Financial Planner. Gift to CALS Allows Pollard Family to Benefit Chosen Professions. Gift planning newsletter from Cornell University Spring 2011

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1 Financial Planner Gift planning newsletter from Cornell University Spring 2011 Beulah and Ken Pollard 58 Gift to CALS Allows Pollard Family to Benefit Chosen Professions We wanted to make a contribution to the agricultural community that means so much to us. For more than 33 years Ken Pollard 58 advanced tree fruit marketing in New York State. With a degree in agricultural economics, Ken worked for the Western New York Apple and New York Cherry Growers associations, eventually becoming president of both. Today Ken is credited with developing innovative marketing strategies that, at a crucial time in their development, made it possible for these industries to thrive. Along the way, Ken had often turned for help to the faculty and staff at the College of Agriculture and Life Sciences (CALS). Specific problems would come up where we wanted to get the results of research quickly but the funds weren t readily available to work on it, recalls Pollard, who, with his wife Beulah, established a charitable remainder trust to support fruit tree research conducted in CALS Department of Horticulture. They created the continued on page 5

2 5 Powerful Planning Strategies to Put Predictability in Your Financial Future Since the dramatic downward spiral of the stock market that came with breathtaking suddenness in late 2008 and early 2009, the market has made a slow, steady comeback. Nevertheless, with unemployment remaining high, many Americans seem unsure of the future direction of the economy. Money-market funds pay barely a fraction of 1%, and only longer-term CDs generate more than 2%. The returns on bonds have also slipped substantially and carry an additional risk: if interest rates do rise, the fair-market value of the principal value of bonds melts away. All this leaves many feeling they have no choices for safe, meaningful returns. At a time when many are seeking certainty in a very uncertain environment, one of the best ways to put meaningful predictability into your financial future is with creative charitable planning. In this issue of Financial Planner, we will look at some bold moves that could strengthen your position for a secure future. Those with significant charitable objectives have options not available to others options that are more attractive than ever. A number of creative giving plans are available to return an attractive stream of income to donors. 2. Hedge Your Bets with Gifts of Appreciated Stock 1. Bump Up Your Returns Many people currently face an investment conundrum. On one hand, they are uneasy about where the stock market is headed. On the other hand, the returns on traditional incomeproducing investments such as bonds, moneymarket funds, and certificates of deposit are at near-record lows. Many investors have gotten back into the market, not wanting to be on the sidelines when the next major upward movement hits. By the same token, many would like to cushion the potential blow if the market takes another big dip. One of the best ways to improve your position is to use your appreciated stock instead of cash to fund a major charitable gift you are planning. Be part of our efforts to enroll and educate the most deserving students. 2

3 You then take the cash you had planned to give and replace the stock you gave away. Either way the market moves, you will be better off than if you had kept the stock and given the cash. Here s why: Making a charitable gift of long-term appreciated stock entitles you to deduct its full fair-market value not the original cost. When you buy the replacement stock you establish a higher basis; and if it goes up in value, you will be taxed on a smaller amount of gain if you sell later a factor that could be doubly meaningful if the tax rates on capital-gain income increase as many think they will. Even if the stock goes down, you are still ahead of where you would have been. The loss you incur if you sell will be measured against the new, higher price you paid to replace the stock not the price of the gifted stock. This will create a larger loss for tax purposes that can be netted against any gain or used to offset a limited amount of ordinary income. 3. Provide for Loved Ones and Cornell Historic low interest rates present other creative planning opportunities for those looking to address personal and charitable goals simultaneously. And with good planning you can minimize the impact of the federal gift tax and any future changes in the federal estate-tax law. Because of the way charitable deductions are calculated for income tax as well as estate and gift taxes the prevailing interest rate has a substantial impact on the amount of those deductions. Moreover, a low rate can cause some deductions to increase and others to decrease, depending on the type of gift plan involved. Low interest rates create opportunities for donors to pass significant assets to family members, with dramatic savings in federal gift tax and/or estate tax. Taxpayers are realizing unprecedented savings by giving charities a stream of income from assets that will eventually be distributed to family members. Example: Ann H, 62, wants to fund a major project at Cornell but does want her children to receive the bulk of her estate eventually. To accomplish these goals Ann places $2 million in a special trust that will pay Cornell $100,000 per year for 20 years at which time it will be divided equally between her son Mark and daughter Susan, currently 34 and 32. Because her assets will ultimately go to her children, Ann s transfer to the trust is subject to federal gift tax. But because interest rates are at an all-time low, only $484,860 counts as a taxable gift well below Ann s gift-tax exemption amount. If the trust is able to achieve an annual total return of 8%, it will grow to around $4.7 million. By using this powerful planning tool, regardless of what happens with the federal estate tax neither Ann nor her estate would ever owe tax on any of the appreciation. 4. Multiply Your Assets Through Giving All of us are concerned about providing for loved ones, and that is an important consideration to take into account as you plan significant charitable gifts. Depending on your personal circumstances, it may be possible to fulfill your desire to make a major charitable gift without compromising your objectives to provide substantial assets to family members. Many donors employ a creative plan using tax savings realized from making significant charitable gifts to replace the value of those assets. Example: Mark and Betty R, both 65, want to make a major gift to Cornell, but they want to be sure that they are still able to ultimately provide significant assets to their children. They are pleased to learn of a plan that lets them achieve both objectives. Mark and Betty make a gift of $200,000 to Cornell, saving them $70,000 in their 35% federal income-tax bracket, which they then use to purchase a $200,000 life insurance policy that will pay death benefits to their children. 3

4 You can help Cornell continue to lead, engage, and inspire through your support. (Because the policy pays at the second death, its cost is substantially less than a policy of similar size on one life.) The amount of insurance you are able to buy will depend on several factors most notably your age and health. If you do qualify, there are many variations of this strategy. It may be optimal for you to pay a single premium up front with the tax savings, or it may be better to make annual payments either indefinitely or for a fixed number of years. In general, it makes sense to use an asset that produces little or no current income to fund your gift to ensure a minimal impact on your current spendable income. While this creative plan works in any economic climate, it can be particularly attractive in times of low interest rates. It may be advisable for purposes of federal estate tax to transfer ownership of the policy to the beneficiaries or even to create a special life insurance trust to purchase the policy approaches that can create taxable gifts for gift- or estate-tax purposes. Because interest rates are at historic lows, the amount of a transfer that is taxable is at an all-time low. 5. Building a Retirement Nest Egg: Investing in the Future While many Americans are unsure about where the economy is headed in the short run, most are confident about the long-term. As you look to the future, there are ways to combine your major charitable plans with your retirement-planning goals. Many taxpayers in their peak earning years wish they could find more taxadvantaged ways to set aside money for retirement. To the extent retirementplanning opportunities are available to you through your employment or through options open to most Americans, you will want to take full advantage of those. If you would like to accumulate still more and you also have major charitable goals, check with us about creative life-income gift options for reaching your objectives. Conclusion While powerful planning options are available during all kinds of economic conditions to those who are philanthropically minded, we have touched on just a few ideas you may want to consider at this time in your own planning. The information contained herein is offered for general informational and educational purposes. The figures cited in the examples and illustrations are accurate at the time of writing and are based on federal law as well as IRS discount rates that change monthly. State law may affect the results illustrated. You should seek the advice of an attorney for applicability to your own situation. Copyright Pentera, Inc. All Rights Reserved. 4

5 Gift to CALS...continued from cover Kenneth and Beulah Pollard Family Graduate Research Fund. My wife and I made this gift so there would be money available to solve challenges the industry faces in the future. One of the advantages Ken and Beulah found in establishing a charitable remainder trust is that in addition to benefiting Cornell, a portion of the trust will go to Beulah s alma mater, Keuka College, from which she was awarded a BS degree in nursing in Ken explains, This gift gives us the satisfaction in knowing that we re helping both of our chosen professions. The trust was established from the proceeds of the sale of Ken Pollard s family farm in Cayuga County, just west of Auburn, New York, where he grew up. What followed was surprisingly straightforward. I received excellent cooperation and outstanding advice from the Office of Gift Planning in how this would work, Ken says. There was no pressure to do it. They answered our questions, explained how the process worked, what we d have to do. They made it extremely easy to carry out and conclude the gift. I hope that other people who are thinking about what they want to leave to the future will think of doing something similar to what we did. I can t say enough about the good work we received from the Office of Trusts, Estates, and Gift Planning. We have the satisfaction of knowing that this trust will benefit future generations. Next Steps: Are you wondering what your best next step is? Maybe you d like to order our free booklet, Charitable Planning for Today s Donor, or you d like to speak to us directly. Here are a few options: 1. Visit us online at 2. Return the reply card. 3. Call us at (800) us at gift_planning@cornell.edu. 5. Join the Cayuga Society. 5

6 The Cayuga Society The Cayuga Society now honors more than 4,000 individuals who have established a planned gift for Cornell. Because all planned gifts represent a lifetime commitment to Cornell University, the Cayuga Society has no minimum gift level, and membership is complimentary. Members have the option to receive a memento of appreciation, invitations to special events, and recognition through university and Office of Trusts, Estates, and Gift Planning publications. Most important, your membership is the ultimate expression of confidence in Cornell and an important example for others who might consider establishing a planned gift. Join us in supporting future generations of Cornellians by making a planned gift to Cornell or by letting us know about a planned gift that you have already made. Honoring those who have established a planned gift for Cornell. INSIDE THIS ISSUE Spring 2011 Gift to CALS Allows Pollard Family to Benefit Chosen Professions Powerful Planning Strategies to Put Predictability in Your Financial Future Bump Up Your Returns Hedge Your Bets with Gifts of Appreciated Stock Provide for Loved Ones and Cornell Multiply Your Assets Through Giving Building a Retirement Nest Egg: Investing in the Future East Seneca Street, Suite 400 Ithaca, NY Nonprofit Org. U.S. Postage PAID Cornell University