Charitable Planning ...
using a Community Foundation
Allyson Baumeister, C.P.A.
John Hunter, J.D., C.P.A.
Nancy E. Jones
October 4, 2011
Community Foundation
of North Texas
 Top 10%
 Established in 1981
 Assets:
$145,000,000
 Total grants 2010: $ 8 million
 Total grants
since 1981: $130 million
CFNTx Assets 1985-2010
$160,000,000
$140,000,000
$120,000,000
$100,000,000
$80,000,000
$60,000,000
$40,000,000
$20,000,000
$1985 1988 1991 1994 1997 2000 2003 2006 2009 2010 2011
2010 CFNTx Grant Dollars
Sports/Leisure
1%
Animal
<1%
Arts/Culture
5%
Civic
12%
Religion
30%
Education
21%
Human
Services
31%
Environmental
<1%
When should you be
thinking about using a
Community Foundation ?
Trigger points
 Client is selling a business
 Wants to establish a private foundation with
less than $5 – 10 million.
 Closely held shares or highly appreciated non
cash assets
 Client is transferring wealth to generations
 Client is making charitable gifts in a will
Deductibility
 Gifts of cash are deductible up to 50% of AGI
(30% AGI in PF )
 Gifts of appreciated property are deductible up to
30% of AGI.
(20% in PF)
 Gifts of closely held stock are deductible up to
30% of AGI
(limited to COST basis in PF)
Additional considerations
 NO 5% minimum spend rate from a CF fund
 NO excise tax on investments in a CF
 NO separate audit
 NO mandatory Form 990-PF filing
 Self-dealing issues minimized
Comparison
 Advantages
 Disadvantages
 Ease, little paperwork
 No ultimate control
 No 990, no separate audit
 Investment choices
 Anonymity or
 Some Grants not possible
recognition
 Choices of Investments
 Family Involvement
 Maximum Tax
Deductibility
 Local knowledge
 No minimum 5% payout
 Self dealing not an issue
(tables, scholarships, grants to
individuals)
 Donor does not have
prestige of own
Foundation
Designated Fund
 Client can assist a charity without giving the
charity ultimate control of gift
 Can set up “If, then” constructs
 CF as 3rd party ensures compliance with
restrictions
Bequests
 Often easier to use the foundation to make all the
charitable distributions for an estate;
 Use a side letter to provide detailed instructions
and conditions (Client’s will cites the Fund)
Private Foundation Transfer
 Private foundation administration may become
burdensome or costly
 Transfer assets to a donor advised fund at the
Community Foundation and terminate private
foundation status.
 Foundation’s name carries over to the donor
advised fund
Procedures for Converting
a Private Foundation
 Execute a donor advised fund agreement to name
fund and advisor(s)
 Pay any investment excise taxes owed prior to
dissolution
 The private foundation files a Form 990-PF for the
termination year.
John D. Hunter, J.D., C.P.A.
The Blum Firm, P.C.
Vice-Chair, Professional Advisor Outreach
Committee for the CFNT
Benefits of Using Community
Foundation of North Texas
 Local
 Leadership and administration are just down the
street
 Knowledgeable
 Nancy Jones understands!
 Uses sophisticated counsel
 Client-Friendly
 2-3 page agreements (not 14!)
 Wants to sit down with and get to know client
 Clients have all had positive feedback
Benefits of Using Community
Foundation of North Texas
(continued)
 Consistency
 Flexibility
 Can use own investment manager if assets large
enough
 Will base investment decisions on timing of
expected distributions
McCord Transfer: Sale of Shares
Client sells X shares to the Dynasty Trust in exchange for a Promissory Note
Promissory
Note for
$Y Million
Client
Community
Foundation of
North Texas
Estimated $C
Stock with FMV = $Y Million
Amount Above
$Y Million
Dynasty Trust
No Net Gift
$Y Million = FMV of X shares
less charitable gift amount (C)
as determined by appraisal
McCord Transfer: Valuation Agreement
Dynasty Trust
Valuation Agreement
Community
Foundation of
North Texas
McCord Transfer Technique
(to Donor Advised Fund
with Valuation Agreement)
 Provides third party confirmation of value
 Transfers wealth to the next generation
 Establishes a donor advised fund
 There is some 4958 risk if the value is too low
 Estate/Gift Tax auditors are not tax-exempt
auditors
McCord Transfer Technique
(to Donor Advised Fund
without Valuation Agreement)
 Provides third party confirmation of value
 Transfers wealth to the next generation
 Establishes a donor advised fund
 Avoids Gift Tax
 Risk that more goes to charity because of audit
McCord Transfer Technique
(to CFNT Designated Fund or
CFNT Field of Interest Fund)
 Same facts but establishes designated fund or
field of interest fund
 Provides valuation certainty
 Tested in Fifth Circuit
Allyson B. Baumeister, CPA, Partner
Sanford, Baumeister & Frazier, PLLC
Chair, Professional Advisor Outreach
Committee for the CFNT
The Community Foundation as a
Partner in a Business Sale
 Sale Scenario
 Business owner is selling stock in closely-held
company
 Owner wants to make a charitable gift of company
stock prior to the sale
 Owner wants to maximize the charitable
contribution to the organization as well as his
contribution deduction for tax purposes
The Community Foundation as a
Partner in a Business Sale (Cont.)
 Steps for Owner to take for tax deduction
purposes
 Must obtain appraisal of company stock prior to
sale by qualified appraiser
 Must make charitable gift prior to sale
 Must work with Community Foundation in
accomplishing the above steps
 Community Foundation sells the stock that they
have received for full fair market value as of date of
sale
 Gift can be spread out over period of time as sales
proceeds are received
The Community Foundation as a
Partner in a Business Sale (Cont.)
 Results of charitable transfer prior to sale
 Owner receives a tax deduction for the full fair
market value of the stock as of the date of
contribution
 Owner does not recognize gain on sale of the stock
that is transferred to the Community Foundation
 Foundation receives full sales proceeds related to
the stock that they have received at the time of sale
and at the time of any future payments associated
with the sale
The Community Foundation as a
Partner in a Business Sale (Cont.)
 Results of charitable transfer prior to sale
 Community Foundation receives a larger
contribution since no tax is paid on the gain
resulting from the sales transaction
 Owner is able to accomplish charitable goal and
withstand IRS scrutiny as long as the Community
Foundation receives proceeds equal to or greater
than the amount of the appraised value and
charitable deduction claimed.
Questions and Comments