Estate Planning 2014 - Crain's Cleveland Business

E-2
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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PRESIDENT’S LETTER
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
I
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
National firm expertise…
local attention.
Our team of specialists brings an unequaled
combination of experience and commitment to
provide you with value-added accounting and
business advisory services.
Cleveland 216.363.0100
Canton 330.966.9400
Elyria 440.323.3200
Delaware 740.362.9031
maloneynovotny.com
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.
Crain’s Cleveland Business Custom Publishing
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BUSINESS CLIMATE
ESTATE PLANNING
BY JOHN P. MICKLITSCH
L
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.
E-3
Estate planning? It’s all about control
BY HOWARD J. KASS
Preparation,
focus key to
productive
investment
portfolio
checkup
NOVEMBER 10-16, 2014
S
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.®
Deposit and credit products provided through Fifth Third Bank. Member FDIC.
Lending is subject to credit review and approval.
Crain’s Cleveland Business Custom Publishing
Equal Housing Lender.
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.
E-4
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
“I want to ensure that
there is a solid future
for increased capacity
for ideastream news
reporting staff. The
need for local and
regional news stories
is now more important
than ever.”
I BELIEVE IN
- Patrick Shepherd
Find out more at
ideastream.org/support
ANCORA
Because your goals are counting on you.™
Ancora Advisors
Your Estate Planning
Investment Partner
.
Asset Allocation
.
Fixed Income
Alternatives
6060 PARKLAND BOULEVARD, SUITE 200
.
CLEVELAND, OH 44124
216.825.4000
216.825.4001 (FAX)
WWW.ANCORA.NET
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
O
Equities
Advertisement
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
Crain’s Cleveland Business Custom Publishing
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
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David M. Zolt
Jack Zugay
Gary A. Zwick
Donald F. Zwilling
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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
T
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:
One law firm for all
estate planning solutions
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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Advertisement
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
Health Care: Reporter Timothy Magaw breaks down the
latest news about the region’s
hospitals. Tuesdays
What’s Cooking: Twice per
month, freelance reporter
Kathy Ames Carr has morsels
on the local restaurant scene.
Your legacy
helps create
a healthier
community.
ACCESS
BEGINS WITH A CAPITAL “G”.
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
Crain’s Cleveland Business Custom Publishing
E-7
E-8
NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
GIFTS TO FAMILY | ASSET PROTECTION
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 architecWXUDOÀUP5REHUW30DGLVRQ,QWHUnational, aims to help generations
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those who do not have the same
opportunities as others,” Madison
said. “All of our lives are checkered
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believe that we have the ability to
overcome them and see beyond.”
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 ÀQGV 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,” 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
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postsecondary education.
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who wants to study architecture, but
may not have the money to attend a
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she chooses,” Madison said. “Being
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egos: They can see that someone
believes in them.”
For most of his early life, Madison
found success by believing in himself. He grew up in Cleveland and
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SDUWLFLSDWHGLQDQXPEHURI GHÀQing Cleveland projects, including the
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Museum, Quicken Loans Arena,
FirstEnergy Stadium and the Great
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“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
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from his scholarship fund, which
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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.
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now so that others won’t have to
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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.”
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vice president for Advancement
at the Cleveland Foundation. “His
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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.
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E-10 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
GIFTS TO FAMILY | ASSET PROTECTION
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mart financial and estate
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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
Crain’s Cleveland Business Custom Publishing
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.
Advertisement
ESTATE PLANNING
NOVEMBER 10-16, 2014 E-11
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 family’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 foundation’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 family’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 family’s values and
history.
Families of wealth often have
not been offered an emotional
“safe” space or meaningful process
in which to tackle the complex
family dynamics that emerge in
the context of grantmaking. The
Es
tat
What will my kids
have left if I pay
nursing home?
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Be confident with your team.
The Cleveland law firm with the most
Trusts and Estates and Tax lawyers listed in
The Best Lawyers in America ©.
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Should I tell
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| Richard Kluchin
RKLUCHIN ENCOREWEALTHPLANNINGCOMs
www.bakerlaw.com
Crain’s Cleveland Business Custom Publishing
© 2014
E-12 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
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
HEALTHIER COMMUNITY
ONE GIFT AT A TIME
Join all of those who are helping MetroHealth transform its campus
and the health of the community. Visit metrohealth.org/foundation
or call 216-778-5004.
The MetroHealth Foundation, 2500 MetroHealth Drive, Cleveland, OH 44109
Crain’s Cleveland Business Custom Publishing
Advertisement
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.
Crain’s Cleveland Business Custom Publishing
Member FDIC
2798_FM14
E-14 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
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
P
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
T H E AR T O F P R OBL EM S OL VI NG
Providing creative legal solutions for tax & wealth matters
Your Personal CFO…
The Tax & Wealth Attorneys of
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Mark Weiskind for an introduction.
(216) 573-7200
fairwaywealth.com
Crain’s Cleveland Business Custom Publishing
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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
• Sophisticated estate, gift and generation-skipping planning
• Comprehensive estate and trust administration
• Business succession planning strategies
• Probate litigation
• Asset protection planning, including the Ohio Legacy Trust
The Calfee Building
1405 East Sixth Street, Cleveland, Ohio 44114
Calfee.com
Crain’s Cleveland Business Custom Publishing
E-16 NOVEMBER 10-16, 2014
ESTATE PLANNING
ARTS AND COLLECTIBLES
Advertisement
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
P
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
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For more information, please contact our
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Thomas M. Turner, Esq.
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Sandra J. Brantley, Esq.
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Crain’s Cleveland Business Custom Publishing
Advertisement
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
CUSTOM PUBLISHING SECTION
Issue date: Jan 19 | Ad close: Dec 4 | Materials due: Dec 18
ACG CLEVELAND
CORPORATE GROWTH AND M&A
The Association for Corporate Growth Cleveland
chapter partners with Crain’s on a custom section
focusing on the latest trends in M&A.
HAVE YOUR VOICE HEARD IN CRAIN’S!
Book an ad and submit an article!
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.
Securing
Your Future.
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Crain’s Cleveland Business Custom Publishing
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.
LOOKING FOR ESTATE PLANNING EXPERTISE?
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ow can you make sure that
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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.
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Associates of Sagemark Consulting are registered representatives of Lincoln Financial Advisors Corp.
Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Member SIPC. Investment advisory services offered through Lincoln Financial Advisors Corp. or
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*Licensed, not practicing on behalf of Lincoln Financial Advisors Corp. CRN-1028839-100614
Crain’s Cleveland Business Custom Publishing
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.
Advertisement
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.
Work with us.
Congratulations to
Radd L. Riebe
Stout Risius Ross, Inc.
on receiving the
2014 Distinguished Estate Planner Award
Consider joining Western Reserve Land
Conservancy’s corporate partnership program.
For more information, contact Jon Logue at
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from
THE ESTATE PLANNING COUNCIL OF CLEVELAND
READ IT NOW, REFERENCE IT LATER.
Crain’s Estate Planning section is a guide that explores all
the complexities that surround estate planning. With so
much information, you may need to reference it again...
which is why it’s available year-round online.
www.CrainsCleveland.com/Custom
Crain’s Cleveland Business Custom Publishing
E-20 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
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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ESTATE PLANNING
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
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FREDERICK
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Brian Frederick is President and
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E-22 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
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.
BUSINESS
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
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plan for thanking, comboard?
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Do they ask what you
with donors in ways that
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engage their donors and
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light on the donor retention MCCANN
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problem for nonprofits: It
There are no “one-sized
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that were acquired, about 107 were
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For far too many busy nonprofkeep in mind, but beyond that it’s
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thought. As you build your estate
And that’s a good thing, because
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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
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Nancy McCann is Chief DevelopHow well does the organizament Officer for the Western Retion communicate? Newsletters,
serve Land Conservancy. Contact
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Advertisement
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.
P R E S E R V E
P R O T E C T
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Angela G.
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ADVISORS TO INDIVIDUALS AND BUSINESSES
ON MATTERS INVOLVING:
Estate and Trust Administration
Estate Planning
Succession Planning
Guardianships
Adoptions
Probate and Trust Litigation
CLEVELAND
COLUMBUS
BEACHWOOD
216.241.6602
614.280.0200
216.241.6602
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E-24 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
INSURANCE
The disappearing agent and
the reappearing premium
BY RICHARD TANNER
L
ife insurance is a complex
financial asset that many
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of a comprehensive family wealth
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n Seasoned agents are retiring
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n Young talented professionals
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away from the insurance industry
n Historically low interest rates
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As seasoned agents retire, die
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not have a succession plan that
ensures quality service after the
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TOGETHER,
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Richard Tanner is President of
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Contact him at 216-328-5534.
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Advertisement
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
Y
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
Together we can
make a difference.
Today we honor our prestigious
Allied Partners in Philanthropy society.
Your support helps maintain Cleveland Clinic
as a world leader in healthcare.
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Same-day
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Crain’s Cleveland Business Custom Publishing
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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INSURANCE
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
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KLUCHIN
um whole life policy, which
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ing home is 2.5 years.
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The challenge becomes protectare several ways to pay for the high
ing your assets while maintaining
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opportune time to consider the value
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your choice.
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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
Private Wealth Management
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
Let us help you prepare for whatever life has
in store - both the expected and unexpected.
TAX | ESTATE | RETIREMENT | INSURANCE
FOR INFORMATION ON OUR AWARD
WINNING FIRM CONTACT:
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(216) 573-3776
www.arielcapitaladvisors.com
Mary Eileen Vitale, CPA, CFP®, AEP®
Principal, Tax Services Group
vitale@hwco.com | 216.378.7204
CLEVELAND | COLUMBUS | MENTOR
Crain’s Cleveland Business Custom Publishing
Toll Free 877.FOR.HWCO
Web hwco.com
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ESTATE PLANNING
INSURANCE
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.
1955
60 YEARS
2015
www.recres.org
Learn more at:
sequoia-financial.com and cohencpa.com
888.225.3777 | 800.229.1099
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, 330-3759480. 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
Crain’s Cleveland Business Custom Publishing
E-28 NOVEMBER 10-16, 2014
ESTATE PLANNING
Advertisement
BUSINESS PLANNING
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
ĐŽŵŵƵŶŝƚLJƚŽŵĂŬĞĂůĂƐƟŶŐŝŵƉĂĐƚŽŶdŚĞůĞǀĞůĂŶĚ
Orchestra’s success.
LJƌĞŵĞŵďĞƌŝŶŐƚŚĞKƌĐŚĞƐƚƌĂŝŶLJŽƵƌĞƐƚĂƚĞƉůĂŶƐ͕
LJŽƵǁŝůůŚĞůƉĞŶƐƵƌĞƚŚĂƚLJŽƵ͕LJŽƵƌĐŚŝůĚƌĞŶ͕ĂŶĚLJŽƵƌ
children’s children always have access to an orchestra
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&ŽƌŵŽƌĞŝŶĨŽƌŵĂƟŽŶĂďŽƵƚƐƵƉƉŽƌƟŶŐƚŚĞĂŵƉĂŝŐŶ
ƚŚƌŽƵŐŚĂŶĞƐƚĂƚĞŐŝŌ͕ĐŽŶƚĂĐƚƌŝĚŐĞƚDƵŶĚLJ͕
>ĞŐĂĐLJ'ŝǀŝŶŐKĸĐĞƌ͕ďLJĐĂůůŝŶŐϮϭϲͲϮϯϭͲϴϬϬϲŽƌ
ĞŵĂŝůŝŶŐďŵƵŶĚLJΛĐůĞǀĞůĂŶĚŽƌĐŚĞƐƚƌĂ͘ĐŽŵ͘
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
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Charitable Donation
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Now trending? Series LLCs
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B
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-
Crain’s Cleveland Business Custom Publishing
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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ESTATE PLANNING
Crain’s Cleveland Business Custom Publishing
NOVEMBER 10-16, 2014 E-29