using a community foundation allyson baumeister, c.p.a. john hunter, j.d., c.p.a. nancy e. jones...
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using a Community Foundation
Allyson Baumeister, C.P.A.John Hunter, J.D., C.P.A.
Nancy E. Jones
October 4, 2011
Charitable Planning ...
Community Foundation of North Texas
Top 10%Established in 1981Assets: $145,000,000Total grants 2010: $ 8 millionTotal grants
since 1981: $130 million
CFNTx Assets 1985-2010
19851988199119941997200020032006200920102011 $-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
2010 CFNTx Grant Dollars
Animal<1% Arts/Culture
5%Civic12%
Education21%
Envi-ron-
mental<1%
Human Services31%
Religion30%
Sports/Leisure1%
When should you be thinking about using a Community Foundation ?
Trigger points Client is selling a business
Wants to establish a private foundation with less than $5 – 10 million.
Closely held shares or highly appreciated non cash assets
Client is transferring wealth to generations
Client is making charitable gifts in a will
DeductibilityGifts of cash are deductible up to 50% of
AGI (30% AGI in
PF )
Gifts of appreciated property are deductible up to 30% of AGI. (20% in PF)
Gifts of closely held stock are deductible up to 30% of AGI (limited to COST basis in PF)
Additional considerationsNO 5% minimum spend rate from a CF fund NO excise tax on investments in a CF
NO separate audit
NO mandatory Form 990-PF filing
Self-dealing issues minimized
Comparison
AdvantagesEase, little paperworkNo 990, no separate
auditAnonymity or
recognitionChoices of
InvestmentsFamily InvolvementMaximum Tax
DeductibilityLocal knowledgeNo minimum 5%
payoutSelf dealing not an
issue
DisadvantagesNo ultimate control Investment choicesSome Grants not
possible(tables, scholarships, grants to individuals)
Donor does not have prestige of own Foundation
Designated Fund
Client can assist a charity without giving the charity ultimate control of gift
Can set up “If, then” constructs
CF as 3rd party ensures compliance with restrictions
Bequests
Often easier to use the foundation to make all the charitable distributions for an estate;
Use a side letter to provide detailed instructions and conditions (Client’s will cites the Fund)
Private Foundation TransferPrivate foundation administration may
become burdensome or costly
Transfer assets to a donor advised fund at the Community Foundation and terminate private foundation status.
Foundation’s name carries over to the donor advised fund
Procedures for Converting a Private Foundation
Execute a donor advised fund agreement to name fund and advisor(s)
Pay any investment excise taxes owed prior to dissolution
The private foundation files a Form 990-PF for the termination year.
John D. Hunter, J.D., C.P.A. The Blum Firm, P.C.
Vice-Chair, Professional Advisor Outreach Committee for the CFNT
Benefits of Using Community Foundation of North Texas
Local Leadership and administration are just down
the street
KnowledgeableNancy Jones understands!Uses sophisticated counsel
Client-Friendly2-3 page agreements (not 14!)Wants to sit down with and get to know clientClients have all had positive feedback
Benefits of Using Community Foundation of North Texas
(continued)
Consistency
FlexibilityCan use own investment manager if assets
large enoughWill base investment decisions on timing of
expected distributions
McCord Transfer: Sale of SharesClient sells X shares to the Dynasty Trust in exchange for a Promissory Note
$Y Million = FMV of X shares less charitable gift amount
(C) as determined by appraisal
Promissory Note for $Y Million
Stock with FMV = $Y MillionClient
Community Foundation of North Texas
Estimated $C
Dynasty Trust
No Net Gift
Amount Above $Y Million
McCord Transfer: Valuation Agreement
Community Foundation of North Texas
Dynasty Trust Valuation Agreement
McCord Transfer Technique(to Donor Advised Fund
with Valuation Agreement)
Provides third party confirmation of value
Transfers wealth to the next generation
Establishes a donor advised fund
There is some 4958 risk if the value is too low
Estate/Gift Tax auditors are not tax-exempt auditors
McCord Transfer Technique(to Donor Advised Fund
without Valuation Agreement)
Provides third party confirmation of value
Transfers wealth to the next generation
Establishes a donor advised fund
Avoids Gift Tax
Risk that more goes to charity because of audit
McCord Transfer Technique(to CFNT Designated Fund or CFNT Field of Interest Fund)
Same facts but establishes designated fund or field of interest fund
Provides valuation certainty
Tested in Fifth Circuit
Allyson B. Baumeister, CPA, Partner
Sanford, Baumeister & Frazier, PLLC
Chair, Professional Advisor Outreach Committee for the CFNT
The Community Foundation as a Partner in a Business Sale
Sale ScenarioBusiness owner is selling stock in closely-held
company
Owner wants to make a charitable gift of company stock prior to the sale
Owner wants to maximize the charitable contribution to the organization as well as his contribution deduction for tax purposes
The Community Foundation as a Partner in a Business Sale (Cont.)Steps for Owner to take for tax deduction
purposesMust obtain appraisal of company stock prior
to sale by qualified appraiserMust make charitable gift prior to saleMust work with Community Foundation in
accomplishing the above stepsCommunity Foundation sells the stock that
they have received for full fair market value as of date of sale
Gift can be spread out over period of time as sales proceeds are received
The Community Foundation as a Partner in a Business Sale (Cont.)Results of charitable transfer prior to sale
Owner receives a tax deduction for the full fair market value of the stock as of the date of contribution
Owner does not recognize gain on sale of the stock that is transferred to the Community Foundation
Foundation receives full sales proceeds related to the stock that they have received at the time of sale and at the time of any future payments associated with the sale
The Community Foundation as a Partner in a Business Sale (Cont.)Results of charitable transfer prior to sale
Community Foundation receives a larger contribution since no tax is paid on the gain resulting from the sales transaction
Owner is able to accomplish charitable goal and withstand IRS scrutiny as long as the Community Foundation receives proceeds equal to or greater than the amount of the appraised value and charitable deduction claimed.
Questions and Comments