WEALTH BUILDING
…and the role of Charitable Planning...
By:
K. Gene Christian, Regional Director
Charitable Estate and Gift Planning Services
Providence Health System - Oregon
503-216-2226/phone
503-216-4140/Fax
gchristian@providence.org
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
TRADITIONALLY, WHAT IS IT?
Definition:
Development and implementation of
planning strategies which will minimize
taxation while moving a person(s)
toward financial independence.
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
TRADITIONALLY, HOW
IS IT ACCOMPLISHED?
1.Develop a unified credit
shelter estate plan (will or
living trust)
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
TRADITIONALLY, HOW
IS IT ACCOMPLISHED?
2. Fund 401Ks, IRAs,
ROTHs, VULs, etc. for
tax-sheltered growth
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
TRADITIONALLY, HOW
IS IT ACCOMPLISHED?
3. Buy Life Insurance
to replace income
earner(s)’ salary.
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
TRADITIONALLY, HOW
IS IT ACCOMPLISHED?
4. Place what is left into
investments/real property
to produce capital gain
and/or high cash flow.
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
WHAT IS THE ROLE OF
CHARITABLE PLANNING IN
WEALTH BUILDING?
Definition:
It assumes that wealth accumulation
decisions should be based as much on what
the wealth-holder values, as the value of
the wealth-holder’s assets.
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
WHY IS THIS IMPORTANT?
Nearly 80% of all Americans have
“charitable receptivity.”
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
E. WHY IS THIS IMPORTANT?
There are only three potential heirs in
estate planning...
$$$
People
Government
Charity
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
OPPORTUNITIES IN THE
NEW MILLENIUM?
• The Nation is aging rapidly
You bet!
• Combined taxation remains relatively high
• Financial markets over 15 years have soared
• Huge transfer of wealth occurring
• Three affluent generations alive simultaneously
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
A CASE ILLUSTRATION
WEALTH BUILDING
...and the role of Charitable Planning...
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
CASE PROFILE
•Bob (age 59) and Alice (age 58) Auburn
•He owns/manages a small residential construction
company
•She is an independent contractor currently consulting
for ODOT
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
CASE PROFILE - cont.
•Nearing retirement - they want to
travel more
•Don’t want to dramatically affect
children’s inheritance - close family
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
CASE PROFILE - cont.
•They have a $1,865,000 estate:
•$300,000 life insurance on him
•$125,000 life insurance on her
•$628,000 his SEP-IRA
•$310,000 her 401(k) & IRAs from past employers
•$12,000 in ROTH IRAs
•$170,000 home paid off
•$320,000 rental properties (four homes)
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
A VISUAL LOOK AT THE
AUBURN’S ESTATE...
Life Insurance
His SEP IRA
Home
ROTHS
Her 401(k) & IRAs
Rental properties
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Sale vs. Unitrust
I. Analysis of Increased Income
Sale
vs.
CRT
• Value of Rentals
$320,000
$320,000
• Closing Costs
($ 22,400)
($ 22,400)
• Taxable Value
$297,600
$297,600
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Sale vs. Unitrust
I. Analysis of Increased Income - cont.
Sale
vs.
CRT
• Taxable Value
$297,600
$297,600
• Or. Cost Basis
$ 88,000
N/A
• Cap. Gain Tax
($ 55,963)
$ -0-
• Dep. Cost Basis
$
N/A
• Cap. Gain Tax
($ 26,311)
5,000
$ -0-
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Sale vs. Unitrust
I. Analysis of Increased Income - cont.
Sale
• Legal/App. Fees
$ ?
• Investable Funds
$215,326
vs.
CRT
($
2,500)
$ 297,600
• Pre-Tax Income (6%) $ 12,920
$
• 31.1-YR Exp.
$770,854
$1,065,390
• PV of Income
$264,440
$ 365,480
17,856
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Sale vs. Unitrust
II.
Analysis of Tax Deduction
Sale
vs.
CRT
• Tax Deduction
$ -0-
$64,171
• Tax Savings (34%)
N/A
$21,891
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Sale vs. Unitrust
III. Analysis of Estate Tax
Sale
vs.
CRT
• Asset Included
In Estate
$215,326
$ -0-
• Estate Tax (37%)
($ 79,671)
N/A
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
SUMMARY OF BENEFITS
KEEP IN ESTATE
PUT IN CRT
1. Lifetime after tax cash
flow from rentals:
1. Lifetime after tax
cash flow from
6% pay CRT:
$751,808
$752,151
NOTE: See footnotes section in booklet for formulas used
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
SUMMARY OF BENEFITS
KEEP IN ESTATE
2. Lifetime value of
income tax deduction
benefit:
-0-
PUT IN CRT
2. Lifetime value of
income tax deduction
benefit:
$159,244
NOTE: See footnotes section in booklet for formulas used
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
SUMMARY OF BENEFITS
KEEP IN ESTATE
PUT IN CRT
3. Rentals value at the
end of lifetime:
3. CRT value at the end
of lifetime:
$653,869
$965,235
NOTE: See footnotes section in booklet for formulas used
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
KEEP IN ESTATE vs. UNITRUST
KEEP
CRT
1. $ 751,808
1. $ 752,151
2.
-0-
2. $ 159,244
3. $ 653,869
3. $ 965,235
$1,496,913
$1,959,345
PERSONAL ESTATE
PERSONAL AND
CHARITABLE ESTATE
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
STANDARD WEALTH ACCUMULATION
TODAY
$1,865,000
31.1 years pass
2033 AD
NICE & BIG
PERSONAL ESTATE
WEALTH BUILDING AND THE ROLE OF CHARITABLE PLANNING
Adding the Charitable Dimension
TODAY
Rentals
CRT
2033 AD
………………………………………………………………………….
NICE & BIG
BIG ESTATE
PLUS
BIG CRT
=
MUCH
LARGER
PERSONAL &
CHARITABLE
ESTATE!!
REFERENCE MATERIAL
Special Committee on Again (U.S. Senate)
American Association of Retired Persons (AARP)
Social Security Administration
The Oregonian
OHSU notes and material
The National Committee on Planned Giving
National Woodlands Magazine
Successful Money Management Seminars
Fortune Magazine
Crescendo Software Company
The Legacy Companies, LLC