Economics for Everyone
The Benefits of
Planned Giving
Thank you for considering AIER as a part of your planned giving program. Invest in Your Future by Giving to a Trusted Institution The American Institute for Economic Research is a nonprofit, nonpartisan think tank. We are neither activists nor lobbyists. We are a 501(c)3 educational and research organization with no political affiliations. Our sole objective is to provide you with the best available economic information. In 1928, when others were saying, “the sky is the limit,” AIER Founder Col. Edward C. Harwood warned of the coming financial collapse and depression. In 2011, when panic reigned in the streets and most pundits were warning about a double-dip recession, AIER calmly predicted continuing GDP expansion. In both cases we were right. In between, we have foreseen many major turns in the economy, most often before the better known economic forecasters. Historically, we have made correct predictions before other economic prognosticators sensed what was coming. We have been cited in such publications as The New York Times, The Wall Street Journal, Barron’s, Forbes, and Bloomberg/BusinessWeek. Our trusted sources have given interviews on national radio and television.
What we do We study economics based on objective analysis—on what we can demonstrate to be true with data. We focus on what has been occurring in the economy as the basis for future statements. We concentrate on how the economy functions and how the linkages cause changes across markets, individuals, businesses and nations. We do not impose value judgments as normative economics does. Positive economics is the economics of “what is,” whereas normative economics discusses “what ought to be.” We are not contrarians. We stick to the numbers and the data, and are not driven by emotionalism, politics, or agenda. We are led by scientific methodology and not partisan ideology.
e +
Reliable Lifetime Income for You and Your Family Make all you can, save all you can, give all you can.” —John Wesley
AIER’s tax-deductible planned giving program offers a lifetime income plan for up to three generations. Imagine having a guaranteed income for you, your children and grandchildren, and supporting the work of AIER in the process. Since 1969, donors to AIER’s programs have enjoyed the advantages of having their assets managed by AIER and the security of knowing that AIER will provide income for life to their designated individuals. Most organizations are not willing to commit themselves to a program that will not benefit them for 75 years or more; for us this is simply a part of our longterm commitment to helping individuals protect their financial future.
AIER offers qualified donors attractive benefits, including: Federal and state income tax deductions. Capital gain tax savings on gifts of appreciated assets. Annual income for life or a designated term. Transfer cash, securities, or other property including buildings and land to AIER, generating life-long income. Reduced probate costs and estate taxes. Expert asset and investment management. Support of AIER’s work and mission. It is important that you consult with your legal and financial advisors before committing to such a deferred gift. We will be happy to run simulations on our planned giving programs to help you with your decision, but we may not provide specific legal or financial advice.
Invest in your future by giving. Provide a reliable source of income for up to three generations of your family, and support our mission! Call the Planned Giving Office at 413-528-1216 x3153 or email pgo@aier.org for more information. Planned giving simulations at www.aier.org
g r o . r aie
Reserved Life Income Funds A Reserved Life Income Fund (RLI) is a pooled income fund, managed by AIER, that operates very much like a mutual fund. Donors are assigned a number of units, according to the value of the assets donated. Donated assets are pooled and invested with the assets of other donors and income generated by the fund from the investments (dividends, interest, etc.) is distributed quarterly to the income beneficiaries. The income distribution varies with the fund’s investment performance. When the last income beneficiary named by the donor dies, the remaining value of the units is distributed to AIER for its charitable purposes.
How RLIs Work: 1,000 Shares of XYZ Corp. Worth $50,000 Income Tax Deduction
Mr. & Ms. Jones Ages 65 and 63
Variable Income for Life
No Cap. Gains Tax Full $50,000 Invested in Reversed Life Income Fund
Remainder to AIER AIER
You transfer cash, securities, or other property to AIER’s Reserved Life Income Fund. You receive an income tax deduction and pay no capital gains tax. Based on the number of assigned units, the fund pays your share of its income each quarter to you or to anyone you name for life. When the last beneficiary passes on, your share of the fund’s principal benefits AIER.
It is very important that you consult with legal and financial advisors before committing to such deferred gifts. As a nonprofit research organization, we can offer information and simulations that can help you make these decisions, but we may not provide specific legal or financial advice.
Charitable Remainder Unitrusts (CRUs) CRUs are income funds in which donated assets are held and invested in a separate account and are not pooled with other donations. Donors stipulate a fixed percentage (not less than five percent) of the value of the fund to be distributed annually to income beneficiaries. Income may continue for the lifetimes of the beneficiaries named, a fixed term of not more than 20 years, or a combination of the two. Payments are made out of trust income, or trust principal if income is not adequate. When the CRU term ends, the principal passes to AIER for its charitable programs. Donors may add funds to their CRU at any time. The donor may also stipulate that distributions are to be up to “income only,” with or without a further stipulation that any shortfall of actual income received by the funds from the fixed percentage be “carried forward,” and be available for distribution in subsequent years in which the actual income is in excess of the fixed percentage.
How CRUs work: Gift of Property 1 Remainder to AIER Charitable Remainder Unitrust
3
AIER
Donor 2 • Income Tax Deduction • Variable Income
You transfer cash, securities, or other property to a Charitable Remainder Unitrust. You receive an income tax deduction and pay no capital gains tax. During its term, the trust pays a percentage of its value each quarter to you or to anyone you name. When the trust ends, its remaining principal passes to benefit AIER.
The trustee of a CRU need not be AIER itself (although most of our donors have requested AIER to serve as trustee).
Charitable Gift Annuities (CGAs) A CGA is a contract, not a trust, under which AIER, in return for an irrevocable gift of cash, marketable securities or other assets, agrees to pay a fixed amount of money to one or two individuals for their lifetime. The contributed property becomes a part of AIER’s assets, and the payments are a general obligation of the charity backed by AIER’s entire assets—not just by the property contributed. AIER will identify and report taxable and non-taxable portions of gifts and annuity payments.
AIER offers two types of CGAs: Immediate Annuities: Provide current fixed annuity payments to a donor. Deferred Annuities: Provide future fixed annuity payments to a donor. The date of the initial payment must at least one year after the date of the donation. The deferral period will be at the discretion of the donor.
How CGAs work: Gift of Property 1
At least 50% of donation invested in separate account AIER
3
CGA Investment Account
Donor 2 • Income Tax Deduction • Fixed Annuity Payment
You donate cash, securities, or other property to AIER. You receive an income tax deduction and pay no capital gains tax. During the term of the CGA, the AIER pays a fixed amount each quarter to one or two individuals named by you. Payments cease when the last individual passes on.
The fair market value of property contributed must be at least $5,000. An AIER CGA cannot have more than two annuitants. AIER will accept annuity gifts for one life, two lives in succession, or joint and survivor annuity agreements. Each annuitant shall be at least 55 years of age on the date the CGA is issued unless a deferred charitable gift annuity with the first payment when the donor is at least 55 years of age.
Charitable Lead Trust A Charitable Lead Trust can be used to transfer assets to children or others at a significantly reduced tax liability. The trust makes a fixed payment to AIER for a specified term, measured either by someone’s life or a selected number of years. After the trust term ends, the assets of the trust are either returned to you or passed on to children or other loved ones. If the assets are to be returned to you, you receive an income tax deduction when the trust is created. If the assets are passed on to heirs, applicable estate or gift taxes on the value of the gift are reduced or eliminated. The tax savings from a charitable lead trust may allow you to provide significant support for AIER at little or no cost to heirs in terms of ultimate inheritance. A charitable lead trust may provide either a fixed “annuity” payment or a variable “unitrust” payment to AIER. Low interest rates make the annuity payment option attractive for donors as more assets may be passed on to heirs with reduced or eliminated transfer tax liability. A charitable lead trust can be a powerful tool in gift and estate tax planning, but the technical complexities require careful consideration. AIER’s planned giving office is happy to work with you and your financial advisors to see if a charitable lead trust is the right plan for you.
How CLTs work: Gift of Property 1
AIER
Donor 2 • Income Tax Deduction • Fixed Annuity Payment
You transfer cash, securities, or other property to a Charitable Lead Trust. You receive an income tax deduction and pay no capital gains tax. During its term, the trust pays AIER a fixed percentage of its value each quarter. When the trust ends, its remaining principal passes to benefit either you or your beneficiaries.
Bequests A “bequest” is a provision under a will or trust directing how assets should be transferred after someone’s passing. The bequest is revocable at any time. Thus, you maintain control over the assets during your lifetime and leave a legacy to AIER, making a lasting difference.
Beneficiary designations Mention AIER as a beneficiary or contingent beneficiary of retirement plan assets or life insurance policies. One of the great advantages is that you do not part with anything during your lifetime and you can change the beneficiary at any time. Leaving these assets to family members can often result in substantial income and estate taxes for the family. Alternatively, when AIER is designated as a beneficiary of the retirement plan assets or life insurance, donor’s heirs can often receive more assets from the estate and save substantial taxes. In payable-on-death (POD) accounts, the depositor indicates that, at his or her passing, the balance in the account is to be paid to a particular individual or charity. This arrangement avoids probate of the assets in the account, and can be a simple and effective way to benefit AIER.
How bequests work: Bequest 1
AIER
Donor 2 • Lasting Legacy • Controle of assets • Reduced Probate costs and estate taxes
It is simple to do and it costs you nothing during your lifetime. Your gift can make a great difference, leaving a lasting legacy. You maintain complete control over the assets and can revoke the gift if circumstances change. Your gift can save taxes for the family and can help avoid probate costs for jointly held assets. You support AIER’s work and mission.
Call the Planned Giving Office at 413-528-1216 x3153 or email pgo@aier.org for more information. Planned giving simulations at www.aier.org
g
r o . r e ai
General Guidelines & Investment Policy
AIER Trust Funds: Specific Considerations
Objectives
A. Reserve Life Income Funds I and II
The investment objective with respect to the trust fund assets is to maintain real (i.e. inflation-adjusted) market values of the trust fund assets while providing the income beneficiaries with a relatively predictable and growing stream of revenue.
The AIER Reserve Life Income funds (RLIs) are pooled income funds. All investment income generated from these accounts is distributed quarterly to income beneficiaries designated by the donor. When the last income beneficiary dies, the principal attributable to the gift is removed from the RLI funds and transferred to the remainderman, AIER. Pooled income funds are therefore “split interest” accounts; they provide benefits to two parties.
The trust funds assets will be invested in a portfolio of assets with a low coefficient of correlation between asset classes and a history of strong appreciation. Investing trust fund assets in a diversified portfolio of asset classes that are not closely correlated increases expected returns and lowers overall volatility.
Risk Tolerance The investor has a moderate tolerance for risk and will tolerate short-term negative performance in order to meet long-term investment objectives. Maintaining a consistent strategy during good and bad markets is an important factor in achieving longer-term objectives. Financial research has demonstrated that volatility or risk can be reduced by holding a diversified portfolio of low correlated assets over time.
Asset Allocation The investor believes that an approach based upon the major tenets of Modern Portfolio Theory is most prudent; this theory asserts that markets are “efficient” and that investors’ returns are determined principally by asset allocation decisions, not market timing or selection of specific securities. The returns of gold and international asset class funds, including emerging markets, can be highly volatile when assessed independently but over the long-term improve a diversified portfolio’s expected returns with lower volatility. Increasing allocation to short-term fixed income typically decreases the volatility of a portfolio.
Asset Rebalancing Asset allocation ranges are established around a target for each asset classification. These relative ranges have been created to minimize the temptation to engage in market timing and to maximize the likelihood that investment objectives will be met. When the allocation of an asset class falls outside its target range, it will be rebalanced to a level within the target range as soon as practical, taking into consideration cash flow needs, trading costs, tax implications, and the status of other asset classes.
Diversification When selecting individual securities or commingled investment vehicles in order to implement the asset allocation plan, the investor will ensure that the assets of the trust funds are adequately diversified to minimize the risk of large losses due to unexpected events relating to any one particular company or issuer. No more than 5 percent of the assets of the trust funds may be invested in the securities of any one issuer at time of purchase, except those backed by the U.S. Treasury or U.S. government agencies.
Suitable Investment Vehicles In implementing the asset allocation plan, the investor will utilize the following investment vehicles: money market funds, passively managed open-end mutual funds, closed-end mutual funds, exchange traded funds (ETFs), direct fixed income obligations (bank certificates of deposit, short-term U.S. government or government agency obligations, investment grade corporate bonds), and common stocks.
Costs and Tax Management Minimizing investment-related costs is essential to meeting the investor’s longterm objectives and every effort will be made to minimize transactions costs when trading marketable securities. AIER trust funds are subject to taxation of realized short-term capital gains,@.,)A%@"2<);% and will make every effort to maximize after-tax returns consistent with the investor’s tolerance for risk. BC%D)"2%=:.E":%
Trust funds may incur reasonable fees for services rendered in the administration of FCA)"2%=:.E":% trust funds. A fee of not more than ½ of 1 percent per annum of the net fair market value of the assets for the=:.E":%451';A% services of an investment advisor. Audit/tax service fees may also be charged.
G4+HI#%
=.:*?%=.:*%0;.-<%
The investor acknowledges that while income beneficiary and remainderman share a common goal of maximizing the risk-adjusted returns of the investment portfolio, their interests are not identical. Beneficiaries are interested in maximizing current income, and therefore generally prefer an investment portfolio allocated more heavily toward investments that generate interest and dividends (e.g., bonds and bond funds) as opposed to capital gains. Conversely, the remainderman would prefer a portfolio more heavily allocated toward investments that preserve the constant dollar purchasing power of the trust fund assets over the long-term (e.g., equities or equity mutual funds).
B. Charitable Remainder Unitrusts Charitable Remainder Unitrusts (CRU) are individual trusts. Donations to a CRU are not pooled with other donations. Donors stipulate a fixed percentage (not less than five percent) of the value of the CRU to be distributed annually to designated income beneficiaries. Income may continue for the lifetimes of the named beneficiaries, a fixed term of not more than 20 years, or a combination of the two. Payments are made out of trust income, or trust principal if income is not adequate. Donors can add funds to their CRU at any time.
The donor may also stipulate that distributions are to be up to “income only,” with or !"#$% without a further stipulation that any shortfall of actual income received by the funds from the fixed percentage be “carried forward,” and be available for distribution in &'()*%+,-./)%0)-12'3 subsequent years in which the actual income is in excess of the fixed percentage.
+,-./)%451'3)#%
6"27)%!"8%9":1)%0;.-<
Target Allocation RLI Fund I &II
6"27)%!"8%=2.>;$%0;.
0/"::%!"8%9":1)%0;.-<
!"#$%
&.2)'7,%451'3)#%
&'()*%+,-./)%0)-12'3)#%
=.:*?=.:*%0;.-<#%
+,-./)%451'3)#%
!"#$%
6"27)%!"8%9":1)%0;.-<#%
&'()*%+,-./)%0)-12'3)#%
6"27)%!"8%=2.>;$%0;.-<#%
6"27)%!"8%9":1)%0;.-<#%
+,-./)%451'3)#%
0/"::%!"8%9":1)%0;.-<#%
6"27)%!"8%=2.>;$%0;.-<#%
&.2)'7,%451'3)#%
&.2)'7,%451'3)#%
0/"::%!"8%9":1)%0;.-<#% =.:*?=.:*%0;.-<#%
=.:*?=.:*%0;.-<#%
@.,)A%@"2<);% BCD)"2%=:.E":% @.,)A%@"2<);%
FCD)"2%=:.E":% BC%D)"2%=:.E":%
G4+HI#%
=:.E":%451';A% G4+HI#%
=.:*?%=.:*%0;.-<% =.:*?%=.:*%0;.-<%
&'()
+,-.
6"27
6"27
0/"
&.2)
=.:*
Target Allocation CRUT Accounts (Over $50,000)
=:.E":%451';A% FCA)"2%=:.E":%
!"#$
@.,)A%@"2<);% BC%D)"2%=:.E":% FCA)"2%=:.E":% =:.E":%451';A% G4+HI#% =.:*?%=.:*%0;.-<%
Declan J. Sheehy
Director of Development & Outreach 250 Division Street, PO Box 1000 Great Barrington, MA 01230 (413) 528-1216 x3153 (413) 429-5340 (413) 528-0103 declan.sheehy@aier.org
An independent, non-profit organization engaged in scientific economic research.
Economics for Everyone
PO Box 1000, Great Barrington, MA, 01230
(888) 528-1216
info@aier.org
www.aier.org