How To Attract Major Gifts

An IRA is one of the worst assets to leave to your heirs. Here’s an alternative that can save tax on your IRA and benefit your church.

Meet Bill and Ann. Bill is retired and has an IRA worth $1,000,000–not unusual in today’s mega-IRA world. They both have other assets: Ann’s 401(k) from her career, their home, other investments and the proceeds from the sale of Bill’s business.

Bill has named Ann the beneficiary of his IRA. When he dies, Ann will re-name the IRA in her name, continue to draw income for the balance of her life and then leave it to their three children.

A “typical” plan. Exactly what most people do.

But it’s a tax disaster.

Take a look at the “before and after” results (just with respect to Bill’s $1,000,000 IRA) in the chart below. Plan A is Bill and Ann’s current plan. Plan B shows the results of a technique I teach in The Smart Giver.

Which looks like a better plan to you?

Most people are what I call “flying blind.” They don’t even know there is a Plan B.

Your church probably has a number of “Bill and Anns.” Knowing about Plan B can endow your church in just a couple of transactions.

The Treasury Department estimates there are currently 3 trillion dollars in IRAs. Right behind this are 60+ million Baby Boomers (the oldest turning 63 this year) who hold 12 trillion dollars in qualified plans such as 401(k) plans.

Will your church get its fair share? Could you help people within your congregation divert money that otherwise would go to the government to their heirs and your church?

For more information about this plan, see the video entitled, “How To Leave 100% Of Your Estate To Your Children Tax Free” on my video podcast site.

This concept is also the subject of one of the 24 lessons in The Smart Giver, an educational series designed to help people increase their income, reduce taxes and help their church all at the same time.

The Psychology Behind Church Stewardship

I’m just starting to read the book, “The 11 Questions Every Donor Asks” by Harvey McKinnon. So far, I think it’s a great book. It is written for fundraisers and people on boards whose partial role is to solicit gifts.  It would certainly make sense to be on the shelf of every pastor’s office as well as every member of the church’s stewardship committee.

By contrast, The Smart Giver, which I publish, is written for the churchgoer. In McKinnon’s book, people in a church congregation are on the other side of the equation as potential donors.

Harvey McKinnon has been involved in fundraising for three decades. He’s pretty much a household word in the profession. The forward to his book was written by Jerold Pannas, who is like the king.

By contrast, I am not a fundraiser. I come from the financial and estate planning world. However, I have spent nearly 40 years (and over 20,000 face-to-face interviews) helping people solve problems, in a lot of cases, they didn’t even know they had before I walked in the door.

Let me give you a quick example. I used to call on business owners with a list of ten questions. Instead of spouting off all my credentials (who cares?) I would simply ask each question one at a time and shut my mouth. Pretty good selling, actually. To make my point, here is one question. This is not true when applying today’s tax rules, but it is a real good example.

Here is the question: “Mr. Business Owner, are you aware that if your wife dies before you do that the IRS is going to want up to 50% of the value of your estate paid to them in cash within nine months?”

To clarify: I live in Arizona, a community property state. When I was using this question, estate taxes were due when either spouse died. Not true today.

To pick up on my story…

As I sat there in silence (extremely hard to do), I often could see the blood drain from my prospect’s face. No one clutched their chest, but I’m sure their heart beat took a leap. The reason was that the businessman’s business generally represented the bulk of his estate. It was all tied up in bricks, mortar and steel. The prospect of having to convert half of it into cash within nine months was scary and in most cases impossible. It would break him and all his hard work would go down the drain.

Of course, I had the solution: simply buy a life insurance policy on his wife.

My point is, though, that most people I called on were fat, dumb and happy. They had no clue they were living with a potential problem that could ruin them financially—much less having to deal with the loss of a loved one.

So even though I am not a fundraiser, I think I am qualified to come up with my own eleven questions. However, the title of my book would be, “The 11 Questions Every Donor Should Ask”.

Why “should” ask? Because, just like my business owner example, most people don’t know enough about all the options they have in making a gift to even know the questions it would make the most sense to ask.

So over the next couple of months, I’m going to give it my best shot to come up my own 11 questions everyone should ask.

Here’s the first one… How can I make a gift to my church without disinheriting my children?

Let’s say you owned a piece of property that now is in the path of progress. You bought it many years ago for a song or inherited it. Your church approaches you and asks you to donate the land because it wants to build a new building.

As much as you may love your church and even be emotionally connected to the cause that the building will promote, here’s the tug of war that may be going on in your mind: you want the property to go to your kids. You always have and they are looking forward to it.

What’s the chance of your making the gift?

On the other hand, what if there were a way for you give the property to the church and still provide your children with an equivalent value as their inheritance? In other words, what if there were a way for you to “give it away and still keep it?”

Let’s flip this around. What if you were the pastor or a member of the stewardship, finance or building committee and you came armed with a plan that would allow the parishioner with the land to make the gift and not cut his children out of his will? What do you think your chances of getting the gift would be then?

Actually, there are a number of ways to “give it away and still keep it.” I can think of four off the top of my head as I write and each is covered within the lessons contained in The Smart Giver.

So, that’s the first question people “should” be asking themselves: “How can I make a gift to my church without disinheriting my children?” Ten more to go. Stay tuned.

Christian Money Management: The Silver Lining In The Current Bad Economy

Every cloud has a silver lining. There are two sides to every coin. The knife cuts both ways.

The dire state of the economy has given rise to some of the best opportunities to make a gift to your church seen in decades.

Many gifts in the planned giving arena use the IRS’s current “Section 7520″ rate, commonly referred to as the AFR, in the calculation of the income tax deduction you receive as a result of your gift.

Just to give you some historical perspective, a couple of years ago, in March  2007, the AFR was 5.8%. A year later, in March of 2008, it had dropped to 3.6%. In February, 2009, it hit the lowest it has ever been since Sec. 7520 was put into effect in 1989: 2.0%. As I write this, March 2009, it is 2.4%.

What does this have to do with me you say? Let me give you a couple of examples.

Let’s say you are age 75 and have a $50,000 CD down at the bank paying 4%. This only spins off $2,000 a year in interest and the interest is taxable. If you are in the 15% tax bracket, that leaves you with $1,700 to take to the store and buy groceries.

You need more income. Hey, have you noticed the price of bread and milk today? You would not be opposed to increasing your income and helping your church at the same time. In meeting with your financial planner, she suggests you look at a charitable gift annuity. CGAs are pretty plain vanilla—they have been around for over 100 years.

Here is a quick summary of the benefits of using a CGA.

1. Your income will increase from $2,000 a year to $3,150.
2. The rules say you can use the February AFR of 2.0 even though you make your gift in March of 2009. This means that 78.7% of the $3,150 is not subject to tax. Bottom line: More money for groceries.
3. When you die, your church receives $50,000.

Let’s change the assumptions a little. Let’s say you were age 75 in March of 2000 and set up the same CGA when the Sec. 7520 rate was 8.0%. The amount excluded from tax would have been only 53.7%. 

Translation: With today’s low AFR, you pay less income tax and have more money for groceries.

 Another example on the other end of the spectrum. Let’s say you are a multimillionaire and are looking for ways to pass your estate on to your children with the least tax impact possible.

One option may be to use a charitable lead trust. The way this works is:

1. You contribute (generally income-producing) property to a charitable lead trust that your attorney drafts for you.
2. Your church (or another qualified charity) receives income from the trust for your life or a certain number of years.
3. When you die, or when the number of years has expired, the property is distributed to your children.

In a nutshell, given the current AFR, the payout percentage chosen and the number of years the payout will last allows the property to pass to the children at a lower tax transfer cost or even no cost at all.

There’s a lot more to it than that, but for our discussion let’s see how the current low Sec. 7520 rate makes the charitable lead trust more attractive than ever before.

Assume you funded the lead trust with $1,000,000 and set it up to pay 7% ($70,000) a year to your church for 15 years at which time the trust would end and the property dispersed to your kids.

If the AFR was 8% (as it was in Feb. 2000), after doing the math the taxable gift resulting in transferring $1,000,00 to the next generation is $295,040. That is a substantial savings.

However, if the AFR was 2%, the taxable gift would only be $100,549!

In fairness, I should point out that other planned giving vehicles, a lower AFR produces worse results.

I hope the take-a-way from this is that if you are a person who is interested in increasing your income, reducing your taxes, preserving your estate from undo taxation while simultaneously helping your church, it would be prudent to examine the various planning giving techniques which may apply to your situation.

If you represent a church and are interested in raising more money for your ministries and/or building an endowment fund so that eventually your church can finance its operations from the interest on the investments in your endowment fund instead of primarily relying on pledges, it would be wise to communicate and publicize the planned giving techniques that currently have high value due to the low AFR.

This is no small potato. During a planned giving seminar I attended in June of 2008, the attorney from the software company that I use to crunch the numbers indicated that the average lead trust that they consulted on in 2008 was $5,000,000.

If you are a church, I’ll leave you with this thought: A $5,000,000 lead trust that paid out 6% for 15 years would generate an annual income to your church of $300,000. Over the 15 years, it would add up to $4,500,000. If the $300,000 were put in your endowment fund and earned 6% for 15 years, it would grow to $7,400,000 (and change). $7,400,000 at 6% would spin off $444,000 a year forever.

What ministries do you have that could benefit?

How To Make Tax Free Transfers From Your IRA

Want to potentially lower your taxes and help your church financially? Then acquaint yourself with the IRA Charitable Rollover. Currently, this piece of legislation has a time limit and is due to expire at the end of 2009.

The IRA Charitable Rollover was originally a part of the Pension Protection Act of 2006. It expired 12/31/2007. It was “extended” effective October 3, 2008 and expires again 12/31/09.

It allows persons 70 1/2 and older who have an IRA to transfer up to $100,000 tax-free to the qualified charities of their choice. The operative words are “tax free.”

Transferring an amount equal to or greater than the Required Minimum Distribution from an IRA can lower taxes as an IRA Charitable Rollover satisfies the RMD requirement but is not taxed.

RMDs have been suspended for 2009, but there is a push on to make the IRA Charitable Rollover permanent.

In addition, planned giving professionals and legislators are seeking to extend the tax-free transfers to charitable remainder unitrusts, charitable remainder annuity trusts, pooled income funds and charitable gift annuities.

If you don’t itemize, the IRA Charitable Rollover can enable a gift without any tax consequences. For non-itemizers, charitable gifts are otherwise non-deductible.

Using the IRA Charitable Rollover can possibly lower or eliminate the tax on Social Security retirement benefits.

If you are a generous donor, it can allow you to exceed the 50% of adjusted gross income limitation for cash contributions.

Bottom line: If you do not familiarize yourself with the IRA Charitable Rollover, you may be leaving money on the table.

If you represent a church and do not fully communicate the benefits of the IRA Charitable Rollover to your congregation, you are passing up an opportunity to put a six-figure number in your bank account or endowment fund.

For more information, see the video entitled, “How To Make A Tax-Free Transfer From Your IRA” at http://thesmartgiver.com/podcast/