕ ďLJ ĐĂůůŝŶŐ ϮϭϲͲϮϯϭͲϴϬϬϲ Žƌ ĞŵĂŝůŝŶŐ ďŵƵŶĚLJΛĐůĞǀĞůĂŶĚŽƌĐŚĞƐƚƌĂ͘ĐŽŵ͘
stream for your lifetime or a fixed period. The remainder can benefit one or more charities. All of these vehicles allow for income tax benefits and, depending on structure, may also allow for estate or gift tax benefits.
More than a tax strategy
Many former business owners jump into philanthropy like they did when running a company — full go! Philanthropy becomes their encore career as they work on a mission for their fund and involve others as advisors, much like a corporate board. Many of our donors say that participating in philanthropy at a higher level has been one of their greatest joys in life. At the foundation, our greatest joy is helping our donors turn their passion into purposeful giving.
Kaye M. Ridolfi is Senior Vice President of Advancement for the Cleveland Foundation. Contact her at 216-615-7168 or kRidolfi@CleveFdn.org.
When You Need to Know
The Right Value Personal Property Appraisals & Estate Sales Personal Property Appraisers rs Equitable Distribution Charitable Donation Insurance - Estate Sales Auction Coordination IRS Compliant Appraisals
Now trending? Series LLCs can simplify asset management
With one call to L&L, you get experts that have over two decades of experience in art, collections and home contents.
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L&L offers a full range of services from a professional appraisal report to an estate sale to a full clean-out of a home. Our services are customized to meet your individual needs with expert knowledge and care.
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Lisa K. Lowy ISA AM 440.773.4664 - Lorie Hart ISA AM 216.470.7002 www.llestateliquidation.com Members of the International Society of Appraisers
efore 1996, only separate entities could protect assets of one business, operation or property from liabilities of another, which also meant separate books, records, banking and separate state registrations and annual filings (if applicable) for each, even if wholly owned by another. Now, some states allow for the “Series LLC” where a new, “master” LLC is formed that acts as the master entity for each separately identified business, operation or property, as sub or “series.” Each
series holds its assets and operations separate and distinct from every other series and from the master. Benefits may include: (i) cost savings FIRESTONE with a single state registration; (ii) one series’ liabilities not enforceable against assets or profits of another; and (iii) new series added merely by amending the master LLC’s operating agreement. Ohio has no Series LLC stat-
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ute, but Series LLCs organized in permitting states can register as foreign limited liability companies with the Ohio secretary of state. To date, jurisdictions permitting Series LLCs include: Delaware, District of Columbia, Illinois, Iowa, Kansas, Minnesota, Montana, Nevada, North Dakota, Oklahoma, Tennessee, Texas, Utah, and Wisconsin.
Julie E. Firestone is an attorney in Mansour Gavin LPA’s Corporate and Business Services Group. Contact her at 216-523-1500 or jfirestone@mggmlpa.com.
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