Planned Giving in a High Tax Rate Environment b ho.pdfPlanned Giving in a High Tax Rate Environment May 2013 This presentation is provided by AllianceBernstein L.P. Bernst ein Global

The Great Wealth Transfer: Where Are We Now?Planned Giving in a High Tax Rate Environment

May 2013

This presentation is provided by AllianceBernstein L.P. Bernstein Global Wealth Management is a unit of AllianceBernstein L.P. This presentation booklet has been provided to you for use in a private and confidential meeting to discuss a potential or existing investment advisory relationship. This presentation is not an advertisement and is not intended for public use or distribution beyond our private meeting. Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

Brian D. WodarNational Director – Nonprofit Advisory Services

[email protected](312) 696-7886

Bernstein.com

Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your

individual circumstances with professionals in those areas before making any decisions.

Where Are We Now? 1

Bernstein.com

Fund Management

Research and Investment Management Support for Nonprofits

�Development Officers

�Reaching and motivating donors

�Research on planned giving techniques

�Quantifying impact of fund-raising and asset growth to organization and mission

�Donors

�Education on ABCs of gifting economics

�Stress testing of various charitablegiving opportunities

�Customizing investment managementto complexities of personal andcharitable trusts

�Investment Committees

�Spending and asset allocation policy decision making for endowments

�Charity-run donor programs

Fund-Raising

Where Are We Now? 2

Bernstein.com

Uncertainty Continues to Plague Donors

�Can I afford to make a gift?

�How do charitable deduction limitations affect philanthropic efficiency?

�Will charitable giving reduce the legacy for my children?

Where Are We Now? 3

Bernstein.com

Today’s Agenda

�The financial challenge for not-for-profits

�The financial bottom line for donors

�Outright gifts

�Considerations for donors with IRA assets

�Charitable trust structures

Where Are We Now? 4

Bernstein.com

Today’s Agenda



�Outright gifts



Where Are We Now? 5

Bernstein.com

Bernstein’s Analytical Model

Robust and critical planning tool to help:

�Align the investment and spending policies with organization’s mission

�Illuminate the benefits and trade-offs of giving techniques for current and future donors

Assets

Expenditures

Revenue Sources (Current and Future)

Donor Base(Current and Future)

Planned Giving

Tax Incentives

Spending&

AllocationPolicy

Fundraising&

CapitalCampaigns

NFP ProfileBernstein Wealth

Forecasting ModelDistribution of

10,000 OutcomesScenarios

5%—Top 5% of Outcomes

10%

50%—Median Outcome

90%

95%—Bottom 5% of Outcomes

ProbabilityDistribution

10,000 SimulatedObservations Based

on Bernstein’sProprietary

Capital-MarketsResearch

Source: AllianceBernstein. See Appendix, Notes on Wealth Forecasting System, for details.

6Where Are We Now?

Bernstein.com Where Are We Now?

Current return expectations are

muted

As rates trended to historic lows, returns were strong for a long period

Bond returns remained positive, while yields rose to record highs

Bond Returns Are Unlikely to Be Propelled by Declining Rates

Past performance does not guarantee future results.Through December 31, 2012Treasury bonds provide fixed rates of return as well as principal guarantees if held to maturity.Source: Barclays and US Bureau of Economic Analysis

10-Year US Treasury Yields

1955–1980Annualized Return: 4.5%

1981–2012Annualized Return: 8.6%

?0

4

8

12

16

1955 1962 1970 1977 1985 1992 2000 2007 2015 2022 2030

Per

cent

%

7Where Are We Now?


1.9%

3.3%

5.5%

7.4%

100% Bonds 20/80 60/40 100% Stocks

Conservative May Not Really Be Conservative

As of December 31, 2012*Projected pre-tax 10-year compound annual growth rate. Stocks modeled as 21% US diversified, 21% US value, 21% US growth, 7% US small/mid-cap, 22.5% developed international and 7.5% emerging markets. Bonds modeled as intermediate-term global taxables.Based on Bernstein’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System for further details.Source: AllianceBernstein

9.1%

8.1%

6.7%5.8%

Normal

Current

Median Forward Return Projections*Next 10 Years

8Where Are We Now?


Short-Term RiskProbability of Peak-to-Trough

Loss of 20%* Stocks/Bonds***

Long-Term RiskProbability of Depleting

20% of Principal**

4%

12%

36%

61%

45%

25%

18%

15%

20%/80%

40%/60%

60%/40%

80%/20%

As of December 31, 2012 *Projections indicate the probability of a peak-to-trough decline in pretax, pre-cash-flow cumulative returns of 20% over the next 20 years. Because the Wealth Forecasting System uses annual capital market returns, the probability of peak-to-trough losses measured on a more frequent basis (such as daily or monthly) may be understated. The probabilities depicted above include an upward adjustment intended to account for the incidence of peak-to-trough losses that do not last an exact number of years. **Represents the probability of depleting 20% of the nominal portfolio value over 20 years, assuming a 5% unitrust distribution. ***Stocks modeled as 21% US diversified, 21% US value, 21% US growth, 7% US small/mid-cap, 22.5% developed international and 7.5% emerging markets. Bonds modeled as intermediate-term global taxables.Based on Bernstein’s estimates of the range of returns for the applicable capital markets over the next 20 years. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System in Appendix for further details.Source: AllianceBernstein

Board Members Should Weigh Two Different Kinds of Risk

9Where Are We Now?


1.2%

2.3%

3.3%

4.2%

20/80 40/60 60/40 80/20

As of December 31, 2012 *Sustainable unitrust distribution calculated at 50% level of confidence of maintaining inflation-adjusted portfolio value over 20 years. Stocks modeled as 21% US diversified, 21% US value, 21% US growth, 7% US small/mid-cap, 22.5% developed international and 7.5% emerging markets. Bonds modeled as intermediate-term global taxables.Based on Bernstein’s estimates of the range of returns for the applicable capital markets over the next 20 years. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System for further details.Source: AllianceBernstein

Sustainable Unitrust Distribution–20 YearsMedian, Inflation-Adjusted

5.4%4.8%

4.1%

3.3%

Portfolios Are Unlikely to Support Normal Spending Levels

Normal

Current

10Where Are We Now?

AllianceBernstein.com

Fund-Raising Can Be the Critical Solution

% Stocks/% Bonds 20/80 40/60 60/40 80/20

10-Year CompoundReal Return

0.9% 2.0% 3.0% 4.0%

Spending Rate

3.0% $210K $100K $0 $0

4.0% 310K 200K 100K 0

5.0% 410K 300K 200K 100K

% Stocks/% Bonds 20/80 40/60 60/40 80/20

10-Year CompoundReal Return

(1.8)% (1.4)% (1.2)% (1.2)%

Spending Rate

3.0% $480K $440K $420K $420K

4.0% 580K 540K 520K 520K

5.0% 680K 640K 620K 620K

How Much Fund-Raising Does a $10 Million FoundationNeed to Keep Pace with Inflation?

50th Percentile 90th Percentile

As of December 31, 2012Projected pretax 10-year compound annual growth rate. Stocks modeled as 21% US diversified, 21% US value, 21% US growth, 7% US small/mid-cap, 22.5% developed international and 7.5% emerging markets. Bonds modeled as intermediate-term global taxables. Fund-raising amounts are increased each year by the rate of inflation.Based on Bernstein’s estimates of the range of returns for the applicable capital markets over the periods analyzed. Data do not represent past performance and are not a promise of actual future results or a range of future results. See Notes on Wealth Forecasting System for further details.Source: AllianceBernstein

11Where Are We Now?


Today’s Agenda



�Outright gifts



12Where Are We Now?


Bernstein Framework:Evaluating What You Need Reveals What You Can Give

LifestyleSpending

ExtraSpending

PersonalReserve

Children

Grandchildren

Charity

Core Capital

� Amount to ensure spending needs are met

� Often calculated at 90%–95% level of confidence

Discretionary Capital

� Amount for expanded opportunities

� Your “gifting capacity”

� How much?

� To whom?

� How quickly?

� How allocated?

� What strategies?

� How much do you spend?

� What is your age?

� What is your risk tolerance?

13Where Are We Now?


Projected Returns and Volatility of Various Allocations

10% (SuperiorMarkets)

50% (MedianMarkets)

90% (PoorMarkets)

Range of Returns

Range of Annual Pre-Tax Returns* (%)

Allocation (Stocks/Bonds)

Probability of Peak-to-Trough Losses** (%)

Allocation (Stocks/Bonds)

Data does not represent past performance and is not a promise of actual or range of future results. See Assumptions and Notes on Wealth Forecasting System in Appendix for further details.Asset allocations assume globally diversified stocks (21% U.S. value, 21% U.S. growth, 21% diversified U.S., 7% small-mid cap, 22.5% developed foreign markets, 7.5% emerging markets) and diversified intermediate term municipal bonds in the proportions noted.*Based on Bernstein's estimates of the range of returns for the applicable capital markets over the next 30 years as of December 31, 2012. First year volatility of the portfolios: 0/100 = 3.7%, 20/80 = 4.7%, 40/60 = 7.2%, 60/40 = 10.1%, 80/20 = 13.0%, 100/0 = 16.0%. The annual equivalent volatility of the portfolios over the entire 30-year analysis: 0/100 = 7.2%, 20/80 = 7.7%, 40/60 = 9.6%, 60/40 = 12.1%, 80/20 = 15.1%, 100/0 = 18.1%. Annual equivalent volatility differs from the first year volatility because the expectation and distribution of asset class returns change over time.**Data indicates the probability of a peak-to-trough decline in pre-tax, pre-cash-flow cumulative returns of 10%, 20% or 30% over the next 30 years. Because the Wealth Forecasting System uses annual capital markets returns, the probability of peak-to-trough losses measured on a more frequent basis (such as daily or monthly), may be understated. The probabilities depicted above include an upward adjustment intended to account for the incidence of peak-to-trough losses that do not last an exact number of years.

14Where Are We Now?


Estimated Spending Rate and Core Capital Amounts:Based on Age

Sustainable Spending Rate*

Age 55 1.5% 2.0% 2.4% 2.6% 2.7% 2.7%

Age 65 2.1% 2.6% 2.9% 3.1% 3.2% 3.2%

Age 75 3.0% 3.6% 3.8% 4.2% 4.2% 4.3%

Estimated Core Capital—Spending $100,000($Millions)

*These spending rates are for couples and assume an allocation of globally diversified stocks (21% U.S. value, 21% U.S. growth, 21% diversified U.S., 7% small-mid cap, 22.5% developed foreign markets, 7.5% emerging markets) and diversified intermediate term municipal bonds in the proportions noted. Spending is a percentage of initial value of portfolio and is grown with inflation; spending rates assume maintaining spending with a 90% level of confidence. Based on Bernstein estimates of the range of returns for the applicable capital markets over the periods analyzed as of December 31, 2012. Data do not represent past performance and are not a promise of actual future results. See Notes on Wealth Forecasting at the end of this presentation for further details. All information on longevity and mortality-adjusted investment analyses in this study are based on mortality tables compiled in 2000. To reflect that high net worth individuals live longer than average, we subtract three years from each individual's age (e.g. a 55 year-old would be modeled as a 52 year-old), In our mortality adjusted analyses, the lifespan of an individual varies in each of our 10,000 trials in accordance with mortality tables. Source: Society of Actuaries RP-2000 mortality tables and AllianceBernstein

Allocation 0/100 20/80 40/60 60/40 80/20 100/0

Allocation 0/100 20/80 40/60 60/40 80/20 100/0

Age 55 $6.5 $4.9 $4.2 $3.9 $3.7 $3.7Age 65 4.8 3.8 3.4 3.2 3.1 3.1Age 75 3.3 2.8 2.6 2.4 2.4 2.3

15Where Are We Now?


Today’s Agenda



�Outright gifts



16Where Are We Now?


The Good News: Charitable Giving Tax Incentives Have Gone Up

American Taxpayer Relief Act (ATRA) and Health Care Law*

Income Type Tax Rate Joint Filer Single Filer

Short-Term Gains and Ordinary Income

39.6% $450,000 $400,000

Long-Term Gains and Qualified Dividends

20.0% $450,000 $400,000

Medicare Surtax on Net Investment Income

3.8% $250,000 $200,000

Impact of ATRA on 2013 Charitable Giving**

Income Percentile Percent Change Amount ($Billions)

All Donors +1.3% $3.3

Top 1 Percent +6.2% $3.4

*Patient Protection and Affordable Care Act of 2010 and American Taxpayer Relief Act of 2012. The adjusted gross income thresholds for ordinary income and long-term capital gains are indexed for inflation from 2013. The income threshold for net investment income is not indexed for inflation. **Souce: Urban-Brookings Tax Policy Center Microsimulation Model. http://www.urban.org/publications/412732.html

17Where Are We Now?


$650 $566

$350 $434

35.0% 43.4%

The Basics: Income Tax Economics of Giving

*Deduction limited to 50% or 30% of AGI in year of gift for cash or appreciated public stock, respectively. Income Tax Savings assumes full use of deduction against income otherwise taxed at indicated tax rate. Donors may carry forward any unused charitable deductions for a period of up to five years. For simplicity, we have ignored the “Pease” limitation of itemized deductions for donors with high AGIs, although this limitation is very unlikely to affect the charitable deduction in states with an income tax. Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

Gift Type: Cash*

Donor Tax Rate

Income Tax Savings

Effective Cost of Gift

Pre-Tax Cost of Gift$1,000$1,000

18Where Are We Now?


Quantifying the Leverage from Income Tax Benefits

To Charity: $1.77

43.4% Tax Deduction: ($0.77)

Cost to Donor: $1.00

1.8x

Gift Type: Cash*


Where Are We Now? 19


To Charity: $3.04x

43.4% Tax Deduction: ($1.32)

23.8% Capital Gains Tax: ($0.73)

Cost to Donor: $1.00x

Quantifying the Leverage from Income Tax Benefits

3.0x

Gift Type: Low Basis Stock*




Today’s Agenda



�Outright gifts



21Where Are We Now?


ATRA “Extender”: Charitable IRA Rollover Extended Through 2013*

�Exclusion from donor adjusted gross income of any distribution from an IRA made directly to a qualified charity (excludes donor advised funds, supporting organizations and private foundations)

�Exclusion applies to gifts up to $100,000

�Charitable IRA rollover is available for individuals age 70.5 or older

�No charitable deduction for qualifying distributions that are excluded from adjusted gross income

�Rollover is counted towards minimum required distribution amount

*P.L. 112-240, enacted Jan. 2, 2013



Comparison of Charitable IRA Rollover to Cash and Stock Gifts

*Deduction limited to 50% or 30% of AGI in year of gift for cash or appreciated public stock, respectively. Income Tax Savings assumes full use of deduction against income otherwise taxed at 43.4% tax rate (39.6% plus 3.8% Medicare surtax). For simplicity, we have ignored the “Pease” limitation of itemized deductions for donors with high AGIs, although this limitation is very unlikely to affect the charitable deduction in states with an income tax.**Applicable rate for IRA distribution is assumed to be 39.6% (no after-tax IRA contributions and Medicare surtax does not apply). Applicable rate for stock gain is assumed to be 23.8%. Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

Gift TypeGift

AmountDeduction

Benefit*Embedded

Tax**Effective

Cost

Charitable IRA rollover

$100,000 $0 $39,600 $60,400

Cash $100,000 $43,400 $0 $56,600

50% Basis Stock $100,000 $43,400 $11,900 $44,700

0% Basis Stock $100,000 $43,400 $23,800 $32,800

�Charitable IRA rollover is a much better way to give from an IRA during a donor’s lifetime…

�…and may be an attractive option if the charitable rollover option expires after 2013…

�….but, donors should look first to appreciated stock as the effective cost may be much lower than either cash or IRA gifts



Case Study: Donor with Large IRA

Donor Profile

�Age 70

�Wealthy, with considerable discretionary capital that includes but is not limited to:

�$1 million IRA (no basis)

�$1 million liquid investment portfolio

�Interested in providing for both charity and family beneficiaries

Donor Question:What Should I Do with My IRA?

24Where Are We Now?


Which Plan Do You Prefer?

Median Wealth – Year 20Inflation-Adjusted ($ Millions)

$0.9$1.3

$2.7$3.1

Plan A Plan B

$3.6

$4.4

+15%

+44%

+22%

See the following page for Plan A and Plan B descriptions. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

Total

Charity

Family

25Where Are We Now?


Plan A versus Plan B

Plan A: IRA Bequest

�Charity is named as beneficiary of IRA

�IRA assets minus required minimum distributions will transfer to charity from the estate

Plan B: Current Gift plus Roth Conversion

�Charity receives a gift today of $500,000 in cash (or high basis assets converted to cash)

�IRA is converted to Roth IRA in year of gift, generating $1 million of taxable income that is partially offset by charitable deduction*

�Children inherit Roth IRA plus taxable portfolio reduced by current gift to charity and conversion income taxes

*Deduction limited to 50% of AGI in year of gift for cash. For simplicity, we have assumed no other income aside from the Roth conversion and have ignored the “Pease” limitation of itemized deductions for donors with adjusted gross income in excess of threshold amount (above $300,000 for joint filers in 2013). Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

26Where Are We Now?


Comparison of Plans

*Assuming identical investments across taxable and retirement accounts more of the family’s after-tax wealth is located in an income tax advantaged account under Plan B which results in a higher after-tax compound annual growth rate all else being equal.

Plan AIRA Bequest

Plan BGift + Roth

Gift to Charity Deferred Immediate

Growth of Family Assets* Slower Faster

Impact to Charity ??AnalysisRequired

??

Impact to Family ?? ??

27Where Are We Now?


Charity Impact:IRA Bequest vs. 50% Cash Gift Today

$1.0$0.9

$0.5

$1.3

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

0 5 10 15 20

IRA Bequest Cash Gift Today

Median Wealth Over Time*Inflation-Adjusted ($ Millions)

*Median value of cash gift today assumes that charity invests gift in 100% global equities. IRA is also assumed to be invested 100% in global equities. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

28Where Are We Now?


Family Impact:Full Taxable Portfolio vs. Reduced Taxable Portfolio with Roth IRA

$1.1

$0.3

$1.7

$0.4

$2.7

$0.6

$1.0

$1.5

$2.5

Plan A Plan B Plan A Plan B Plan A Plan B

RothTaxable

1 Year 10 Years 20 Years

$1.3

$1.9

$3.1

Median Wealth Over Time*Inflation-Adjusted ($ Millions)

*All portfolios also assumed to be invested 100% in global equities. Donor is a NYC resident subject to top marginal tax rates. All wealth values are before estate taxes. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

29Where Are We Now?


Roth Conversion Paired with Current Gift Can Be a Win-Win

Median Wealth – Year 20Inflation-Adjusted ($ Millions)

$0.9$1.3

$2.7

$0.6

$2.5

Plan A Plan B

RothTaxableCharity $3.6

$4.4

Charity +$0.4 mil.

Family +$0.4 mil.

IRA Bequest Roth Conversion

*Median value of cash gift today assumes that charity invests gift in 100% global equities. All other portfolios also assumed to be invested 100% in global equities. Donor is a NYC resident subject to top marginal tax rates. All wealth values are before estate taxes. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

30Where Are We Now?


Today’s Agenda



�Outright gifts



� Charitable Remainder Trusts

� Charitable Lead Trusts

31Where Are We Now?


Charitable Remainder Trust

*Relative to an outright sale of a highly appreciated asset.

Benefits of a Charitable Remainder Trust Benefit in 2013 vs. 2012

Up-front income tax deduction Higher

Defer capital gains tax Higher

Tax-advantaged growth Higher

Potential for more personal wealth* Higher

Diversify risk in concentrated asset Same

Give to charity Same

32Where Are We Now?


Case Study: Donor with Low-Basis Asset

Donor Profile

�Age 65 and recently retired

�$2.0 million low-basis single-stock

�Concerned about concentration risk, taxes and future income

Donor Question:What are the benefits of using a charitable remainder

trust for some or all of the low-basis stock?

33Where Are We Now?


The Personal Benefit from a CRT is Much Higher post-ATRA

92%

25%

0%

25%

50%

75%

100%

0 5 10 15 20 25

2013 2012

Probability of Greater Personal Wealth*8% CRUT vs. Outright Sale

*Assumes donor is a CA resident subject to top marginal tax rates and stock has $0 cost basis. Further assumes that 50% of the stock is sold outright ($1 million) and the other 50% is contributed to a lifetime 8.0% CRUT where it is immediately diversified. Charitable deduction is applied to income generated by outright stock sale, payouts from CRT, and investment income on personal portfolio. Any deduction amount not utilized in the first year of the analysis is carried forward for five additional years. All portfolios are invested 60% in global equities and 40% in bonds. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

34Where Are We Now?


Scenario A B C D

Strategy$2 Mil. Sale

No CRT$1.0 Mil Sale$1.0 Mil CRT

$1.0 Mil Sale$1.0 Mil CRT

$1.0 Mil Sale$1.0 Mil CRT

CRT Payout n/aMaximum

19.4% 8.0%Minimum

5%

Personal Wealth $2.0 $2.1 $2.0 $1.8

Charity Remainder n/a $0.04 $0.4 $0.7

Total Wealth $2.0 $2.14 $2.4 $2.5

Comparison of Strategies: Outright Sale vs. CRT

*Assumes donor is a CA resident subject to top marginal tax rates and stock has $0 cost basis. Further assumes that 50% of the stock is sold outright ($1 million) and the other 50% is contributed to a lifetime 8.0% CRUT where it is immediately diversified. Charitable deduction is applied to income generated by outright stock sale, payouts from CRT, and investment income on personal portfolio. Any deduction amount not utilized in the first year of the analysis is carried forward for five additional years. All portfolios are invested 60% in global equities and 40% in bonds. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.

Median Wealth – Year 20*Inflation-Adjusted ($ Millions)

35Where Are We Now?


Range of Projected Wealth to Charity

0.02

0.2

0.4

0.08

0.7

1.3

0.04

0.4

0.7

0.00

0.50

1.00

1.50

19.4% CRUT 8% CRUT 5% CRUT

5%10%

50%

90%

95%

ProbabilityTrust Remainder Values – Year 20*Inflation-Adjusted ($ Millions)

*Assumes CRT is invested 60% in global equities and 40% in bonds. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting at the end of this presentation for further details. Data do not represent past performance and are not a promise of actual future results or a range of results.



Today’s Agenda



�Outright gifts



� Charitable Remainder Trusts

� Charitable Lead Trusts

37Where Are We Now?

Bernstein.com Where Are We Now? 38

Key Features of Portability

� The unused applicable exclusion of the first spouse to die may be available to the surviving spouse

� An election is required on the federal estate tax return (Form 706) of the first spouse to die

� The surviving spouse may use the first spouse’s unused exclusion

� During the surviving spouse’s lifetime (pursuant to new “ordering rule” in Treas. Reg. § 25.2505-2T(b))

� Upon her death; or

� Partly during life and partly upon her death

� “Black widow (or widower) penalty”: Portability applies only to the applicable exclusion of the most recently deceased spouse

Where Are We Now?


Potential Benefits of Portability

� Arguably, simpler than a traditional “A/B” estate plan

� Spouses need not split assets during life

� Lower transactional costs (maybe)

� Attorney drafting fees

� Post-death cost of trust administration

� BUT consider the cost of filing Form 706 at the first death

� “I love you” estate plan (i.e., everything to surviving spouse) may not waste the applicable exclusion of the first spouse to die

� Could result in equal or greater wealth transfer than an A/B plan—more on this in a moment

Where Are We Now?


Potential Problems with Portability

� Loss of asset protection afforded by trusts

� Loss of control over the ultimate disposition of assets passing to the surviving spouse (e.g., second marriage situation)

� Unlike the surviving spouse’s applicable exclusion, the “deceased spousal unused exclusion amount” (DSUE amount) is not indexed for inflation

� Portability applies only to the deceased spouse’s applicable exclusion, not the GST exemption—more on this in a moment

� State law may not recognize portability

Where Are We Now?


Portability Case Study Assumptions

� Investor profile for case study

� Married couple

� $10.5 million combined estate, invested as follows

� 60 percent globally diversified* stocks

� 40 percent intermediate-term municipal bonds

� Surviving spouse outlives first spouse to die by 3, 10, or 20 years

*“Globally diversified” means 21% US value stocks, 21% US growth stocks, 21% US diversified stocks. 22.5% developed international stocks, 7.5% emerging markets stocks, and 7% US small and mid cap stocks.

Where Are We Now?


Portability Case Study Scenarios

� Scenarios tested

� A: Rely on portability (i.e., no $5.25 million credit shelter trust at first death)

� B: Use traditional A/B plan (i.e., $5.25 million to credit shelter trust at first death)

� C: Hybrid approach (i.e., fund credit shelter trust with state exclusion amount, use portability for the balance)

� Upon the surviving spouse’s death, any balance remaining in her portfolio above her available applicable exclusion (including DSUE amount in Scenarios A and C) is subject to 40% estate tax

Where Are We Now?


Generally, an A/B Plan Will “Beat” Portability Because the DSUE Amount Is Not Indexed for Inflation . . .

43

Relative Advantage of Traditional A/B Plan vs. PortabilityAfter Federal Income and Estate Taxes, No State Income or Death Tax

60 / 40 Portfolio*, Typical Markets**Nominal ($Millions)

Based on Bernstein's estimates of range of returns for applicable capital markets over the applicable time period. Data does not represent past performance and is not a promise of actual future results. Asset values represent estimated liquidation value net of capital gains tax assuming top federal tax rates.*”60/40 Portfolio” means 60% globally diversified stocks and 40% intermediate-term municipal bonds. “Globally diversified” means 21% US value stocks, 21% US growth stocks, 21% US diversified stocks, 7% US small and mid cap stocks, 22.5% developed international stocks, and 7.5% emerging market stocks. See Appendix, Notes on Wealth Forecasting, for details.**“Typical Markets” means 50th percentile results of 10,000 trials in our Wealth Forecasting System.Source: AllianceBernstein

Year of Surviving Spouse’s Death

Where Are We Now?


. . . But State Income and Estate Taxes Can Affect the Outcome in Surprising Ways

44


Relative Advantage of Traditional A/B Plan vs. PortabilityAfter Federal and Substantial State Income and Estate Taxes*

60 / 40 Portfolio**, Typical Markets***Nominal ($Millions)

Based on Bernstein's estimates of range of returns for applicable capital markets over the applicable time period. Data does not represent past performance and is not a promise of actual future results. Asset values represent estimated liquidation value, net of capital gains tax, assuming top marginal federal tax rates.*”FL resident” scenario assumes no state income or estate tax; “MN resident” scenario assumes 7.85% state income tax rate and state estate tax at rates described in Section 2011(b) of the Internal Revenue Code of 1986, as amended, for taxable estate in excess of $1 million.** ”60/40 Portfolio” means 60% globally diversified stocks and 40% intermediate-term municipal bonds. “Globally diversified” means 21% US value stocks, 21% US growth stocks, 21% US diversified stocks, 7% US small and mid cap stocks, 22.5% developed international stocks, and 7.5% emerging market stocks. See Appendix, Notes on Wealth Forecasting, for details.***“Typical Markets” means 50th percentile results of 10,000 trials in our Wealth Forecasting System.Source: AllianceBernstein

Where Are We Now?


Using a “Hybrid” Approach Might Help . . . Unless the Surviving Spouse Lives a Long Time

45


Relative Advantage of Traditional A/B Plan vs. PortabilityAfter Federal and Substantial State Income and Estate Taxes*

60 / 40 Portfolio**, Typical Markets***Nominal ($Millions)

Based on Bernstein's estimates of range of returns for applicable capital markets over the applicable time period. Data does not represent past performance and is not a promise of actual future results. Asset values represent estimated liquidation value, net of capital gains tax, assuming top marginal federal tax rates.*”FL resident” scenario assumes no state income or estate tax; “MN resident” scenario assumes 7.85% state income tax rate and state estate tax at rates described in Section 2011(b) of the Internal Revenue Code of 1986, as amended, for taxable estate in excess of $1 million.** ”60/40 Portfolio” means 60% globally diversified stocks and 40% intermediate-term municipal bonds. “Globally diversified” means 21% US value stocks, 21% US growth stocks, 21% US diversified stocks, 7% US small and mid cap stocks, 22.5% developed international stocks, and 7.5% emerging market stocks. See Appendix, Notes on Wealth Forecasting, for details.***“Typical Markets” means 50th percentile results of 10,000 trials in our Wealth Forecasting System.Source: AllianceBernstein

Where Are We Now?


Key Takeaways from Portability Case Study

� In most cases, a traditional A/B estate plan will deliver more after-tax wealth than portability—despite the “double step-up” inherent in portability

� State income and estate taxes cut in opposite directions—a customized analysis may be necessary

� The longer the surviving spouse lives, the more effective a “pure” A/B plan is likely to be

� Remember that the federal GST exemption is not portable

� Consider portability when assets passing at death are qualified plan benefits (including IRAs)

Where Are We Now?


The New Paradigm

�Estate Planning

� Infinitely more complicated (no fewer than eight variables will affect the estate plan)

�Applicable Exclusion Amount

� Taxpayers should consider keeping as much as possible for the “step-up” in basis

� “Zeroed-Out” Transfers

� Will mean more today than before

� Income Tax Considerations

� Must be considered in tandem with potential transfer taxes

�Estate Tax Inclusion

� Consider “reverse” estate planning and forcing estate tax inclusion even with GST tax exempt trust assets

�State of Residence

� Each state will have a different set of recommendations based on separate or community property, income tax rates and state death tax rates

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Source: AllianceBernstein

Where Are We Now?


Charitable Lead Annuity Trust (CLAT)

CLAT

Any remaining assets after annuity term

Fixed amount each year for x years

Charity

Non-Charitable

Beneficiaries

Charitable Lead Trusts, as defined under Sections 170, 170A, 2055 and 2522 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), and the Treasury Regulations thereunder.

Taxable Gift:

Value of Contributed Propertyminus

Present Value of Annuity Payments

48Where Are We Now?


Direct Gifts vs. CLAT

Direct Gifts Non-Grantor CLAT

Can Be Very Simple Requires Planning

Flexible (Can Stop Anytime) Irrevocable

Personal Income Tax Deduction* Trust Entitled to Tax Deduction*

No Family Wealth Transfer Benefit Potential for “Free” Wealth Transfer**

*Direct gift charitable deduction subject to limitation of 50% or 30% of AGI in year of gift for cash or stock, respectively. Non-grantor CLAT deduction limited to the lesser of annuity payment or annual income. **CLAT structured such that the present value of cumulative annuity payments to charity are approximately equal to CLAT funding at inception of trust. Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decision.

49Where Are We Now?


Today’s Extremely Low Hurdle Rate for “Zeroed-Out” CLATs Improves the Odds of Wealth Transfer

*Section 7520 of the Internal Revenue Code of 1986, as amended (Code). May 1989 through May 2013.Source: Internal Revenue Service (IRS) and AllianceBernstein

Section 7520 Rate*Zeroed-Out CLAT Funding

10 Year Term, $100k Fixed Annuity

All Time High 11.6% $574,395

Average 6.0% $736,009

May 2013 1.2% $937,048

All Time Low 1.0% $947,130

As Hurdle Rate Goes Down… …CLAT Funding Goes Up

50Where Are We Now?

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Case Study: Significant Annual Donor

� Donor Profile

� Age 65 and still working, but retirement not far off

� Past annual gifts have been $50,000

� Donors are receptive to integrated legacy planning

� $20 million in liquid assets and real estate

Donor Question:Why Should I Increase My Annual Gifts?


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The Pitch:Double Your Commitment to Charity While Benefiting Your Family

$1.49

$2.97

$1.75 $1.90

Charity Family


Current Plan CLAT Plan$50k/Year 20 Year Term, $100k/Year

*Assumed to be “zeroed-out” non-grantor CLATs based on the November 2011 Section 7520 rate of 1.4% with level annuity payments of $100,000. CLAT funding amounts for 20-year trust terms is $1,733,908. Wealth to charity reflects the inflation-adjusted cumulative value of the annual gifts (fixed $50,000) or CLAT annuity payments (fixed $100,000). Wealth to family under the “Current Plan” scenario assumes that funds that would otherwise fund a CLAT are held in the donor’s personal account and used to fund annual gifts to charity. The amount remaining after annual gifts to charity is subjected to an estate tax rate of 40%. Funds in the personal account are assumed to be invested in 60% global equities and 40% municipal bonds. Funds in the CLAT are assumed to be invested in 100% global equities. Data do not represent past performance and are not a promise of actual future results or a range of future results. Based on Bernstein estimates of the range of returns for the applicable capital markets over the periods analyzed. See Notes on Wealth Forecasting System at the end of this presentation for further details.


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$1.49

$2.97

$1.75 $1.90

Charity Family



What if…

� Establish a non-grantor CLAT

� Annuity Payment = $100k

� 20 Year Term, “Zeroed-Out”

� Family Trust residual beneficiary


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$1.49

$2.97

$1.75 $1.90

Charity Family





Plan Comparison: Bringing It Together for the Donor

Median Wealth Net of Estate Tax – Year 20*Inflation-Adjusted ($ Millions)

$1.5 $3.0

$16.5$15.3

$1.9

Current Plan CLAT Plan

CLAT Remainder

Taxable

Charity

$18.0$20.2

*Beginning assets total $20 million invested in 60% global stocks/40% intermediate duration municipal bonds. Annual spending of $500,000 is adjusted annually for inflation. The CLAT established under the “CLAT Plan” is a non-grantor trust funded with $1,733,908, is “zeroed-out” for gift tax purposes using a Section 7520 rate of 1.4% and a level annuity structure, and is invested in 100% global equities. Assumes that estate settles in year 20 with an applicable estate tax rate of 40% and $5.25 million per person ($10.5 million per married couple) estate exemption indexed for inflation. Based on Bernstein estimates of the range of returns for the applicable capital markets over the duration of the analysis. See Notes on Wealth Forecasting System at the end of this presentation for further details. Data do not represent any past performance and are not a promise of actual future results.

Charity +$1.5 mil.

Family +$0.7 mil.

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Bernstein’s Roadmap for Successful Investment Planning

� Identify your goals

� Use a robust set of planning tools

� Account for what you can and cannot control

� Help with your investment policy statement

� Assist you in unlocking donor potential

� Work with an informed advisor

� Bring breadth of entire firm to bear

www.alliancebernstein.com/nonprofits

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Appendix

58

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Notes on Wealth Forecasting System

1. Purpose and Description of Wealth Forecasting Analysis

Bernstein’s Wealth Forecasting AnalysisSM is designed to assist investors in making long-term investment decisions regarding their allocation of investments among categories of financial assets. Our new planning tool consists of a four-step process: (1) Client Profile Input: the client’s asset allocation, income, expenses, cash withdrawals, tax rate, risk-tolerance level, goals, and other factors; (2) Client Scenarios: in effect, questions the client would like our guidance on, which may touch on issues such as when to retire, what his/her cash-flow stream is likely to be, whether his/her portfolio can beat inflation long term, and how different asset allocations might impact his/her long-term security; (3) The Capital-Markets Engine: Our proprietary model, which uses our research and historical data to create a vast range of market returns, takes into account the linkages within and among the capital markets, as well as their unpredictability; and finally (4) A Probability Distribution of Outcomes: Based on the assets invested pursuant to the stated asset allocation, 90% of the estimated ranges of returns and asset values the client could expect to experience are represented within the range established by the 5th and 95th percentiles on “box and whiskers” graphs. However, outcomes outside this range are expected to occur 10% of the time; thus, the range does not establish the boundaries for all outcomes. Expected market returns on bonds are derived taking into account yield and other criteria. An important assumption is that stocks will, over time, outperform long bonds by a reasonable amount, although this is in no way a certainty. Moreover, actual future results may not meet Bernstein’s estimates of the range of market returns, as these results are subject to a variety of economic, market, and other variables. Accordingly, the analysis should not be construed as a promise of actual future results, the actual range of future results, or the actual probability that these results will be realized.

2. Retirement Vehicles

Each retirement plan is modeled as one of the following vehicles: Traditional IRA, 401(k), 403(b), Keogh, or Roth IRA/401(k). One of the significant differences among these vehicle types is the date at which mandatory distributions commence. For traditional IRA vehicles, mandatory distributions are assumed to commence during the year in which the investor reaches the age of 70.5. For 401(k), 403(b), and Keogh vehicles, mandatory distributions are assumed to commence at the later of (i) the year in which the investor reaches the age of 70.5 or (ii) the year in which the investor retires. In the case of a married couple, these dates are based on the date of birth of the older spouse. The minimum mandatory withdrawal is estimated using the Minimum Distribution Incidental Benefit tables as published on www.irs.gov. For Roth IRA/401(k) vehicles, there are no mandatory distributions. Distributions from Roth IRA/401(k) that exceed principal will be taxed and/or penalized if the distributed assets are less than five years old and the contributor is less than 59.5 years old. All Roth 401(k) plans will be rolled into a Roth IRA plan when the investor turns 59.5 years old to avoid Minimum Distribution requirements.

3. Rebalancing

Another important planning assumption is how the asset allocation varies over time. We attempt to model how the portfolio would actually be managed. Cash flows and cash generated from portfolio turnover are used to maintain the selected asset allocation between cash, bonds, stocks, REITs, and hedge funds over the period of the analysis. Where this is not sufficient, an optimization program is run to trade off the mismatch between the actual allocation and targets against the cost of trading to rebalance. In general, the portfolio allocation will be maintained reasonably close to its target. In addition, in later years, there may be contention between the total relationship’s allocation and those of the separate portfolios. For example, suppose an investor (in the top marginal federal tax bracket) begins with an asset mix consisting entirely of municipal bonds in his/her personal portfolio and entirely of stocks in his/her retirement portfolio. If personal assets are spent, the mix between stocks and bonds will be pulled away from targets. We put primary weight on maintaining the overall allocation near target, which may result in an allocation to taxable bonds in the retirement portfolio as the personal assets decrease in value relative to the retirement portfolio’s value.


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4. Expenses and Spending Plans (Withdrawals)All results are generally shown after applicable taxes and after anticipated withdrawals and/or additions, unless otherwise noted. Liquidations may result in realized gains or losses, which will have capital gains tax implications.

5. Modeled Asset ClassesThe following assets or indexes were used in this analysis to represent the various model classes:

6. VolatilityVolatility is a measure of dispersion of expected returns around the average. The greater the volatility, the more likely it is that returns in any one period will be substantially above or below the expected result. The volatility for each asset class used in this analysis is listed on the Capital Markets Projections page at the end of these Notes. In general, two-thirds of the returns will be within one standard deviation. For example, assuming that stocks are expected to return 8.0% on a compounded basis and the volatility of returns on stocks is 17.0%, in any one year it is likely that two-thirds of the projected returns will be between (8.9)% and 28.8%. With intermediate government bonds, if the expected compound return is assumed to be 5.0% and the volatility is assumed to be 6.0%, two-thirds of the outcomes will typically be between (1.1)% and 11.5%. Bernstein’s forecast of volatility is based on historical data and incorporates Bernstein’s judgment that the volatility of fixed income assets is different for different time periods.

7. Technical AssumptionsBernstein’s Wealth Forecasting System is based on a number of technical assumptions regarding the future behavior of financial markets. Bernstein’s Capital Markets Engine is the module responsible for creating simulations of returns in the capital markets. These simulations are based on inputs that summarize the current condition of the capital markets as of September 30, 2011. Therefore, the first 12-month period of simulated returns represents the period from September 30, 2011, through September 30, 2012, and not necessarily the calendar year of 2011. A description of these technical assumptions is available on request.

Asset Class Modeled As Annual Turnover Rate (%)

Intermediate-Term Diversified Municipals AA-rated diversified municipal bonds of a 7-year maturity

Intermediate-Term Taxables Taxable bonds with maturity of 7 years

U.S. Value S&P/Barra Value Index

U.S. Growth S&P/Barra Growth Index

Developed International MSCI EAFE Unhedged

Emerging Markets MSCI Emerging Markets Index

30

30

15

15

15

20

Single Stock Volatility: 40%; Dividend: 1.5%; Beta: 1.2 0


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8. Tax Implications Before making any asset allocation decisions, an investor should review with his/her tax advisor the tax liabilities incurred by the different investment alternatives presented herein, including any capital gains that would be incurred as a result of liquidating all or part of his/her portfolio, retirement-plan distributions, investments in municipal or taxable bonds, etc. Bernstein does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

9. Tax RatesBernstein’s Wealth Forecasting Analysis has used the following tax rates for this analysis:

The federal income tax rate represents Bernstein’s estimate of either the top marginal tax bracket or an “average” rate calculated based upon the marginal-rate schedule. The federal capital gains tax rate is represented by the lesser of the top marginal income tax bracket or the current cap on capital gains for an individual or corporation, as applicable. Federal tax rates are blended with applicable state tax rates by including, among other things, federal deductions for state income and capital gains taxes. The state tax rate generally represents Bernstein’s estimate of the top marginal rate, if applicable. The Wealth Forecasting System uses the following top marginal tax rates: During 2012, federal income tax rate is 35%, and federal capital gains tax rate is 15%. For 2013 and beyond, federal income tax rate becomes 39.6%, and federal capital gains tax rate becomes 20%. The FICA tax for 2011 is 4.2%, and becomes 6.2% for 2012 and beyond. For AMT purposes, federal income tax rate is 28%, and federal capital gains tax rate is 20%.

10. EndowmentsThe Endowment is modeled as a non-taxable permanent fund bestowed upon an institution to be used to support a specific purpose in perpetuity. The endowment may receive an initial donation and periodic funding from either the personal portfolio modeled in the system or an external source. Annual distributions from the endowment may be structured in a number of different ways, including: 1) an annuity or fixed dollar amount, which may be increased annually by inflation or by a fixed percentage; 2) a unitrust, or annual payout of a percentage of endowment assets, based on a single year or averaged over multiple years; 3) a linear distribution of endowment assets, determined each year by dividing the endowment assets by the remaining number of years; or 4) the greater of the previous year’s distribution or any of the above methods. These distribution policies can be varied in any given year.


Federal Income Federal Capital State Income State CapitalTaxpayer Scenario Start Year End Year Tax Rate Gains Tax Rate Tax Rate Gains Tax Rate Tax Method Type

Client “Wealthy Donor” 2012 2041 See below See below 6.50% 6.50% Top Marginal Rates


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11. Charitable Lead TrustsThe Charitable Lead Trust (CLT) is modeled as a portfolio that receives its initial funding from the grantor and transfers payments to one or more charitable recipients each year for a specified number of years. The annual payments may be a fixed dollar amount (Charitable Lead Annuity Trust or CLAT) or a percentage of the trust's assets (Charitable Lead Unitrust or CLUT). In the case of a CLAT, annuities may be fixed (the same amount each year), or variable (so long as the present value of the annuity is ascertainable at the time the trust is funded). The annual payment is made first from available cash and then from other trust assets in kind. The trust will pay income taxes on retained income and will receive a charitable income tax deduction for income paid to the charitable recipient(s). Realized capital gains may be treated in one of two ways, as directed: 1) taxed entirely to the trust, or 2) included in the payment to charity and, therefore, deducted from the trust's income, to the extent the payment exceeds traditional income. When the CLT term ends, the remainder, if any, may be transferred in kind to 1) a non-modeled recipient, 2) a taxable trust, or 3) a beneficiary's portfolio. The transferred assets will have carryover basis.


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Capital Market Projections

Int.-Term Diversified Municipals 3.0% 3.3% 3.4% 3.7% 7.1%

Int.-Term Taxables 3.7% 4.0% 5.4% 4.6% 8.9%

U.S. Value 8.4% 10.0% 3.9% 15.8% 18.4%

U.S. Growth 7.9% 9.9% 2.7% 18.2% 19.9%

Developed International 8.7% 10.7% 4.1% 17.8% 19.3%

Emerging Markets 6.9% 10.8% 4.3% 26.5% 27.6%

Inflation 3.0% 3.2% n/a 1.0% 9.7%

Single Stock 4.5% 11.3% 3.1% 38.4% 38.0%

Median Mean Mean One- 30-Year Annual30-Year Annual Annual Year Equivalent

Growth Rate Return Income Volatility Volatility

Does not represent any past performance and is not a guarantee of any future specific risk levels or returns, or any specific range of risk levels or returns.Based on 10,000 simulated trials each consisting of 30-year periods.Reflects Bernstein’s estimates and the capital-market conditions of September 30, 2012.

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Documents

Planned Giving in a High Tax Rate Environment b ho.pdfPlanned Giving in a High Tax Rate Environment May 2013 This presentation is provided by AllianceBernstein L.P. Bernst ein Global