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YOUR GUIDE T O L AW, A CCOUN T ING & F IN A N CE
Broad and Cassel LLP: The Florida Law Firm
Also: • Real Estate Developers Taking Careful Approach to Market • Tariffs Not Only Consideration in Making Foreign Trade Decisions • IRS Dirty Dozen 2018 = IRS Dirty Dozen 2017 • Uptrending Rates, Costs and Concerns • A Legal Analysis of Key Issues in the FIU Bridge Collapse • A Fresh Look at Charitable Remainder Trusts and Gift Annuities
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Marching for Their Lives During the 1950s and early ’60s, school children throughout the South showed their courage in marching with their parents for civil rights. They hoped for a better day, when all Americans, regardless of skin color, would be treated equally under the law. Their voices were heard in Washington, as Congress passed the Civil Rights Act of 1964, which ended segregation in public places and barred employment discrimination on the basis of race. Later in the decade, high school and college students throughout the country began protesting against the Vietnam War, culminating with the October 15, 1969 national rally that brought more than 500,000 demonstrators to Washington, DC. Six years later, the U.S. withdrew from a war that claimed more than 58,000 American lives.
On March 24, more than a million children, parents and supporters took part in the “March for Our Lives,” urging our nation’s leaders to enact stricter gun control laws. Led by the survivors of the February 14 shooting at Margaret Stoneman Douglas High School that claimed 17 lives, the #NeverAgain movement urges Congress to pass a law banning assault rifles frequently used in mass shootings. They also want to stop the sale of high-capacity magazines so less ammunition is available to shooters. Other goals include closing loopholes in the background checking process and requiring background checks on every gun purchase. No one is proposing a ban on owning or selling guns. Instead, they want more controls in place so an angry or emotionally disturbed student with a grudge can’t walk into a sporting goods store and come
out with a rifle, shotgun or automatic weapon. Instituting background checks can also provide a cooling-off period where a parent, teacher, friend or neighbor might be able to talk a troubled teenager out of an attempted murder. With a school shooting occurring every week in the first three months of 2018, the students certainly have a strong argument for making it more difficult for a classmate to walk into a classroom and open fire with an AR-15. Like their predecessors in the Civil Rights and Vietnam War protests, today’s students are marching for hope, rather than letting fear keep them on the sidelines. Our schools are meant to be places of education and learning, rather than potential shooting galleries for disturbed individuals. Based on recent history, a nationwide
RICHARD WESTLUND
movement can have a powerful impact on Washington’s decision makers. While changes do not happen quickly or easily, they are on the way. After all, our children will soon be the leaders of our country. We should do all we can to protect them now and support their hopes for a better future.
Richard Westlund Editor
PUBLISHER JACOB SAFDEYE jacob@sflegalguide.com EDITOR IN CHIEF RICHARD WESTLUND editor@sflegalguide.com GUEST CONTRIBUTORS VIVIAN DE LAS CUEVAS-DIAZ LENNY FELDMAN STANLEY I. FOODMAN STEPHEN C. LANDE JOHN ELLIOT LEIGHTON ANTONIO (TONY) ROJAS SOUTH FLORIDA LEGAL GUIDE - BM Volume 2, Number 4, 2018 This is an independent supplement by South Florida Legal Guide Mailing address P.O. Box 630428, Miami, FL 33163. All rights reserved. All titles registered and may not be used without permission. Reproduction in whole or in part of any text, photograph or illustration without written permission of the publisher is strictly prohibited. The South Florida Legal Guide makes no guarantee regarding the accuracy of information presented, results reported, or safety of products or activities described herein. The publisher notifies readers that the hiring of a professional is an important decision that should not be based solely on advertisements. Before you decide, ask the professional to send you free written information about qualifications and experience. Contact: info@sflegalguide.com or call: (786) 879-7638 • www.sflegalguide.com
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Uptrending Rates, Costs and Concerns BY ANTONIO (TONY) ROJAS
We have begun to hear a common theme among commercial real estate clients throughout our market area. As rates and construction prices continue to rise, the viability of some future projects now appears to be in doubt. Depending on the market and asset type, we are hearing that construction cost inflation is running between 5 and 10 percent over the last 18 months. Cap rates have begun to trend upward for most asset classes with the exception of the multifamily sector, which continues to see historically low cap rates. Without a
substantial rollback in either interest rates or cap rates, we are likely to see activity in certain markets and asset classes begin to slow by the third and fourth quarter. We have also heard anecdotes from some brokers advising their clients not to roll 1031 money into new investments, but to rather “just pay the taxes.” That is an indication of the concern clients have about reinvesting their sales proceeds at current price levels. The prevailing strategy for most developers in this new environment is to move from a develop, stabilize, sell
model to a more active portfolio management approach. Developers are now assessing what assets they would like to remain on their balance sheets and those they would like to sell. In order to achieve financing on those assets they would like to keep, developers are becoming more willing to accept more conservative loan terms and covenants than in the recent past. This is a massive shift in the mindset of an industry that has been an enormous driver of the economy throughout the recovery. As developers are positioning their portfolios for
the coming period, many are looking to pull refinancings forward to access markets at today’s rates in order to avoid what could be significantly higher costs 18 to 24 months from now. This shift in the market provides an opportunity for IBERIABANK to guide clients on matching borrowing needs with customized hedging solutions via interest rate derivatives, primarily interest rate swaps. An interest rate swap is an agreement between two parties in which one party agrees to pay a fixed rate of interest and the other agrees to pay a
floating rate of interest on an agreed upon notional amount. This vehicle allows banks to protect their balance sheets in a rising interest rate environment as they are able to keep floating rate debt on their books, while clients are able to lock into a fixed rate that reduces the negative impact of rising interest costs on leveraged income-producing assets. Ultimately, we engage in dialogue with clients to ensure a dynamic approach to hedging that can adjust over time as a client’s needs change and manage the variability of future interest costs.
ANTONIO (TONY) ROJAS
Anthony (Tony) Rojas is Senior Vice President, Private Banking at IBERIABANK, in the Miami-Dade County office. He is responsible for advising high net worth clients on matters involving risk and asset management, credit structures as well as strategic guidance on other financial instruments and wealth planning solutions.
[TAX COMPLIANCE ]
IRS Dirty Dozen 2018 = IRS Dirty Dozen 2017 BY STANLEY I. FOODMAN
IRS wants to remind taxpayers to remain vigilant about these aggressive tax scams that tend to peak during tax time, but evolve throughout the year. 1. Offshore tax cheating: Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The information obtained from FATCA, the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting makes it less likely that offshore financial accounts will go unnoticed by the IRS.
2. Abusive tax shelters: “If it sounds too good to be true, it probably is!” Taxpayers ought to seek professional advice from the IRS or a specialized tax professional before they subscribe to any scheme that offers tax exemption from their obligation as U.S. citizens to pay taxes. 3. Frivolous tax arguments: Frivolous tax arguments in an effort to avoid paying tax are discouraged by the IRS. 4. Falsified income: Inventing income to erroneously qualify for tax credits ought to be avoided. Filing the most ac-
curate tax return is encouraged by the IRS. 5. Falsely padding deductions: Taxpayers ought to stay away from falsely inflating deductions or expenses on their returns in order to pay less of what they owe or receive a larger refund. 6. Improper claims for business credits: Improper claims involve failures to participate in or substantiate qualified research activities and, or satisfy the requirements related to qualified research expenses. 7. Falsely inflated refunds: Taxpayers ought to be on the alert for anyone that prom-
STANLEY I. FOODMAN ises inflated tax refunds, asks the taxpayer to sign a blank return, promises a big refund before looking at their records, or charges fees based on a percentage of the refund. 8. Fake charities: There are groups that masquerade as charitable organizations to attract donations from contributing taxpayers by using charities with names similar to familiar or nationally known organizations.
9. Tax Return Preparer Fraud: Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on the tax returns prepared for the taxpayer. 10. Identity Theft: Criminals continue to file fraudulent tax returns using another taxpayer’s Social Security number or an Individual Taxpayer Identification Number in order to claim a refund. 11. Phone Scams: Criminals continue to impersonate IRS agents and threaten taxpayers with police arrest, deportation and license revocation. 12. Phishing Schemes:
Fake emails or fake websites continue to steal taxpayer’s personal information. Criminals have been recently stealing taxpayer’s data from tax professionals and filing fraudulent tax returns. Don’t be a victim of your own making. Taxpayers are responsible for all the information included in your tax return. Taxpayers ought to check the tax preparer’s qualifications and history, review the tax return before signing, and never sign a blank tax return. Foodman CPAs and Advisors, 1201 Brickell Avenue, Suite 610, Miami, FL 33131, (305) 365-1111, www.foodmanpa.com, info@foodmanpa.com.
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BROAD AND CASSEL LLP: The Florida Law Firm Back in 1945, Miami attorneys Shepard Broad and Alvin Cassel met for breakfast to discuss launching a new law firm. Although they had very different personalities, their professional skills fit well together, and on January 1, 1946, they founded Broad and Cassel. Since then, the firm has grown from a one-office practice with a focus on banking and finance into “Florida’s law firm,” with about 175 lawyers in ten locations throughout Florida. “Our founders would be proud of the way we have built on their legacy,” said Gabriel L. Imperato, managing partner of the Fort Lauderdale office and co-chair of the firm’s White Collar Defense and Compliance group. Board-certified by The Florida Bar in health law, Imperato advises health care organizations on corporate governance and compliance matters and represents organizations accused of health care fraud. “It was the firm’s collegial culture that brought me here in 2005,” said Mark F. Raymond, managing partner of the Miami office and co-chair of the Business Litigation group. “Since then, and really over the firm’s more than 70 years in operation, we have built a strong reputation statewide, adding several key practice areas and attracting top talent to be the trusted advisors and counselors our clients need us to be.” Raymond has been involved in complex commercial litigation for over 30 years, and
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was named the 2017 Miami Litigation – Mergers and Acquisition “Lawyer of the Year” by Best Lawyers.
ADAPTING TO THE FLORIDA MARKET Through the decades, Broad and Cassel has been able to adapt to Florida’s shifting marketplace, while maintaining a strong capital base to weather the state’s recessions. Today, the firm’s key practice areas include Affordable Housing and Tax Credits, Commercial Litigation, Corporate and Finance, Estate Planning and Trusts, Health Law and Real Estate. “We have continually looked for attorneys with the right experience, knowledge and personality to fit into our firm,” said Imperato, who joined the firm in 1992. Many of the firm’s partners have been with Broad and Cassel for decades. For example, Jeffrey Deutch founded the Boca Raton office in 1979 (and currently is the managing partner of that office) and Patricia Lebow founded the West Palm Beach office in 1983, which is now led by managing partner Clifford I. Hertz. Over the years, the firm’s leadership team recognized the growing importance of health care to the state’s economy, building the practice under Imperato’s leadership together with Mike Segal, another Broad and Cassel longtime attorney. “In recent years, we have seen a rise
in our compliance practice and whistle-blower matters,” Imperato said. “Health care organizations are usually the defendants in these cases, which have high stakes for our clients.” The firm’s attorneys can advise health care clients on putting an effective compliance program into place, including being able to detect activities that may give rise to a potential financial liability. “In many cases, we advise on strategies to resolve the situation quickly and beat the whistle-blowers to the courthouse,” Imperato said. Imperato is also a recognized leader in addressing the connections between health information technology, compliance and risk management. For instance, implementing electronic health records (EHRs) can address compliance issues, provided the physician group understands how to manage the system and extract the appropriate data. “Implementing a health IT system can be a positive step in detecting and preventing non-compliant activities, as well as problems in billing and coding behaviors,” he added.
REPRESENTING REAL ESTATE DEVELOPERS Since its founding, Broad and Cassel has been active in the real estate sector, and has focused on representing developers for the past 20 years. “We have closed billions of dollars in transactions in the past five years,”
GABRIEL IMPERATO (LEFT) AND MARK RAYMOND Raymond said. For instance, a law firm’s national investment client might buy 50 apartment buildings, including 10 in Florida. “We would handle those 10 transactions, serving as a supportive partner for the national firm,” he added. Raymond doesn’t expect a letup in the ongoing surge in construction and development in South Florida and along the I-4 corridor. “Our state’s population continues to grow at a tremendous pace, creating a need for all types of real estate products,” he said. “On the international side, developers and investors in South America and Europe see Florida as a safe place to put their money.” Along with real estate, Raymond has grown the Miami office’s tax, trust and estate
practices. “Many wealthy individuals and families come to us for advice on becoming Florida residents, which can affect their tax and legacy planning,” he said.
COMMITTED TO DIVERSITY AND SERVICE A commitment to diversity is one of Broad and Cassel’s fundamental values. “We believe that having a diverse workforce makes us a better law firm and enables us to bring a broader perspective to our clients’ problems,” said Raymond. “We want the firm to continue to recruit lawyers with diverse backgrounds and make sure they are successful,” added Imperato. Broad and Cassel’s attorneys also give back to their communities in many ways,
serving as leaders of professional, charitable and religious organizations. “We believe if you are going to practice law in our firm, you must be involved in the community,” said Raymond, who is the incoming president of the University of Miami School of Law Alumni Association. The same philosophy applies to the Fort Lauderdale office, where Imperato has been a longtime supporter of Leadership Broward. Reflecting on how the firm’s enduring culture provides the foundation for long-term success, Raymond said. “We make it a point to get to know every new attorney before bringing them aboard. It’s those collegial relationships that make Broad and Cassel a special place to practice law.”
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A Legal Analysis of Key Issues in the FIU Bridge Collapse BY JOHN ELLIOTT LEIGHTON
On March 15, a long pedestrian bridge under construction over SW 8th Street suddenly collapsed, crushing the passing cars and causing six deaths and numerous injuries. It was a tragic outcome and a reminder of the importance of making safety the absolute top priority in any construction project. From my perspective as a trial lawyer who is not involved in this case, it appears that a confluence of factors contributed to deadly bridge collapse. Just as an airline crash may be due to a combination of pilot error and malfunctioning equipment, there may be multiple reasons for this catastrophic event. At least one lawsuit has already been filed in this high-profile case, and it is likely more will follow. But whether the victims and their families will be compensated for their losses – and the amount of potential damages – is yet to be determined. In analyzing the case from the plaintiff’s perspective, the first consideration is identifying the parties who were involved in the bridge project and thus may have some potential liability. In the private sector, the two key players were Munilla Construction Management (MCM), the general contractor, and Figg Bridge Engineers, which was installing the bridge when it collapsed. In the public sector, the participants include Florida International University (FIU), which was involved in designing the first-of-its kind pedestrian bridge, the Florida Department of Transportation (FDOT), whose responsibilities typically include traffic control; and the Governor’s Office, which was reportedly involved in the
planning process. However, there were other players that might be involved in the case, including the team that came up with the innovative design for the bridge and the manufacturers of the concrete, cables, and other materials used in the project.
WHO WAS AT FAULT? Currently, the National Transportation Safety Board (NTSB) is conducting an extensive investigation into the causes of the bridge collapse, and its findings will play a crucial role in determining the potential criminal or civil liability in this case. While the Miami-Dade County Police homicide division is conducting an investigation, it appears unlikely that criminal charges will be filed. Instead, the victims of the bridge collapse will need to rely on their civil lawsuits for any compensation and full answers from those responsible. According to published reports, the project’s lead engineer found cracks in the concrete two days before the collapse, but did not consider that to be a safety issue. He reported the problem by leaving a voicemail message to an FDOT representative, who was out of the office and didn’t hear the warning until after the collapse occurred. A NTSB official said that workers were tightening the tension on the cables holding the 174-footlong span over busy SW 8th Street just north of the FIU campus when the bridge collapsed, five days after the prefabricated bridge had been lifted into place. As investigators review the physical evidence, interview participants and talk with witnesses, they will be looking for answers to
a number of questions that will be crucial to the civil litigation: • Did the cracks in the concrete contribute to the collapse? • Was the innovative post-tensioning design and structure of the bridge part of the problem? • Were mistakes made during the bridge construction and installation process? • Why were vehicles allowed to pass under the bridge while it was still being installed? In other words, which of the parties made mistakes along the way that led to the deadly accident.
APPORTIONMENT OF FAULT For victims of the bridge collapse, a legal concept called “apportionment of fault” is likely to play a major role in determining the amount of potential compensation for their losses. Why is this so important? Under state law, the State of Florida, FDOT and FIU enjoy virtual sovereign immunity from personal injury, wrongful death and other types of negligence-related lawsuits. Their damages are capped at $200,000 per claim and $300,000 per incident. Therefore, the total liability exposure of the public entities most closely involved in the design, planning and traffic control aspects of the bridge collapse would be at most $300,000. Let’s say the trial lawyers representing the families of the six people who died bring wrongful death lawsuits for $1 million each, a conservative estimate. Then add another hypothetical $4 million for the injured victims in the case, for a total of $10 million in damages. It would then be up the jury in
JOHN ELLIOTT LEIGHTON each case to determine whether or not the plaintiffs were entitled to compensation, the amount of damages, and how the responsibility for damages would be allocated. To simplify the calculations, assume that these individual cases are consolidated and the court rules that the victims are entitled to $10 million in total damages. If the private parties in the case, such as MCM and Figg Bridge Engineers are found to be 100 percent responsible, then the plaintiffs would be legally entitled to recover the entire $10 million. But if the court found the public entities were 50 percent responsible, then the plaintiffs would only be able to recover $5 million from the private parties and $300,000 from the state. That’s a huge difference in the compensation for the victims. As a result, you can expect to see plenty of finger pointing among the various entities involved in the case. MCM and Figg are likely to emphasize the state’s role in the bridge collapse in an effort to
reduce their financial exposure. At the same time, the Governor’s office, FIU and FDOT are likely to allege that problems with the materials and installation process handled by the private contractors were the causes of the collapse. Regardless of how the apportionment of fault issue plays out, the bridge collapse victims would still need to be able to collect from the responsible parties. That means MCM, Figg and any other private-sector participants would need to have adequate insurance to cover their potential liabilities. In any case, it seems clear that this was a tragedy that could have been prevented by greater attention to safety throughout the design, construction and installation process. The lives of passing motorists should never have been put at risk. John Elliott Leighton is a board certified trial lawyer who focuses his practice on catastrophic personal injury and medical malpractice cases at Leighton Law, P.A.
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Real Estate Developers Taking Careful Approach to Market BY VIVIAN DE LAS CUEVAS-DIAZ
During the boom years of the early 2000s, South Florida’s real estate developers were limited only by their imagination and financial resources in planning new projects. During the ensuing downturn, their focus turned to staying af loat, refinancing some projects and selling others at bargain prices. With the region’s economic recovery now
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in its eighth year, local, national and international developers are taking a cautious approach to the market, searching for opportunities for residential, office, industrial and hospitality projects. Since 2010, the costs of land, labor and materials have steadily increased, making the development process more expensive. Many attractive urban sites involve tearing down
older buildings, rezoning or both, extending the timeline for new projects. On the other hand, Miami is still considered one of the hottest cities in the U.S. for residential and commercial development, drawing buyers and tenants from around the world. Another positive factor is the ready availability of private capital to finance new developments. While
many banks are more willing to finance at least a portion of the construction and development costs, many wealthy individuals, families and institutional investors are still eager to provide financing in line with their short- or long-term goals. As a result, there has been a dramatic increase in joint ventures in the past year, as local developers team up with national and international real estate companies or financial partners. For instance, our firm has represented Canadian clients who partnered with a South Florida company, as well as investors from Latin American and Europe seeking real estate assets in the region. Of course, many international clients still prefer to acquire existing properties here in order to move funds to the United States and diversify their investment portfolios. If you are considering investing in a South Florida development, the first step is to be clear about your goals. For instance, if you are seeking a relatively quick return, you might consider the warehouse or self-storage market, which have shorter construction timelines than offices or multifamily residential projects. You should also consider your exit strategy right from the start. Do you plan to sell the project
VIVIAN DE LAS CUEVAS-DIAZ after completion, or keep it in your portfolio for a long-term hold? Next, you should analyze the market to identify potential sites for new projects, as well as the anticipated demand from buyers or tenants. Ideally, you will be able to plan a well-designed building that meets a clear market need at the right price points. You should also look at the capital structure for your development, determining sources of
debt and equity funding, such as a private investor, commercial lender or joint venture partner. In all these steps, an experienced real estate lawyer can provide developers with sound advice about South Florida’s unique marketplace, helping to identify opportunities and avoid mistakes. Attorney Vivian de las Cuevas-Diaz is a partner and real estate deputy section leader at Holland & Knight LLP in Miami.
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Tariffs Not Only Consideration in Making Foreign Trade Decisions BY LENNY FELDMAN
President Trump’s recent announcement that he would impose additional tariffs, also known as duties, on steel and aluminum imports has stirred concerns about the impact on manufacturers, consumers and import-export firms in South Florida and around the nation. However, it’s important to remember that there already is a complex web of tariffs, antidumping and countervailing duties (AD/ CVD) and product admissibility regulations already
in place, covering a wide array of products, especially from countries without a free trade agreement (FTA) with the U.S. For example, there may be tariffs and AD/CVD on imported ball bearings, shrimp, crawfish and garlic, as well as substantial tariffs on apparel and footwear from non-FTA countries. While imported agricultural products are usually not subject to tariffs, they must meet safety and quality control requirements set by the U.S. Department of Ag-
riculture and the Food and Drug Administration for import admissibility That means South Florida importers and exports need to understand the rules, and be aware of the potential for U.S. Customs and Border Protection (CBP), as well as about 50 other federal agencies regulating product admissibility, to enforce compliance with those regulations. Importers in particular need to pay close attention to the nature and sources of the products they
are bringing into the United States. In some cases, there may be duty-saving options available to avoid high tariff requirements. However, the ability to import products from FTA sources is considered a privilege, not a right. For example, a CBP representative might ask about the origin of the yarn used in a garment assembled in an FTA country. If the yarn came from a non-FTA source, then the importer might have to pay both current and past duties — a potentially expensive proposition. The impact of the president’s announcement of a 25 percent tariff on steel and a 10 percent tariff on aluminum on South Florida is likely to depend on how the policy is applied. Canada, Mexico, South Korea and Brazil are excluded, but we are unsure about tariffs from other countries. That could affect the region’s importers of aluminum doors, window frames, building materials and other household products. On April 2, China announced it would impose retaliatory tariffs on several U.S. exports. Since China is one of South Florida's biggest trade partners, this could impact the region's economy. The most recent statistics from the Miami Customs District (which covers South Florida seaports and airports north to Tampa) indicate that aircraft engines and parts, aluminum waste and
LENNY FELDMAN scrap, and scrap iron and steel are among our top 10 exports. The region’s top imports from China include cell phones, computers, furniture, printers and motor vehicle parts. If foreign trade is important to your business, you should pay close attention to developments in Washington, confirm current and changing tariffs and admissibility requirements that apply to your products and be prepared to change your sourcing if necessary. In the current political climate, you
should also be an advocate for international trade, which supports hundreds of thousands of jobs in South Florida. It’s vital for state and federal policymakers to understand the importance of maintaining strong two-way relationships with our trading partners around the world. Attorney Lenny Feldman is a senior member residing in Sandler, Travis & Rosenberg, P.A.'s Miami office. He focuses his practice on import, tariff, admissibility and enforcement issues.
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Advising Your Clients on Philanthropy: A Fresh Look at Charitable Remainder Trusts and Gift Annuities BY STEPHEN C. LANDE
We’ve all heard about the somewhat less-than-positive impact that the Tax Cuts and Jobs Act of 2017 is expected to have on charitable giving. There appears to be little doubt that the significant increases in the standard deduction and the estate and gift tax exemptions will have some effect. Most charities remain optimistic because they believe their donors’ decisions to contribute aren’t based on tax considerations alone. Now that charities have had time to review the new law and consider the changes, it even seems possible that some of our old standbys will have new chances to shine. This column will review two of them in light of the new law. Charities often refer to the charitable gift annuity and charitable remainder trust as life income plans. A life income plan is an arrangement whereby a donor contributes cash, appreciated securities, or other property in exchange for income for life, or in the case of a charitable remainder trust, life or a term of years. The amount of this payment is based on the age(s) of any income recipient(s) at the date of the gift, among other factors. After paying the established income for life, the remaining principal is a charitable gift. Your clients may create a charitable gift annuity or
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charitable remainder trust for themselves or another person. There may be gift tax implications if a person other than a spouse is included as a life income beneficiary, but the Tax Cuts and Jobs Act of 2017 has diminished them. There are many similarities and some differences between the charitable gift annuity (CGA) and charitable remainder trust (CRT). CGAs are specifically regulated by the state of Florida and not all charities can offer them. See Fla. Stat. §627.481 (2017). Charities tend to prefer CGAs for smaller gifts because they use a simple form-contract and are easier to administer; CRTs are typically for larger gifts because the charity’s liability to fund the income stream to the beneficiary is limited to the trust assets. CRTs require a formal trust instrument with a trustee (who can be the grantor) and trust administration. Either can be established with almost any asset and may be an effective tool for permitting diversification of assets that may not otherwise be sold advantageously because of a large built-in capital gain. CGA payouts are always fixed, while CRT payouts may be fixed (annuity trust), but may also be variable (unitrust). The variable rate
may make better sense for the younger donor. Charities often use the payout rates for CGAs published by the American Council on Gift Annuities or something close to them because the ACGA uses a very scientific process to establish its recommended rates and those rates comply with Florida law. The CRT payout rates are negotiated within certain broad parameters set by IRS regulations. Payout rates will almost certainly be greater than the fixed income rates available in today’s low interest rate environment. No additions can be made to a CGA after it is established, although the donor can simply establish another CGA. Additions to charitable remainder unitrusts are permitted and provide additional tax benefits and increase the payout to the donor. The critical component of a CGA or CRT is the actuarial calculation that establishes the values of the life income interest and the charitable remainder interest. The life income interest represents the present value of the donor’s income stream and the remainder interest represents the present value of the remainder that will go to the charitable beneficiary or beneficiaries. The remainder interest is tax deductible to the donor in the year the CGA or CRT is established,
and the five-year charitable deduction carryover is available. With a CGA, a portion of your annuity payment will also be tax-free income. If the initial gift consists of appreciated property, the capital gains tax on part of the appreciation of the asset may be avoided and the tax on the remaining portion postponed, prorated over the donor’s life expectancy. The remainder of the charitable life income plan, the portion that goes to the charity or charities designated by your client, will establish an endowment fund in your client’s name or otherwise provide support, offering the personal satisfaction of knowing these gifts will help ensure the future vitality of their favored charities and our community. It was true before the Tax Cuts and Jobs Act of 2017 and true now. In addition to providing a substantial charitable benefit, life income plans can increase your clients’ cash flow and quite possibly save on taxes, even with the increase in the standard deduction. If your clients’ goals include providing for their future financial security and reducing taxes, while still including charities in their estate plans, you may want to suggest they consider establishing a charitable life income plan.
STEPHEN C. LANDE The resources of The Foundation of the Greater Miami Jewish Federation are available to you and your clients, in complete confidence and without obligation, as you consider this and other issues related to charitable gift planning. The new tax law tax will no doubt influence your clients as they seek to fulfill their charitable objectives in a tax-advantaged manner, inspire and engage the next generation of their families and create a lasting legacy. For more information, please contact Foundation Director Steve Lande at slande@gmjf.org, or at
786-866-8623, or consult JewishMiami.org. Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as the Greater Miami Jewish Federation’s Authorized House Counsel. Before joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Lande earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Jewish Federation of Greater Pittsburgh.