1 Integrating Charitable Giving Into Legacy Planning FIDELITY CHARITABLE SERVICES ®

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Integrating Charitable Giving

Into Legacy Planning

FIDELITY CHARITABLE SERVICES

®

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Today’s Objectives

Provide an update on charitable giving trends

Review income tax planning strategies

Review estate planning strategies

Discuss the benefits of donor-advised funds

Learn about Fidelity Charitable Services® Advisor Resources

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Update on Charitable Giving Trends

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Growth in Charitable Giving

Source: Giving USA 2007

Growth in Charitable Giving($ Billions)

$23$32

$55

$83

$105

$139

$238

$295

$0

$50

$100

$150

$200

$250

$300

$350

1971 1976 1981 1986 1991 1996 2001 2006 2007

$306.4

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Charitable Assets in Structured Giving Vehicles

Only 15% of HNW households use structured giving vehicles.1

But, 52% of HNW individuals show an interest in discussing charitable planning with an advisor.2

455.6

106.5

44.617.8 19.2

0

50

100

150

200

250

300

350

400

450

500

PrivateFoundation

Charitable Trusts CommunityFoundations

CorporateFoundations

Donor-AdvisedFunds

1HNW defined as households with $2MM+ in investable assets (all assets except primary residence, closely held business partnerships, restricted stock, vested/unvested options, insurance and annuities, defined contribution assets)

22004 Fidelity Study on Wealth and Advice.

3 Includes community foundation donor-advised fund assets. Charitable gift annuities are not included in the IRS Statistics of Income, Bulletin – Winter 2007

Sources: The Foundation Center’s Foundation Yearbook, June 2007; Chronicle of Philanthropy, May 2007; IRS Statistics of Income, Bulletin – Winter 2007

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Sources of Charitable Giving

Source: AAFRC Trust for Philanthropy/Giving USA 2008

2007 Sources of Charitable Giving($ Billions)

Individuals$229.30

Corporations$15.69

Foundations$38.52

Bequests$23.15

74.8%

12.6%

5.1%7.6%

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Legislative Environment

442962.1.0

Pension Protection Act of 2006 contains several important charitable provisions (August ’06)

The law includes:• A statutory definition of “Donor Advised Fund” as part of the Internal Revenue Code

• Charitable IRA Rollover provision to certain qualified charities for taxpayers over 70½

• Special substantiation and deductibility rules for certain charitable contributions

• An extension of rules surrounding “excess business holdings” in donor advised funds

U.S. Treasury results from the review of DAFs is due in late 2007

Increased scrutiny around taxation of carried interest

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Evaluating Different Structured Giving Vehicles

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Selecting the Right Giving Solution

* Charitable Lead Trusts are not considered here.** Sponsoring Charities for DAF programs will generally assess administrative fees.***Fidelity Charitable Gift Fund Pooled Income Fund**** Certain minimum account activity requirements generally apply.

Donor-recommended distributions and investments must be approved by sponsoring charity’s board

Create a legacy of giving

Generally, choice of anonymity or recognition on grants

Deduction limitation 50/30 (federal)

Generally does not include excise taxes

Typically no annual distribution is required at account level****

No start-up fees**

Donor-Advised Fund

Control over distributions and investment management (CRT only)


Capital gains tax avoided or deferred

Income taxes to non-charitable beneficiaries

Provides income stream to non-charitable beneficiaries

PIF***: No start up fee CRT: Legal expenses to draft

documents, plus additional fees

Split Interest (PIF/CRT*)

Control over grants and investment management


Foundation information is publicly available via IRS Form 990-PF and www.grantsmart.org

Deduction limitation 30/20 (federal)

Excise taxes

5% annual distribution for charitable purpose required

Start-up fees

Private Foundation

Choice to name PIF or CRT as you wish

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Private Foundation or Donor-Advised Fund?

Donor-Advised Fund

Private FoundationQuestions to Ask

1. Do you have $1 million or more to contribute?

2. Do you want control over the investments?

4. Want to hire family to oversee your philanthropy?

3. Do you want control over grantmaking?

7. Do you want the option to remain anonymous on grants?

6. Do you want the largest tax deduction possible?

5. Are you looking for simplicity?

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Regulatory Considerations

*For assets other than cash, deductions assume that the property has been held at least 12 months; if held less than one year, then deduction is generally limited to cost basis.

Self-dealing and Excess business holdings rules apply (IRC Sec. 4943)

20% of AGI; generallylimited to cost basis

30% of AGI; generally deductible at FMV

If shares are subject to Rule 144, it would continue to apply after those shares are donated


30% of AGI; generallydeductible at FMV

30% of AGI

50% of AGI

Key RegulationsALLOWABLE DEDUCTION*TYPE OF ASSET

CASH

Private Foundation

Charity with DAF program

OTHER SECURITIES

Private Foundation


PUBLIC SECURITIES

Private Foundation


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Regulatory Considerations (cont.)

*For assets other than cash, deductions assume that the property has been held at least 12 months; if held less than one year, then deduction is generally limited to cost basis.

Rule against self-dealing20% of AGI; generally limited to cost basis


Rule against self-dealing; excess business holdings rule

20% of AGI; generally limited to cost basis


Key RegulationsALLOWABLE DEDUCTION*TYPE OF ASSET

REAL ESTATE

Private foundation


PRIVATE COMPANY STOCK

Private foundation


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Considerations for Administrating Private Foundations

Monitor income and expenditures

Assist in monitoring, calculating, and distributing 5% annually

Verify the IRC Section 501(c)(3) status of potential grant recipients

Issue grant checks

Coordinate preparation of foundation’s federal return

Compliance monitoring

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Assets and Funding Considerations for a Private Foundation

Tax deduction may be limited to cost basis for some assets, not fair market value (FMV)

Foundation may need to liquidate assets to distribute required 5% of the FMV of its investments each year

Self-dealing transactions

Jeopardy investments

Excess business holdings

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Unwinding a Private Foundation?

Time to unwind a Private Foundation?

Are the administrative responsibilities of your foundation too burdensome?

Would you prefer to remain anonymous on grants?

Are you bothered by constant solicitations for charitable grants?

Do family members disagree about grantmaking priorities?

Do you worry about who will run your foundation in the future?

Ways to unwind a Private Foundation?

Distribute assets into more than one entity

Merge or consolidate with another private foundation

Distribute assets to a public charity, such as one with a donor-advised fund program

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What is a Donor-Advised Fund?

DAFs have been around since the 1930’s, but witnessed significant growth starting in the 1990’s

One can make an irrevocable contribution to a charity with a DAF program and be eligible for an immediate tax deduction, advise how their contributions are invested, and recommend grants from their DAF to their favorite charities, often with the option of remaining anonymous

A DAF allows your client to combine the most favorable tax benefits with the flexibility to support their favorite charities on their own timetable

In the last decade, many people have discovered that with a DAF, they are able to better support their favorite charities

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How to Establish a Donor-Advised Fund

All donors may be eligible for an immediate tax deduction for their irrevocable contributions.

Step 1

Step 2

Step 3

Step 4

Charity accepts additional contributions from donor and 3rd-party contributors for allocation to the DAF.

Donor establishes DAF with contribution to charity.Donor names DAF and designates Account Holders, who have recommendation privileges over the DAF.

Account Holders recommend grants to qualified charities.

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Benefits of Donor-Advised Funds

Potential immediate federal income tax deduction*

Usually no tax on appreciation of donated capital gain property

Ability to support multiple charities from the proceeds of the sale of a single block of stock

Flexibility to recommend charitable grants on donor’s own timetable (often subject to minimum grant activity requirements)

Financial benefits

* You may need to itemize deductions and certain other limits may apply

Personal benefits

Consolidate charitable giving

Instill a spirit of giving in future generations

Build a charitable legacy by naming successors to assumeprivileges over the DAF

Enable more support to charities

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Complement to a Private Foundation

Helps to groom children to run a private foundation – teaches them about philanthropy

Maximizes charitable tax deductions

Fund private foundation up to the limit

and

Contribute to a public charity with a DAF program for the difference between the deduction limits of the two

Advantages of public charity with a DAF program:

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Combining DAFs with Split-Interest Giving Vehicles

Client/Donor

Donates Assets

Pays Income

Charitable Remainder Trust (CRT)

Public Charity with

DAF program

Distributes Remainder

Pays lifetime income from assets back to client and/or other income beneficiary(ies)

At donor’s death, distributes remaining assets to charity with DAF program

Becomes eligible to take a partial tax deduction

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Why Charitable Planning for Your Practice?

Helps advisors:

Deepen client relationships

Differentiate your practice from others

Become involved in legacy planning, which potentially leads to new relationships with future generations

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Income Tax Strategies:Assets to Consider Giving During Life

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Contributing Special Assets to Charities

Private C-Corp Shares

Private S-Corp Shares

Certain LLC and limited partnership interests

Residential Real Estate

Other Real Estate

Cash Value of Life Insurance

Art & Collectibles

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Situation: Married couple

$100,000 of long-term appreciated securities Cost basis: $40k; unrealized long-term gains: $60k

Strategy: Contribute securities directly to charity rather than selling them first

Sell securities & donate net cash proceeds to charity ($91,000) or Contribute securities to the Gift Fund ($100,000)

Benefits: Less in taxes, more in charitable contributions

With a direct donation to the charity, the donor’s federal income taxes are reduced by an additional $12,150 and the charity receives $9,000 more

Save More Taxes, Do More Good: Hypothetical Case Study

* Assumes all realized gains are subject to the maximum federal long-term capital gain tax rate of 15%. Does not take into account any state or local taxes.**Availability of certain federal income tax deductions may depend on whether you itemize deductions. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis.This is a hypothetical example for illustrative purposes only. State and local taxes, the federal alternative minimum-tax and limitations to itemized deductions applicable to taxpayers in higher-income brackets are not taken into account.

Current Fair Market Value of Securities

Federal Long-term Capital Gains Tax Paid* (15%)Assumes cost basis of $40,000, and long-term capital gains of $60,000

Charitable Contribution/Charitable Deduction**

Value of Charitable Deduction

Less Capital Gain Taxes Paid* (Assumes donor was in the 35% federal income tax bracket)

Sell securities & donate net cash

proceeds to charity

$100,000

$9,000

$91,000

$22,850

Contributesecurities to

the Gift Fund

With a direct donation to the charity, the donor’s federal income taxes are

reduced by an additional $12,150 and the charity receives $9,000 more

$100,000

$0

$100,000

$35,000

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Charitable Venture Capitalist: Hypothetical Case Study

Situation:

Venture capitalist with portfolio of non-publicly traded stock

Shares in S-Corps, Private C-Corps, and interests in limited partnerships

Wants to give to a variety of charities, but does not have much cash to give at this time

Strategy:

Contribute assets to a public charity with a DAF program

Benefits:

Recommend grants from a single DAF

Eligible for a tax deduction for the fair market value of the contribution as determined by an appraisal

Avoid tax on gain from the sale of the donated property since the property, at the time of the sale and thereafter, is the asset of the charity and not that of the donor.

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Why Donate Real Estate?

Key potential benefits for donors:

Avoid capital gains tax on unrealized appreciation

Deduct fair market value of the property

Carry forward deduction for up to five years if client’s contribution exceeds limit on

charitable deductions

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Ready to Retire: Hypothetical Case Study

Situation: Married couple; age 70; AGI: $6 million Recently sold family business; wants to sell

home and retire

Strategy: Clients contribute home to a charity with a

DAF program Charity sells the property for $3 million Charity allocates the proceeds to four DAFs of

$750,000 each - one for each adult child

Benefits: Tax deduction for donation Avoids capital gains tax Enable more support to charities

Client contribution of $3 million to charity

DAF with $750K for child #2




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Contributions of Private Company Stock: Hypothetical Case Study

Situation:

Client wants to contribute stock of a privately held company.

Client is philanthropically inclined, but some of the charities they want to support do not have the resources or experience to accept or efficiently liquidate private company stock.

Strategy:

Client contributes privately held stock to a charity with a DAF program

In order to claim tax deduction of $5K or more for a contribution of a non-publicly traded asset, donors must obtain qualified appraisal.

Benefits:

Tax deduction for donation

Avoids capital gains tax

Enable more support to charities

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Estate Planning Strategies:Which Assets to Give at Death

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Why Make Charitable Giving Part of an Estate Plan?

Clients want to:

Continue charitable donations beyond death

Make their wishes known

Specify the most tax-efficient assets to donate

Reduce taxes for heirs

Specify one or more charities as beneficiaries in their will or trust in case family members pre-decease them

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Estate Planning Benefits of Gifts to Charities with DAF Programs

Clients can:

Decrease estate taxes by reducing size of the taxable estate by contributing to charity with a DAF during their lifetime or by making a bequest to a charity with a DAF

Teach heirs about philanthropy by giving family members recommendation privileges on DAF

Get flexibility in planning for a charitable legacy

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Leaving a Charitable Legacy

If donors name a charity with a DAF as:

• A Primary beneficiary

•A Contingent beneficiary

•Charitable beneficiary in a split-interest trust established at death

They will benefit fromthese advantages:

•Name a DAF as beneficiary and no need to decide today which causes the contribution will ultimately support

•At death, gift to the charity with a DAF program, family members or advisors can recommend which charities to support

Naming a Charity with a DAF Program as Beneficiary in a Will

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Which Assets to Consider Gifting at Death

Non-qualified stock options

Restricted stock

Installment sale notes

Retirement plan assets

IRD*-Producing Assets:

*Income in respect of the decedent

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Tax Benefits of Giving IRD Assets to Charity

Benefits to the charity:

The charity is not required to pay taxes on IRD

Benefits to the decedent:

Decedent’s estate can take a charitable deduction for the assets

donated to charity

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Disclosures

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Fidelity does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Availability of certain federal income tax deductions may depend on whether you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis. Consult an attorney or tax advisor regarding your specific legal or tax situation.

Fidelity makes no warranties with regard to the information provided or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, the information furnished herein.

Fidelity Charitable Services, Fidelity Private Foundation Services®, and the pyramid logo are registered service marks of FMR LLC.

The Fidelity® Charitable Gift FundSM (“Gift Fund”) is an independent public charity with a donor-advised fund program. Various Fidelity companies provide non-discretionary investment management and administrative services to the Gift Fund. Charitable Gift Fund and the Charitable Gift Fund logo are service marks, and Giving Account® is a registered service mark, of the Trustees of the Fidelity Investments® Charitable Gift Fund. Fidelity and Fidelity Investments are registered service marks of FMR LLC, used by the Gift Fund under license.

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1 Integrating Charitable Giving Into Legacy Planning FIDELITY CHARITABLE SERVICES ®