2023 New Mexico Estate Planning Conference Manual

ANNUAL

FRIDAY, MARCH 3, 2023 8:00 AM - 5:00 PM | Conference 5:00 PM - 6:00 PM | Networking Happy Hour

@ABQFOUNDATION

W E A LT H M A N A G E M E N T

Annual

On behalf of the Board of Trustees of the Albuquerque Community Foundation (the "Foundation"), we are honored to welcome you to our 4th Annual New Mexico Estate Planning Conference. Thank you all for taking time to connect and learn with us. We are grateful to have you in our network.

As we look ahead to the future of the Foundation and our community, we are inspired by how far we have come and strive to be better partners as we become the community’s Foundation. Part of our work at the Foundation is being a community convener and collaborator. We know our impact is greater when we work in partnership with leaders and community members like yourself.

Another part of our work at the Foundation is being a storyteller for our community. We're honored to be able to learn about the needs, the successes, and the legacy of our community and those in it. Through our partnership with you all we are honored to play a part in telling not only your story, but also the stories of your clients and loved ones. Thank you for the work you do to support families and individuals as they plan their future. We're grateful to stand next to you all as you have those complex conversations and are honored to share their story and legacy through the work at the Foundation.

As a native of New Mexico, I feel honored to be a part of the collective story we are creating with this year’s Estate Planning Conference. We are intentionally including new voices and topics that are current and inclusive. We hope that as we do this work together, we can further align with the Foundation’s core values of trust, equity, integrity, and accountability.

Thank you for joining us today so we can continue to share our stories and learn how we can partner to continue building New Mexico’s rich, wonderful legacy.

Sincerely,

Juaquin Moya Vice President of Philanthropic Advising Albuquerque Community Foundation

THANK YOU SPONSORS

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The American Heart Association’s Professional Advisor Network provides you with personal assistance from a nationwide team of estate and gift planning professionals, free planning tools and resources, and exciting networking opportunities.

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The American Heart Association Professional Advisor Network is a proud sponsor of the 4th Annual New Mexico Estate Planning Conference

2023 Board of Trustees Marcus Mims, Chair CliftonLarsonAllen LLP

Monique Fragua Indian Pueblo Cultural Center

José Viramontes, Chair-Elect MediaDesk

Rebecca Harrington Community Member

Arellana Cordero, Treasurer Community Member

Pam Hurd-Knief Philanthropic Advisor

Debbie Harms, Secretary NAI SunVista

Paul Mondragón Bank of America New Mexico

Beverly R. Bendicksen, Past Chair Sandia Financial Consulting, LLC

Linda H. Parker Parker Center for Family Business

Dr. Abinash Achrekar UNM Health Sciences Center

Anne Sapon Community Member

Emily Allen Dekker/Perich/Sabatini

Charlotte Schoenmann Community Member

Tom Antram French Funerals and Cremations

Walter E. Stern Modrall Sperling Law Firm

Bob Bowman Bob Bowmania Productions

Becky Teague PNM Resources

Tom Daulton Independent Venture Capital & Private Equity Professional

Sara Traub PBWS

Michelle Dearholt Nusenda Credit Union Sanjay Engineer FBT Architects

Esther Villas-Wingfield Junior League of Albuquerque Lori Waldon KOAT TV

When it comes to your future, who’s there to protect it?

After all, it’s not just money at risk. It’s your future and legacy.

-X XEOIW E XVYWXIH ƼRERGMEP TEVXRIV [LS RSX SRP] VIWTIGXW ]SYV [MWLIW FYX YRHIVWXERHW XLI GLEPPIRKMRK GSQTPI\MXMIW MR MQTPIQIRXMRK XLIQ %X &ERO SJ %PFYUYIVUYI SYV [IEPXL EHZMWSVW ERH XVYWX SƾGIVW [MPP LIPT GEVV] SYX ]SYV [MWLIW ERH JEMXLJYPP] I\IGYXI ]SYV IWXEXI TPER Let’s talk about your future, today.

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AGENDA There will be a 10-minute break between each session TIME

TOPIC

SPEAKER(S)

8:10 AM

Opening Remarks

Marcus Mims CliftonLarsonAllen

8:25 AM

Designing the Best Vehicles to Own and Manage Real Estate

Ken Leach Kenneth C. Leach & Associates

9:35 AM

Integrating Portfolio and Insurance Planning

Brad Justice Justice Financial

10:45 AM Estate Planning for the LGBTQ+ Community (virtual)

Cristy Carbón-Gaul The Law Office of Cristy J. Carbón-Gaul

11:40 AM Lunch 12:30 PM The Charitable Giving Conversation

Randy Royster, Juaquin Moya & Khia Griffis Albuquerque Community Foundation

1:15 PM

Ethical Issues Involved in Representing a Fiduciary

Nell Graham Sale Pregenzer, Baysinger, Wideman & Sale, PC

2:25 PM

SECURE 2.0: Applications for Advisors

Madison Jones Rodey, Dickason, Sloan, Akin, & Robb, P.A.

3:35 PM

Tales from the (Fiduciary) Crypt – True Stories of a Corporate Trustee

Daniel Montoya Heritage Trust

4:30 PM

Closing Remarks

Randy Royster Albuquerque Community Foundation

5:00 PM

Networking Happy Hour

Vara Winery and Distillery 315 Alameda Blvd NE 87113

FACULTY B I O G R A P H I E S Randy Royster President & CEO

Albuquerque Community Foundation As President and CEO of the Albuquerque Community Foundation, Randy commenced his career in philanthropy in 2005. Under his leadership, average annual contributions and grantmaking have increased exponentially, resulting in the Foundation’s assets under management surpassing $100M in 2019 – a monumental achievement within the community foundation field.

Over the last seventeen years, Randy has been instrumental in several local and statewide collaborations including: the Center for Nonprofit Excellence; the New Mexico Collaboration to End Hunger; the Office of Philanthropic Outreach; the New Mexico Coalition of Community Foundations; Healthy Neighborhoods ABQ; NM Counts 2020; the New Mexico Census Funder Collaborative; the All Together New Mexico Fund; and dEi United.

Randy served 8 years as a member of the National Standards Board for Community Foundations, including as President for two years. He also served on the Board of Directors of the Council for 7 years. Randy is currently a member of the Board of Directors of CFLeads, a national organization headquartered in Boston, Massachusetts, assisting community foundations across the country.

Randy is a multi-generation native of Albuquerque, New Mexico.

He is an attorney, with a Juris Doctor degree from the University of New Mexico and Bachelor of Business Administration degree from Eastern New Mexico University. He is married to María Griego-Raby owner and principal of Contract Associates, a father of four and grandfather of five.

Juaquin Moya

Vice President of Philanthropic Advising Albuquerque Community Foundation

Juaquin is the founding Executive Director of Horizons Albuquerque, a nonprofit transformative, tuition-free educational program that serves students from low-income families on the campuses of Bosque School, Manzano Day School, and Sandia Prep School. He brings previous college admission, teaching, and directing experience as the creator of Bosque School’s College Counseling program.

A native of New Mexico who attended Corrales Elementary School, Taylor Middle School, and Sandia Prep School before leaving New Mexico to attend and graduate from Wesleyan University, CT, Juaquin is a respected leader in the community. He is on the Council of the Hispano Philanthropic Society and in recognition of his outstanding college counseling, he received the Yale Educator of the Year Award. Most recently, Juaquin was awarded the Albuquerque Business First Diversity Leader Award and selected as one of the 40 Under Forty honorees. He was also selected as a Líderes Fellow with Hispanics In Philanthropy and received the Horizons National Leader of the Year Award.

Khia Griffis

Community Impact Director

Albuquerque Community Foundation Khia joined the Albuquerque Community Foundation team in June 2019 after completing her graduate internship at Con Alma Health Foundation, where she was drawn to the world of grantmaking. Khia earned her Bachelor of Arts in Psychology from UNM and her Master of Social Work from NMHU. Philanthropy & strategic grantmaking at Albuquerque Community Foundation have been a welcome application of her passion for improving the lives of others. Khia was born and raised in New Mexico and currently resides in Corrales, while also spending time in the East Mountains with family. In her free time, Khia enjoys playing soccer and running in the Bosque with her dog Buffy.

Kenneth C. Leach Attorney

Kenneth C. Leach & Associates Kenneth C. Leach completed his education through the University of New Mexico with his B.A. in History in 1972, and his JD in Law in 1975. He was then admitted to the bar by the New Mexico and U.S. District Court in 1975. He is a Fellow of the American College of Trust and Estate Counsel (ACTEC), and has been listed on Martindale-Hubbell’s Bar Register of Preeminent Lawyers. He is a member of the University of New Mexico Law School Alumni Association, the Albuquerque Bar Association, the New Mexico Estate Planning Council and Southern New Mexico Estate Council, and a Trustee on the Board of Trustees of the Albuquerque Community Foundation.

Kenneth previously served on the New Mexico Board of Legal Specialization, An Agency of the Supreme Court of New Mexico Estate Planning, Trusts & Probate Law Specialty Committee, He is presently serving on the San Juan College Foundation Board and served as President from 2019-2022. Mr. Leach served on the University of New Mexico Foundation Board (from 1995-2003), and as the Chairman of the Gift Acceptance Committee for the UNM Foundation. Kenneth has been listed in the prestigious “The Best Lawyers in America” publication in the Trust & Estates section for 26 consecutive years (1996-2022). He was the Community Foundation of Southern New Mexico advisor for the year of 2013, and he received the Excellence in Charitable Gift Planning Award for 2006 by the Albuquerque Community Foundation.

Daniel Montoya President and CEO

Heritage Trust Company of New Mexico Daniel T. Montoya is the current President and Chief Executive Officer of Heritage Trust Company of New Mexico, an independent trust company headquartered in Taos, New Mexico, with offices in Santa Fe and Albuquerque.

Daniel is an attorney licensed to practice law in New York, 1985, and New Mexico, 2008. He received a B.A. in Psychology in 1981 from Columbia College and a J.D. in 1984 from Columbia University School of Law. Prior to moving to Northern New Mexico in 1997, Daniel practiced municipal and corporate finance, securities and venture capital, and banking law for 13 years in New York City. From 1993 to 1999, he worked for Citibank’s WorldWide Securities Services Legal department, including working for the trust and custody departments. He was responsible for creating the framework and the account opening process for Citibank’s branches and offices in over 50 countries. He also assisted the Global Relationship Bank in connection with the Citibank-Traveler’s merger.

From 1999 to 2001, Daniel served as the first executive director of Taos Community Foundation. In January of 2002, Daniel joined the Heritage Trust team as a consultant, focusing on compliance and administration, including helping HTrust develop a comprehensive Policy Manual and a detailed Procedures Manual, and satisfy its regulatory obligations with the New Mexico Financial Institutions Division. During that time, he also worked for a variety of for profit and non-profit businesses. From 2007 to 2018, Daniel served as Executive Vice President of Heritage Trust, and was promoted to President & CEO in 2020.

Daniel has been a member of the Board of Directors of Heritage Trust since 2002. In addition to serving on the Board of Directors, Daniel has also volunteered with a number of local non-profits over the years.

In his spare time, he loves hiking and backpacking in the mountains of northern New Mexico, skiing, gardening, photography, and writing. He has been practicing Qigong and Taiji Quan since 1989.

Nell Graham Sale

Of Counsel and Attorney

Pregenzer, Baysinger, Wideman & Sale, P.C. Ms. Sale is Of Counsel with the law firm of Pregenzer, Baysinger, Wideman & Sale, PC. While actively practicing law, she was licensed in New Mexico, Delaware, Pennsylvania, U. S. Tax Court and the U. S. Supreme Court. She is a Certified Elder Law Attorney, a member of the American College of Trust and Estate Counsel, and is an emerita member of the Special Needs Alliance.

Nell is celebrating over 10 years of having her AV Preeminent® rating from LexisNexis Martindale-Hubbell.

She has been repeatedly selected for inclusion by her peers in Best Lawyer in America®, Super Lawyers and was included in the 26th Edition of Best Lawyers in America for her work in Elder Law and Trusts and Estates in 2020. In 2019 Nell was chosen for Who’s Who among American Lawyers. In 2017, Nell chaired a successful capital campaign for Paws and Stripes and she is also one of the founders of the New Mexico Planned Giving Roundtable.

Cristy Carbón-Gaul Attorney at Law

The Law Office of Cristy J. Carbón-Gaul Cristy J. Carbόn-Gaul grew up primarily in Omaha, Nebraska but considers herself a New Mexican, living in Albuquerque most of her adult life. Her and her husband, Daniel Gaul, moved to New Mexico in 1997. They have two children, two dogs, three cats, and 23 chickens.

She is a lawyer licensed by the New Mexico State Bar since 1997, earning her law degree from Creighton University School of Law, graduating cum laude. Her undergraduate degree, a B.S. in Business Administration with a concentration in accounting is from Trinity University in San Antonio, Texas.

Cristy J. Carbόn-Gaul has practiced estate planning, guardianship and conservatorship and probate law in New Mexico for over 25 years. She is also the Probate Judge for Bernalillo County.

Brad Justice

Wealth Management Advisor Justice Financial Born and raised in Orange County, California, Brad graduated from Brigham Young University with a double major in Business Administration and Portuguese in 2004. Immediately after college Brad was recruited by GE Consumer Finance to move to Albuquerque, New Mexico.

In May 2006, Brad transitioned into financial services and joined Northwestern Mutual. He achieved prestigious company milestones and excelled in multiple leadership roles. The Justice Financial team was recognized in 2022 by Forbes Magazine as one of the best Wealth Advisors in the state of New Mexico.

Today Brad focuses primarily on working with clients in the retirement income space and professionals. He holds securities registrations in Series 6, 7, 26, and 63 in addition to the following designations: CERTIFIED FINANCIAL PLANNER™(CFP®), Masters of Finance Services (MSFS), Retirement Income Certified Professional (RICP), Certified Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Advisor of Senior Living (CASL) and Wealth Management Certified Professional (WMCP).

Brad is married to Lisa, and they have four wonderful children, one dog, and 18 box turtles that live in their backyard. They love playing lots of board games, swimming, traveling, regular visits to Disney, and anything that involves family. He loves a good hamburger, fries, and a Dr. Pepper.

Madison Jones Attorney

Rodey, Dickason, Sloan, Akin, & Robb, P.A. Madison is an attorney in the business department of Rodey, Dickason, Sloan, Akin, & Robb, P.A. where she focuses her practice on estate planning, trust and estate administration, and business planning. Madison is honored to serve on the Board of the National Museum of Nuclear Science and History and on the Albuquerque Community Foundation – Future Fund Board. She speaks to financial advisors, attorneys, accountants, and others on estate planning, business planning, charitable giving, planning related to retirement benefits, and legal ethics.

Madison attended the University of New Mexico, where she earned a Bachelor of Arts (summa cum laude) in International Studies in May 2015 and a Masters in Business Administration in December, 2015. Madison then attended the Seattle University School of Law where she earned a Juris Doctor (cum laude) in 2019.

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SESSION TOPICS 1

Designing the Best Vehicles to Own and Manage Real Estate Ken Leach Kenneth C. Leach & Associates This presentation will delve into the best entities to manage real estate from a business efficiency, liability and tax perspective and how holding title in a third party settled trust can result in increased asset protection.

2

Integrating Portfolio and Insurance Planning Brad Justice Justice Financial A complete financial plan integrates both offensive and defensive strategies. How should a portfolio be designed for a retiree? What impact does life insurance have on an investment strategy? How do longevity and balance sheets impact the decision to start drawing from Social Security? This session explores the integration of portfolio investments and insurance planning through a variety of life stages.

3

Estate Planning for the LGBTQ+ Community (virtual) Cristy Carbón-Gaul The Law Office of Cristy J. Carbón-Gaul Cristy has represented the LGBTQ+ community for over 20 years.

In this presentation, we will discuss issue spotting that is particular to the LGBTQ+ community, including addressing the children of these relationships, in order to provide the protections needed in their estate plans. We will also discuss legal terms and terms of art that are used in preparing estate plans for individuals, couples and throuples in the LGBTQ+ community.

4

The Charitable Giving Conversation Juaquin Moya, Khia Griffis, Randy Royster Albuquerque Community Foundation Albuquerque Community Foundation staff will share questions that can open a charitable giving conversation with clients thinking about estate planning.

They will give an overview of the topics that philanthropy professionals use to help potential donors gain an understanding of their personal giving priorities.

The Foundation will also discuss information about the current landscape of nonprofit organizations, philanthropy practices, and emergent work in the local New Mexico community.

5

Ethical Issues Involved in Representing a Fiduciary Nell Graham Sale Of Counsel, Pregenzer Baysinger Wideman & Sale Does representing a fiduciary in New Mexico mean that you the attorney have ethical duties not only to your client but to those for whom your client is the fiduciary? Nell Graham Sale, an experienced presenter and attorney, will answer this question and speak about the ethical responsibilities and considerations when representing a fiduciary. The session will use a hypothetical case study to examine the nuances and requirements of the attorney's duty.

6

SECURE 2.0: Applications for Advisors Madison Jones Rodey, Dickason, Sloan, Akin, & Robb, P.A. Estate planning attorneys and professional advisors alike will benefit from taking a deeper dive into the SECURE 2.0 which addresses questions regarding required minimum distributions, certain eligible designated beneficiaries, and trusts. There are many nuances to the SECURE 2.0 and this seminar will give estate planning attorneys and professional advisors an overview of what’s new and some strategies for how to best support our clients in light of the new legislation and guidance.

7

Tales from the (Fiduciary) Crypt – True Stories of a Corporate Trustee Daniel Montoya Heritage Trust With over 20 years of experience as a corporate Trustee, Daniel Montoya will speak about the nuances and best practices of stewarding trusts for New Mexico families. He will share "Tales from the (Fiduciary) Crypt - True Stories of a Corporate Trustee." His session will touch on lessons learned from situations including a family conflict over multiple trusts and properties, and mediation in a trust dispute that ended up including multiple parties across different cases to get to settlement.

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Designing the Best Vehicles to Own and Manage Real Estate Ken Leach Attorney Kenneth C. Leach & Associates

SESSION 1 8:25 AM

1

DESIGNING THE BEST VEHICLES TO OWN AND MANAGE REAL ESTATE? Presented By

Kenneth C. Leach & Associates, P.C.

2

How do we determine best entity to hold real estate?

• Tax efficiency – income tax and transfer tax benefits • Asset Protection for the owner of the entity and the real estate • Minimizes administrative fees and complexity

3

Traditional Business Entities • For years, the three main business entities utilized to hold and manage real estate were the general partnership, limited partnership and corporations (C and S)

4

Advent of LLCs • first limited liability company legislation in the state of Wyoming was enacted in 1977 • Revenue Ruling 88-76, 1988-2 C.B. 360 which categorized a Wyoming LLC as a partnership for federal income tax purposes

5

Advent of LLCs (cont) • New Mexico enacted LLC statutes in 1993. (See §§ 5319-1 through 53-19-74 NMSA)

6

General Partnerships • Many are unintentionally in GPs • All that is required is an express or implied intent that a business venture be established, an agreement for joint control and proprietorship, a contribution of property or services and a sharing of profits

7

Advantages of a general partnership • No entity level income taxation (flow through entity

• entity level debt (i.e., mortgage on the real estate) increases the basis of the partnership interest owned by the partner.

8

Advantages of GP (cont) • Special Allocations • IRC Section 754 election to step up basis at death • Generally, tax free contributions and distributions

9

Disadvantages of GP • Joint and several and unlimited liability • Apparent Authority of all partners to bind partnership • Withdrawal of partner can result in no partnership for tax purposes and under state law • Prior to 2018, 50% or more of interests in a partnership sold or exchanged within twelve (12) months, terminated partnership for federal income tax purposes

10

Disadvantages of GP • Appreciated undeveloped real estate • IF developed and sold off – ordinary income treatment (See IRC § 1221).

• If the client sells to a related entity partnership, IRC § 707(b) treats the gain as ordinary income • If instead the property is sold to an S Corporation, the initial gain can be treated as capital gain because S Corporations have no statutory restriction like IRC § 707(b).

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Limited Partnership • One or more general partners who are liable for partnership debts and actions; but the limited partners are not.

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Advantages of LP • Generally, only the general partner is liable for partnership obligations.

However, limited partners can become liable if they participate in control of the business.

• If the general partner is a corporation or an LLC, then no individual will be liable for the obligations of the limited partnership.

13

Advantages of LP (cont) • Limited partners are not agents of the limited partnership and therefore cannot enter into obligations which bind the limited partnership.

• Family Limited Partnerships – transfer tax advantages • Charging Order only remedy of creditor of a limited partner 14

Advantages of LP (cont) • Some states administrative fees and taxes are less than for an LLC

15

Disadvantages of LP • Complexity of having to have a corporate GP as well as a limited partnership.

• If LP exercises too much control can be treated as a GP with attendant vicarious liability

16

C Corporation • It would be a rare occasion where a planner would want to place real estate in a C Corporation.

• limited liability protection for its shareholders • Double taxation (particularly from the sale of the real estate) • losses such as deprecation do not flow through to the shareholder 17

S Corporations • An S Corporation is a regular corporation (or an LLC) electing S corporation status) - The corporation may not have more than 100 shareholders, although spouses and family members are treated as 1 shareholder for purposes of this rule.

S corporation may only have individuals, an estate (but only for a limited time), certain types of trusts as a shareholder.

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18

S Corp (cont) - Non-resident aliens may not be shareholders.

- The corporation may have only 1 class of stock (although it can have voting and non-voting shares).

- A single member LLC may own stock in an S Corporation; but must be a disregarded entity for income tax purposes and single member must be a qualified S corporation shareholder.

19

S Corp (cont) - Important: This can be a trap for the unwary because if the single member LLC acquires a second member, the LLC would no longer be an eligible S Corporation shareholder.

- The election to be a S corporation must be made by the 15th day of the third month of the current year of formation.

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S Corp (cont) - If S Corp election is “blown” because of failure to meet any of these requirements, the corporation will be treated as a C corporation with all of the problems for C Corporations that own real estate.

- One of the principal advantages of an S Corporation vs an LLC is that currently S corporation distributions are not subject to Social Security and Medicare taxes.

21

Principal advantage of S Corp • Instead of paying wages, an S Corporation distribution is used, limiting the Social Security, Medicare and other employment taxes.

22

Limited Liability Company (LLC) • Preferred Entity for real estate.

• pass through of profits and losses to the members • members may control the without the risk of losing their limited liability (compared to LP) • Flexibility - can elect to be treated as a C Corporation, S Corporation, a partnership (as long as the LLC as at least 2 members) or a single member LLC which is a disregarded entity for federal income tax purposes • facilitates like kind exchanges of real estate • lack of complex rules (compared to S Corp)

23

Advantages LLC • LLCs are flexible in their management as an LLC may be member-managed or manager-managed.

• A transferee of a membership interest only becomes an economic interest owner with a right to a share of the profits and losses; but with no right to vote or to have any say so or control as to how the LLC is managed.

24

Advantages LLC (cont) • With the possible exception of single member LLCs, the courts have generally refused to pierce the “LLC veil” and allow the creditor go after the LLC member for LLC liabilities.

• Parent LLC places each real estate project into a separate LLC so that each project has it own LLC shield from liability and the parent LLC provides an LLC veil that protects the individual investor/owner or trust • Charging order - may not be exclusive remedy

25

Single Member LLC • Unless elect otherwise – disregarded entity for income tax purposes • a single member LLC has the same “LLC shield” from liability as multi-member LLCs • Revenue Proceeding 2002-69 – H and W in community property state are a single member • Operating Agreement is important!!

26

Single Member LLC – 1031 Exchange • Single member LLC – disregarded entity, the owner is treated as the owner of the real estate owned by the LLC • PLR 9807013, an exchange of single member memberships which own qualifying real estate will qualify as an exchange of real estate for the purposes of the tax free exchange provisions of IRC § 1031 without being treated as a transfer of real estate for state law purposes.

• By not having to deed the real estate out of the LLC; but only transferring the LLC, it continues to be protected by the LLC shield against liabilities.

• TIN is social security number of single member 27

Membership Interest as Personal Property • Members Interest is intangible personal property • Client dies owning a single member LLC owning real estate in another state • Intangible personal property may be probated in the state of residence so may be unnecessary to do an ancillary probate in the state where the real estate is actually located.

28

Trusts • A revocable living trust provides no asset protection.

• This is because the person establishing the trust retains the right to revoke the trust and return all of the assets back to the Trustor at any time. § 46A-5-505A(1) NMSA 1978.

• If the trust was revocable at the time of the death of the Trustor, the trust assets are subject to the claims of creditors of the Trustor. § 46A-5505A(3) NMSA 1978.

29

Third Party Settled Trust • What if we transfer real estate or an LLC owning real estate to a third party settled trust established for the benefit of another person (i.e., spouse, children and other lineal descendants) that is irrevocable and unamendable. If properly drafted this type of trust would provide asset protection, management and potentially income and estate tax benefits 30

Non-tax advantages of leaving property in trust for children and other family members • Protection from Divorce • Creditor Protection.

• Same level of protection whether or not the beneficiary is the trustee or a third party is the trustee.

• See 46A-5-504E NMSA • Exceptions: 1.

Child support and spousal support – 46A-5503 NMSA. 2.

Judgment creditor providing services for protection of beneficiary’s interest in the trust.

3.

A claim of the state of NM or United States to extent a NM statute or federal law so provides.

31

Individual Income Tax Provisions - Rates • Individual income tax rate structure replaced with 10%, 12%, 22%, 24%, 32%, 35%, and 37% tax brackets • For 2023, top rate of 37% starts at $578,125 for single individuals and heads of household, $693,750 for married individuals filing joint returns.

• For 2022, top rate of 37% commences for estates and trusts at $14,450 in income.

• All rates are indexed for inflation.

32

Consider planning that will not be included in estates of children Estate tax benefits. If clients leave their estate outright to children by gift or bequest, property may be subjected to federal estate tax upon death of children. Trusts for children could be structured so that: 1. Child receives income.

2. Child receives principal under a HEMS standard.

3. Child can be the trustee of the trust and can direct investment of trust assets for income or principal growth as your child may decide is in child’s best interest.

4. Child is granted a limited power of appointment so child can at death appoint and direct the trust assets to anyone chosen by child except to that child, the estate of that child, the creditors of that child or the creditors of his or her estate. The class of beneficiaries to whom child can appoint property of the trust can be more limited if desired.

33

Consider providing for trusts that will not be included in estates of children • None of the powers listed above either alone or cumulatively will cause the assets of a trust established for the benefit of a child to be included in his or her estate for federal estate tax purposes.

• The limited power of appointment will allow the child to appoint the property outright or in trust to descendants.

34

What about Step Up in Basis?

• If an irrevocable trust for a beneficiary is not included in the estate of the beneficiary at death, then the assets in the trust will not receive a basis step up for income tax purposes • If the basic estate tax exemption remains high, the assets of the trust could be included in the estate of the beneficiary without negative estate tax ramifications 35

Formula General Power of Appointment • Using formula general power of appointment (“GPOA”), the trust can be designed for a clients’ descendants in a manner that will cause the value of the assets in such trusts to be included in their respective gross estates just up to the point beyond which estate tax would be incurred

36

What is a GPOA? • IRC § 2041(b)(1) defines a GPOA as a power which is exercisable in favor of the decedent, the estate of the decedent, the creditors of the decedent or the creditors of the estate of the decedent.

• Property subject to a GPOA, whether or not exercised, will be deemed to have been acquired from the decedent and will, therefore, qualify for the step-up in basis.

Treas. Reg. §§ 1.1014-2(a)(4), (b)(2).

37

Consider including trusts for children that will not be subject to GST tax • The estate, gift and GST tax exemption of $12,920,000 in 2023 will allow clients to set up trusts for their children that will be GST exempt and can place up to $12,920,000 ($25,840,000 for married couples) in these trusts which will then be insulated from estate tax and the GST tax.

• This should be considered before the increased exemptions sunset on December 31, 2025 (or sooner if your clients believe the sunset will be accelerated!).

38

Do we make irrevocable trusts grantor trusts?

• A grantor trust is a trust for income tax purposes that the grantor has retained one or more powers under IRC §§ 671 through 679.

39

Why a grantor trust?

• When an irrevocable trust is established someone is going to have to pay the income tax on income received by the trust which is either: – The Grantor – The Trust – Or the beneficiaries.

40

Grantor Trust (Reason #1) • Grantor is making a gift tax free and gift tax exemption free gift of the amount of the income tax to the beneficiary.

41

Grantor Trust Reason #2 • Installment sales may be made income tax free between the grantor and a trust that is a grantor trust for income tax purposes. Rev Rul 85-13

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Grantor Trust Reason #3 • If the trust is a grantor trust and the terms and provisions of the trust need to be modified, you can distribute the assets or decant into another grantor trust with no income tax consequences.

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Designing the Grantor Trust • Grantor trust status needs to be able to be toggled on or off.

– Toggle off by grantor releasing power that makes the trust a grantor trust.

– Toggle on by giving a trust protector or independent trustee the power to re-grant the power that makes the trust a grantor trust.

• Trustee may be given a power in the discretion of the trustee to reimburse the grantor for income taxes paid.

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Spousal Limited Access Trusts (SLAT) • Many clients are not comfortable making large gifts into trusts for children and other descendants because: – Do not know how much will need for the rest of their life; – Turn children into “trust babies” and disincentivize children from reaching potential.

– Fear of nature or extent of future changes in future tax legislation.

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Recommendation: Gift LLC interests at a discount during lifetime • Gifting minority interests to children or to trusts for children at a discount allows leverage of the annual exclusion and lifetime gift tax exemption using a Wandry formula gift.

• In the 2012 Tax court case of Wandry v Commissioner, TC Memo 2012-88, the taxpayers gifted membership units in a family LLC to their children and grandchildren. The Tax Court approved an adjustment formula clause triggered by post-audit revaluation under which units are reallocated so that value of number of units to each donee equaled the gift tax exclusion dollar amount specified in transfer documents.

A Wandry type formula gift should be used to prevent gift tax from being incurred when the valuation of the family entity could be adjusted on audit by the IRS.

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Recommendation: Gift LLC interests at a discount during lifetime • Gifts of interests in LLC or other business assets can be used to create minority interests in assets of client at death.

• Example: 2% gift to children, could create a 49% interest in each spouse.

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Thank you for your time and attention!

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Kenneth C. Leach, Attorney

LAW OFFICES OF

kleach@kcleachlaw.com

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KENNETH C. LEACH & ASSOCIATES, P.C. A PROFESSIONAL CORPORATION

Michelle Martinez, Paralegal mmartinez@kcleachlaw.com

Jessica M. Quezada, Legal Secretary jquezada@kcleachlaw.com

Susan A. McEntee, Paralegal smcentee@kcleachlaw.com

Donna R. Sowers, Paralegal

www.kcleachlaw.com

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dsowers@kcleachlaw.com

DESIGNING THE BEST VEHICLES TO OWN AND MANAGE REAL ESTATE? PRESENTED BY KENNETH C. LEACH of the Law Offices of Kenneth C. Leach & Associates, P.C. When considering entities which can hold and manage real estate, there are a proliferation of business entity choices, including corporations, LLCs, general partnerships, limited partnerships. limited liability partnerships and trusts. Most clients want an entity that lets them have their cake and eat it to. Client are looking for an entity which protects the real estate and the owner of the real estate from liability, provides the optimal tax advantages and provides the least amount of administrative fees and complexity. In this presentation, we will explore the advantages and disadvantage of different entities as the owner and manager of real estate as there is no one size fits all with regard to the appropriate entity in given situations.

I.

Background on historical use of business entities in owning real estate

For years, the three main business entities utilized to hold and manage real estate were the general partnership, limited partnership, C corporation and S Corporation. C corporations were typically not preferred because C corporations are subject to double taxation, the real estate when and if sold would be subject to taxation and distributions to the shareholders would be taxed again as dividends when the net proceeds of the sale or other income from the real estate were distributed to the shareholders. As a result, business planners preferred to use entities that were classified as partnerships for federal income tax purposes as the profits and losses of an entity classified as a partnership would flow through to the partners and there is no tax at the entity level. General partnerships were widely used to own real estate; but general partnership do not insulate the general partners from liability for claims against the partnership and partnership debts. Because of the desire for limited liability protection, business planners advised real estate owners to establish limited partnerships. However, to protect the general partner in a limited partnership arrangement, a corporation was usually formed to be the general partner which made for a more cumbersome and complex arrangement.

Because of the use of corporations and partnerships to hold and manage real estate not being fully satisfactory. the first limited liability company legislation in the state of Wyoming was enacted in 1977. However. limited liability companies (“LLC”) were not widely in use until 1988

when the Internal Revenue Service issued Revenue Ruling 88-76, 1988-2 C.B. 360 which categorized a Wyoming LLC as a partnership for federal income tax purposes. Revenue Ruling 88-76 caused a flurry of states to adopt LLC statutes, including New Mexico in 1993. (See §§ 5319-1 through 53-19-74 which sets forth New Mexico’s LLC statutory scheme). A LLC is a noncorporate business entity that provides its members with limited liability and allows its members to participate actively in the management of the entity. Because it is a non-corporate form of entity, it avoids double taxation and permits the pass-through of income and losses to the members for federal income tax purposes. Unlike general partners, the members of an LLC have limited liability like a shareholder in a corporation. Unlike a limited partnership, there is no restriction on the members level of control. An LLC can be “member-managed” or “manager managed” which gives an LLC flexibility in management without having to have a person who has general unlimited liability like a general partner in a limited partnership.

Through the desire of business clients to obtain limited liability and tax pass through status, the limited liability partnership was born (“LLP”). An LLP is fundamentally simply a type of general partnership modified by statute to eliminate the traditional liability consequences of general partnership status.

Against the background of the historical use of business entities to hold and manage real estate, this presentation will be discussing the pros and cons of the most widely used entities to own and manage real estate.

I.

Choices of business entities to own and manage real estate

Once a client determines that he or she desires to own real estate, the choice of the type of entity to use to own and manage real estate is one of the more important decisions that a client will need to make. Usually clients will want liability protection, a single level of tax so that deductions like property, taxes, losses and depreciation will flow through to the client so the client can take these deductions on the client’s individual income tax return. The advantages and disadvantages of the various choice of entities are examined in the materials that follow.

A. General Partnerships. It should be noted that many persons are in general partnership without even knowing it as a partnership can be formed unintentionally for both federal tax and state law purposes. All that is required is an express or implied intent that a business venture be established, an agreement for joint control and proprietorship, a contribution of property or services and a sharing of profits. Therefore, real estate owned by clients as joint tenants or tenants in common can end up being treated as general partnerships for both state law and income tax purposes. This could result in joint and several liability for all the owners of the real estate.

The advantages and disadvantages of a general partnership are set forth below: 1.

Advantages of a general partnership.

(a) Partnerships are not subject to income taxation at the entity level.

Income and losses flow through to the partners.

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(b) IRC § 752 provides partnerships with a major advantage. An entity taxed as a partnership which includes an LLC taxed as a partnership is the only business entity that permits entity level debt (i.e., mortgage on the real estate) to increase the basis of the partnership interest owned by the partner. Loss deductions are typically limited to the basis of the partner in that partner’s ownership interest. The higher the basis the greater the loss deductions permitted.

There is no provision like IRC § 752 for S Corporations and therefore debt incurred by an S Corporation will not increase the basis of an S Corporation shareholder in the shareholder’s ownership of the corporation. (c) Although the rule are complex and are beyond the scope of this presentation, if IRS regulations are carefully followed, it is possible to make special allocations (i.e., a 20% partner may be allocated 80% of the depreciation deductions arising from ownership of a particular parcel of real estate). Special allocations are not available to S Corporations where all profits and losses are allocated proportionately in accordance with the stock ownership in the corporation. (d) If a partner dies, an IRC § 754 election can be made to step up the both the inside and outside income tax basis of the partnership interest of the deceased partner.

IRC 754 elections are not available to S corporations. The IRC § 754 election must be made by the partnership not by the individual partner. (e) Contributions of property to a partnership by a partner are typically tax free under IRC § 721 and the partner’s basis in the partnership interest is increase by the basis of the contributed property under IRC § 722. Usually, no gain or loss is recognized when the partnership distributes money or property to the partners under IRC § 731(a). A partner’s basis in his or her partnership interest is reduced under IRC § 705 by the amount of money and the partnership’s basis in property distributed to that partner. Money (including marketable securities) distributed to a partner that exceeds his or her basis in his or her partnership interest results in the recognition of gain to the extent it exceeds basis. Contributions to an S Corporation or C Corporation are only tax free if the contributor meets the 80% control test of IRC § 351. Typically gain is recognized by a C Corporation or S Corporation when the corporation makes a distribution of appreciated property.

1.

Disadvantages of a general partnership.

(a) All the partners are jointly and severally liable for the obligations of the partnership. Since a general partnership can be formed without any filing or intention to form a partnership, the determination that an arrangement between 2 or more persons is a general partnership can result in a catastrophic vicarious liability. (b) Partners in a general partnership have “apparent authority” to do any act within the usual course of business of the partnership, even if actual authority has not been given to that partner.

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(c) In a two-person general partnership , the withdrawal of one partner terminates the partnership for both state law and federal income tax purposes. If, the entity was instead a two member LLC, the withdrawal of one member would terminate the status of the LLC as a partnership for income tax purposes but would have no effect on the LLC as an entity for purposes of state law. (d) Prior to 2018, if 50% or more of interests in a partnership were sold or exchanged within twelve (12) months, the partnership terminated for federal income tax purposes. The Tax Cuts and Jobs Act (hereinafter referred to as the “2017 Act”) repealed this rule. (e) If a client owns appreciated real property for several years that would qualify as a capital asset for capital gains purposes; but would like to subdivide and develop the property to sell it off in lots, lots held in the ordinary course of business would not qualify for capital gains treatment and all of the gain would therefore be taxed as ordinary income. (See IRC § 1221). How does your client lock in his or her existing gain at capital gain rates? If the clients sells to a general partnership that is a related entity, IRC § 707(b) treats the gain as ordinary income if the seller and the partnership are related (seller owns directly or indirectly, including via family members) more than 50% of the partnership. If instead the property is sold to an S Corporation, the initial gain can be treated as capital gain because S Corporations have no statutory restriction like IRC § 707(b).

B.

Limited Partnerships.

1.

Advantages of a limited partnership. A limited partnership is a partnership so it has all the same advantages listed as advantages for general partnership. (a) Generally, only the general partner is liable for partnership obligations. However, limited partners can become liable if they participate in control of the business. If the general partner is a corporation or an LLC, then no individual will be liable for the obligations of the limited partnership. (b) Limited partners are not agents of the limited partnership and therefore cannot enter into obligations which bind the limited partnership. (c) A family limited partnership (“FLP”) has transfer tax (estate, gift and GST tax) advantages. Appreciated assets are placed in a FLP and the limited partnership interests are gifted to the lower generation (children, grandchildren, etc.) at a discount for lack of control and minority interest. (d) A creditor of a limited partner generally may not execute against or foreclose the limited partnership interest of a limited partner as generally, the creditor may only obtain a charging order. There is an argument that if because of the charging order income from the partnership can only be paid to the creditor, the creditor may be liable for the income tax on the distributions. See Rev Rul 77-137, 1977-1 C.B. 178. Even if foreclosure of the limited partnership interest were permitted, it would only give the creditor the rights of a transferee of 4

partnership interest and the creditor can not become an actual partner. This essentially means that the creditor is only going to have rights to distributions, if and when any are actually made by the partnership. (e) In some states, notably Texas and California, the tax and ongoing fee burdens for a limited partnership are less than for a LLC. 2.

Disadvantages of a limited partnership.

(a) The necessity of having to have both a corporation to own the general partnership interest and the limited partnership entity itself causes complexity that may make it inappropriate for clients who will not be able to keep the relationship between the corporate general partner and the role of the limited partners straight.

B. C Corporations. It would be a rare occasion where a planner would want to place real estate in a C Corporation. While the corporation has limited liability protection for its shareholders, the problem of getting distributions (particularly from the sale of the real estate) without double taxation and the fact that losses such as deprecation do not flow through to the shareholder generally makes it a poor choice to hold real estate from a tax perspective. Where you have a client who is a shareholder in an old C corporation that holds real estate, there are some ways to minimize the double taxation of selling the real estate and having it taxed to the C Corporation and taxed again when distributed out to the shareholders.

1.

Distribute the income out as salary to the shareholder/employee. The corporation would receive a deduction for payment of salary; but be careful that the shareholder/employee can actually justify services performed for the payment of salary.

2.

If the shareholder/employee is in the 37% bracket, instead of paying salaries consider paying out dividends which would only be taxed at 15%. In this scenario, the income tax savings of the shareholder receiving the dividends at 15% may outweigh the benefit of the corporation obtaining a deduction if the distribution was to be salary.

C. S Corporations. An S Corporation is a regular corporation (or an LLC electing S corporation status). An S election (Form 2553) is filed with the Internal Revenue Service electing S corporation status. This changes its status for income tax purposes; but has no effect on its status as a corporation under state law. The biggest problem with S Corporations is the rules for eligibility and to maintain eligibility are picayune and unforgiving when violated. To qualify as an S Corporation, the corporation or LLC electing to be taxed as an S corporation must meet the following requirements: 1.

The corporation may not have more than 100 shareholders, although spouses and family members are treated as 1 shareholder for purposes of this rule.

2.

The corporation may only have individuals, an estate (but only for a limited time), certain types of trusts as a shareholder.

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3.

Non-resident aliens may not be shareholders.

4.

The corporation may have only 1 class of stock (although it can have voting and non-voting shares). Debt can be re-classified as equity and you can end up with a second class of stock. Shareholder notes representing amounts loaned to the S Corporation could be reclassified as a second class of stock if certain parameters are not met. A single member LLC may own stock in an S Corporation; but must be a disregarded entity for income tax purposes and then the single member must be a qualified S corporation shareholder. Important: This can be a trap for the unwary because if the single member LLC acquires a second member, the LLC would no longer be an eligible S Corporation shareholder.

5.

The election to be a S corporation must be made by the 15th day of the third month of the current year of formation.

6.

If an S Corporation election is “blown” because of failure to meet any of these requirements, the corporation will be treated as a C corporation with all of the problems for C Corporations that own real estate.

7.

One of the principal advantages of an S Corporation vs an LLC is that currently S corporation distributions are not subject to Social Security and Medicare taxes that would be payable if a general partnership or LLC were the business entity used. Therefore, if instead of paying wages, an S Corporation distribution is used, it is possible to limit the Social Security, Medicare and other employment taxes.

C. Limited Liability Company (“LLC”). In most cases the preferred entity to own and manage real estate will be a LLC. A LLC combines limited liability with pass through of profits and losses to the members and unlike a limited partnership interest, the members may control the LLC without the risk of losing their limited liability. The LLC is also flexible as it can elect for federal income tax purposes to be a C Corporation, S Corporation, a partnership (as long as the LLC as at least 2 members) or a single member LLC which is a disregarded entity for federal income tax purposes. LLCs are generally the entity of choice for the operation of most businesses for the reasons stated above; but are especially the preferable entity of choice for owning and managing real estate because of their use in making like kind exchanges of real estate, their flexibility and lack of complex rules.

1.

Advantages of LLCs.

(a) In general, an LLC will have the same advantages of a general partnership as discussed in these materials under Advantages of General Partnerships. (b) LLCs are flexible in their management as an LLC may be membermanaged or manager-managed.

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(c) A transferee of a membership interest only becomes an economic interest owner with a right to a share of the profits and losses; but with no right to vote or to have any say so or control as to how the LLC is managed. (d) With the possible exception of single member LLCs, the courts have generally refused to pierce the “LLC veil” and allow the creditor go after the LLC member for LLC liabilities. For example, a parent LLC which is involved in the business of real estate typically places each real estate project into a separate LLC so that each project has it own LLC shield from liability and the parent LLC provides an LLC veil that protects the individual investor/owner. (e) The second important protection is the extent to which a creditor of the LLC can go after the LLC assets for the debt of the member. In general, a creditor is only entitled to a “charging order” and is able to access the assets of the LLC. See § 53-19-35 NMSA 1978 which states “On application to a court by any judgment creditor of a member, the court may charge the interest of the member with payment of the unsatisfied amount of the judgment . . “ (emphasis added). This provision limits the creditor’s remedy to having only the rights of an “assignee” which means if distributions are made, the creditor would be entitled to the share that would have been otherwise distributed to the member subject to the judgment. Unfortunately, unlike some states (notably Nevada), the New Mexico statute does not state that a charging order is the exclusive remedy of a creditor which leaves open the argument that the judgment creditor should have the same rights as to the judgment debtor membership interest as the judgment creditor may have to go after any other asset of the judgment debtor. (f) Single-Member LLCs. The ability to have a single member LLC greatly enhances the choice of options for business entities for real estate. Unless an LLC with a single member elects otherwise, the default provision is that a single member LLC is a disregarded entity for income tax purposes. A single-member LCC can also elect to be taxed as a C or S Corporation for federal income tax purposes.

For the purposes of state law, a single member LLC is treated as an entity separate and apart from its owner. The owner has no direct ownership in the assets of the single member LLC. Most importantly, a single member LLC has the same “LLC shield” from liability as discussed above for multi-member LLCs. Having said this, there are courts who have been more willing to pierce the LLC veil when the LLC is a single member LLC. It therefore becomes more important than ever to make sure the owner operates a single member LLC as an entity separate and apart from the owner. (i) It is important to note that in Revenue Proceeding 2002-69, the IRS ruled that in a community property state, a LLC owned wholly by a husband and wife as community property may elect to be treated as a disregarded entity or a partnership for income tax purposes. (ii) In the experience of this author, I have seen many single member LLCs formed with only Articles of Organization and no operating agreement is prepared..

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In the opinion of the author, having an operating agreement is just as important for single member LLCs as multi-member LLCs as it will show the formalities necessary to bolster an argument that the “LLC veil” should not be pierced as it shows operation of the LLC is being conducted as a business entity separate and apart from the single member. An operating agreement is also essentially an “owner’s manual” for how the LLC is to be operated, is essential in dealing with a lender if the LLC needs to borrow money to acquire the real estate or make improvements and the loan is to be secured by a mortgage on the real estate. Lenders will expect to see provisions in an operating agreement authorizing the LLC to obtain loans, setting forth who is authorized to obtain loans on behalf of the LLC and who can execute the necessary paperwork. It is also essential to protect the property in case the owner/member dies, becomes bankrupt or incompetent. g.

Since single member LLCs can be disregarded entities for federal income tax purposes and for federal income tax purposes, the owner is treated as the owner of the real estate owned by the LLC, the IRS ruled in a private letter ruling (PLR 9807013, an exchange of single member memberships which own qualifying real estate will qualify as an exchange of real estate for the purposes of the tax free exchange provisions of IRC § 1031 without being treated as a transfer of real estate for state law purposes. By not having to deed the real estate out of the LLC; but only transferring the LLC, it continues to be protected by the LLC shield against liabilities. h.

Except for single member LLCs that have employees, the Tax ID number for the LLC is the social security number of the owner if the LLC is a single member LLC. See Reg. § 301.6109-1(h)(2)(i) and Reg. § 301.7701-2©(2)(i). i.

An interest in a single member LLC is intangible personal property so when a client dies owning a single member LLC owning real estate in another state, intangible personal property may be probated in the state of residence of the decedent so it may not be necessary to do an ancillary probate in the state where the real estate is actually located to transfer it to the heirs of the decedent single member.

C. Trusts. A revocable living trust provides no asset protection. It is no different for income tax purposes or liability purposes than if the individual owns the real estate in his or her own name. This is because the person establishing the trust (the Trustor, Settlor or Grantor) retains the right to revoke the trust and return all of the assets back to the Trustor at any time. § 46A-5505A(1) NMSA 1978. If the trust was revocable at the time of the death of the Trustor, the trust assets are subject to the claims of creditors of the Trustor. § 46A-5-505A(3) NMSA 1978.

However, a third party settled trust established for the benefit of another person (i.e., spouse, children and other lineal descendants)that is irrevocable and unamendable does provide both asset protection, management and potentially estate tax benefits. This can be one by making transfers to an irrevocable trust during life or by assets passing into an irrevocable trust at death via a will or a revocable living trust that becomes irrevocable at death.

1.

Income considerations under the 2017 Act. The 2017 Act signed into law

by President Trump changed the income tax rates for individuals and trusts as follows:

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•

The individual income tax rate structure replaced was with 10%, 12%, 22%, 24%, 32%, 35%, and 37% tax brackets.

•

For the 2022 tax year, the top rate of 37% starts at $539,900 for single individuals and heads of household, $647,850 for married individuals filing joint returns.

•

Top rate of 37% commences for estates and trusts at $13,450 for 2022.

•

All rates are indexed for inflation.

•

If passed, these rates would most certainly increase under the various Biden administration and progressive proposals.

(a) Because real estate produces deductions for real estate taxes, depreciation etc. it is important that the income and deductions pass through to the beneficiaries.

Also, if the trust is a complex trust for income tax purposes, any income that is not distributed out annually will be income taxed to the trust at the higher income tax rates for estates and trusts.

However, if the trust is designed as a simple trust for income tax purposes (i.e., provide that the income shall be distributed to the beneficiaries no less often than annually) so the income is income taxed to the beneficiaries at their much lower tax rates, we are losing the asset protection of a third party settled trust as to the distributed income. For that reason, the trust should be designed as a “grantor trust” for federal income tax purposes by making sure that one or more of the provisions under IRC §§ 672 through 679 are invoked so that for income tax purposes the income and deductions flow through and are taxed to the grantor instead of to the trust or the beneficiaries. Because the trust is a grantor trust for federal income tax purposes, the income and deductions would flow through to the grantor even if distributions are made to beneficiaries.

However, the grantor is not a beneficiary nor does the grantor of the trust hold any rights or powers that would bring the trust assets into the estate of the grantor at death for federal estate tax purposes under IRC §§ 2036 or 2038. (b) Designing the third party irrevocable trust. The irrevocable trust would work in tandem with an LLC owing the real estate. Instead of making a gift to or leaving the LLC membership interest to children at death outright or only in trust for children and other descendants until they reach a certain age, the establishment of lifetime irrevocable trusts for children and other descendants at death or by gifting during life should be considered. The irrevocable trust could be designed as follows: (i) Estate tax benefits. Subject to the discussion on generation skipping tax below, clients should be encouraged to consider whether transferring property to children outright is in their best interest, as anything transferred to a child outright may ultimately be subjected to estate tax at that child’s subsequent death. Depending on future legislation or whether the increased estate tax exemption sunsets at the end of 2025, clients’ estates may again be subject to a substantial estate tax at death. If clients transfer assets outright to their children by gift or bequest, assuming that the children still have the property received by their parents upon their subsequent death, that property could be subjected to federal estate tax in the children’s 9

estates. Clients should consider transferring assets to children in a trust structured so that each child has substantial use of the property during his or her lifetime; but the trust property will not be subjected to federal estate tax upon the child’s subsequent death. Trusts for children can be structured so that a child has use of assets in the trust remarkably close to absolute ownership; but not powers which would result in the trust assets being included in his or her estate for federal estate tax purposes at his or her death except to the extent it is desirable for assets to be included in the child’s estate to obtain a step up in income tax basis.

Example – a trust for a child or other descendant could be structured so the assets of the trust are not included in the child’s estate; with the child having any or all of the following powers without negative estate tax ramifications: -

A child would be entitled to all of the income from the trust during his or her lifetime. Caveat: For asset protection, it may be more desirable to design the trust so that distribution of the income is discretionary by an Independent Trustee.

-

The trustee (who could be the child – see below) would have the right to invade the principal of the trust for the health, education, support and maintenance of the child. However, see caveat above.

-

Once a child is old and mature enough, the child could become the trustee of the trust established for his or her benefit. As trustee, the child can direct investment of trust assets for income or principal growth and have the trust buy assets which the child as beneficiary can use personally.

-

The child could be granted a limited power of appointment exercisable in the child’s will under which he or she can at death appoint and direct the trust assets to anyone the child chooses except to that child, the estate of that child, the creditors of that child or the creditors of his or her estate. Typically, clients choose to limit the class of beneficiaries to whom the child can appoint property of the trust to a smaller class of beneficiaries (i.e., descendants of the child or the clients).

-

None of the powers listed above either alone or cumulatively will cause the assets of the trust established for the benefit of a child to be included in his or her estate for federal estate tax purposes. The limited power of appointment will allow each child to appoint the property outright or continue the assets in trust for the client’s descendants or the child’s children or other beneficiaries as a child may so desire.

(ii) Generation Skipping Tax ("GST"). The generation skipping transfer tax (hereinafter “GST”) imposes a tax for each generation which is by-passed or "skipped" by a transfer of wealth, even if no member of the skipped generation had use or enjoyment 10

of the property transferred. The GST tax was specifically designed by Congress to remedy the common tax avoidance technique where an individual gives property, either during life or after death to a generation lower than the child of the transferor (i.e., grandchildren or below), thus avoiding gift and estate tax being paid with respect to the intervening generation (the child’s generation). The legislative philosophy supporting the GST tax is a belief that a transfer tax (estate or gift tax) should be imposed at each generation below the transferor, not just at the generations which receive or otherwise enjoy the transferred property.

This legislative philosophy has been implemented by taxing skipped generations at the highest estate tax rate (40% for transfers made in 2022). Unfortunately, because of the breadth of the legislation, the GST tax is often incurred even when there is no intention to skip a generation. For example, if a grandparent leaves property in trust for a child until a certain age, date or for life, and the child dies or another event triggering distribution occurs before final distribution to the child then if at the death of the child the property is distributed to grandchildren, this is a "taxable termination" for GST tax purposes and the value of the property going to the grandchildren is GST taxed at the highest estate tax rate of 40%.

For 2022, each individual has an exemption from GST tax of $12,060,000. This means that if each of a married couple chooses to do so, together they may transfer up to $24,120,000 total to persons of a generation level of grandchildren or below without incurring GST tax. It is important to remember that the GST exemption is the same as the applicable exclusion amount for estate tax purposes and like the applicable exclusion amount is indexed for inflation. So, as the applicable exclusion amount changes due to the index, the GST tax exemption amount will change identically.

Through the use of both GST exemptions, for a married couple in 2022, up to $24,120,,000 in assets are exempt from GST tax for property distributed to children in a trust as described under Estate Tax benefits above without incurring an estate tax in a child’s estates or a GST tax at the death of a child should the assets of the trust be distributed to a person two (2) or more generations below the generation of the married couple. (iii) Asset Protection. There are also non-tax advantages to leaving property in trust for children instead of outright. First, it will protect the property in the event of the divorce of a child. Secondly, property in the trust will be protected from most creditors of the beneficiary-children. If the real estate is held by an LLC and the LLC is owned by the trust, it will enhance the protection of the beneficiary under the LLC because generally, the trust cannot be accessed for the debts of a beneficiary and therefore the LLC membership interest held by the LLC cannot be accessed by a creditor even with a charging order. Under the New Mexico Uniform Trust Code, property placed in an irrevocable trust for a beneficiary will have the same level of asset protection whether or not the beneficiary is the trustee or a third party is the trustee. See § 46A-5-504E NMSA 1978. The only exceptions are as follows: •

Child support and spousal support – § 46A-5-503 NMSA.

•

Judgment creditor providing services for protection of beneficiary’s interest in the trust.

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•

A claim of the state of NM or United States to extent a NM statute or federal law so provides.

D. Restructuring ownership of business entities. Ownership of interests in LLCs or other business entities which own real estate could be restructured by making some gifts to children or other family members. Properly done, gifts of minority interests in LLCs or other business entities should be entitled to discounts for lack of marketability and minority interests ranging from 35% to 45%. This allows a client, in effect, to leverage his or her $16,000 annual gift tax exclusion and yet maintain control of the asset because gifting could be done in such a way so the client remains the owner of the majority interest in each entity. If this planning is undertaken, it will be necessary to engage a qualified business appraiser experienced in valuing businesses to establish these discounts. There is an annual exclusion from gift tax of $16,000 per year per donee. This is indexed for inflation. This means each spouse can give $16,000 per year to children or any other person without incurring gift tax or using up the lifetime applicable exclusion amount. In addition to annual exclusion gifts, clients should consider using part of their $12,060,000 lifetime gift and estate tax exclusion transfer business interests to children (preferably in trust – the benefits of a gift in trust were explained previously). This would have two positive tax effects: (i) Assuming a discount of 35%, by using some lifetime exclusion, the business interests may be removed from the estate for transfer tax purposes on a discounted basis plus any future appreciation that occurs after the date of the gift on the gifted property and (ii) the remaining business interests retained by the clients will likewise be entitled to an estate tax discount at death. The major drawback to making gifts of corporate stock, LLC or other business entity interests during life is the cost of a good business appraisal to value these interests which will need to be obtained. Gifts made to a lifetime QTIP marital trust would further fractionalize ownership of LLC and other business interests and would assure that neither spouse of a married couple would be deemed to own a majority interest at the death of the surviving spouse.

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Integrating Portfolio and Insurance Planning Brad Justice Wealth Management Advisor Justice Financial

SESSION 2 9:35 AM

Integrating Portfolio and Insurance Planning March 3, 2023

Brad Justice, CFP®, MSFS, CLU®, ChFC®, RICP®, WMCP® Wealth Management Advisor

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Two Types of Financial Planning Issues • Defensive • Offensive

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Defensive Planning Issues • Emergency Funds • Insurance • Health • Life • Disability • Asset and Liability

• Retirement risks

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Offensive Planning Issues • Investments (portfolio, real estate, business) • Retirement accounts • Portfolio allocation

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Ongoing Planning Issues • Tax planning • Estate planning • Cashflow management

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Life Insurance • Two types: • Term • Permanent

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Uses of Life Insurance • Death benefit • Living benefit • Business continuity • Non‐qualified deferred compensation • Estate planning • Estate equalization • Special needs • Estate tax planning

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Disability Insurance • Group • Individual • Business • Buyout • Key person • Disability overhead

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Retirement Planning • Qualified plans • Non‐qualified plans • Social Security • Annuities

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Retirement Risks • Declining health • Inflation • Sequence of returns, market volatility • Longevity

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Integrating Portfolio and Insurance Planning • Impact of emergency funds or cash value life insurance • Health events and longevity

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Integrating Portfolio and Insurance Planning • Retirement Income Options • Systematic withdrawals • Bucket strategy • Flooring strategy

• Impact of behavioral finance

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Current Events: Recessionary Market Cycle • US stock market is a leading indicator • US economy is a lagging indicator

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https://www.capitalgroup.com/advisor/insights/articles/guide‐to‐recessions.html

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Current Events: Increasing Interest Rates • Audit money market / savings account interest rates

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SECURE Act 2.0 • Over 90 provisions • Increased catch up contributions • Increased Roth options • Changes to RMD ages • Increased flexibility in retirement plan access

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Advanced Planning Library

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Advanced Planning Library Sample Documents

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Advanced Planning Library Access Email: justicefinancial@nm.com (full name, phone number, email address)

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Contact Information Brad Justice https://justicefinancial.nm.com

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Estate Planning for the LGBTQ+ Community Cristy Carbón-Gaul Attorney The Law Office of Cristy J. Carbón-Gaul

SESSION 3 (virtual) 10:45 AM

Cristy J. Carbón-Gaul The Law Office of Cristy J. Carbón-Gaul Pronouns: she, her, hers

REPRESENTING LGBTQIA+ CLIENTS

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CREATING AN INCLUSIVE ENVIRONMENT • Maybe Signage and use intentional advertising. Create a welcoming environment using a "safe zone sticker" or through generally LGBTQ-affirming comments, which can communicate that this is a safe space.

• Do not make assumptions regarding sexual orientation or gender identity. Instead of assuming what pronoun your client uses, create space where they feel confident and safe disclosing that to you.

• Include a check box for gender on all client forms.

• Include your gender pronouns on your business card.

• Avoid using heteronormative and cisnormative language during conversations. For example, when you would normally use words such as “boyfriend/girlfriend” or “husband/wife,” try using the word “partner,” "significant other,” and “spouse”.

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TERMS • Lesbian • Gay • Bisexual

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TRANSGENDER A transgender person (often abbreviated to trans person) is someone whose gender identity or gender expression does not correspond with their sex assigned at birth.

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QUEER/QUESTIONING (ONE'S SEXUAL OR GENDER IDENTITY) An adjective used by some people whose sexual orientation is not exclusively heterosexual or straight. This umbrella term includes people who have nonbinary, gender-fluid, or gender nonconforming identities. Once considered a pejorative term, queer has been reclaimed by some LGBTQIA+ people to describe themselves; however, it is not a universally accepted term even within the LGBTQIA+ community.

The word “queer” has history to it that’s hurtful — “queer” used to be (and sometimes still is) used to put down or disrespect LGBT people. But more and more, people use the word with pride to identify themselves. So don’t call someone “queer” unless you know they’re cool with it. The best thing to do is ask what labels people prefer.

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INTERSEX An adjective used to describe a person with one or more innate sex characteristics, including genitals, internal reproductive organs, and chromosomes, that fall outside of traditional conceptions of male or female bodies. Do not confuse having an intersex trait with being transgender.

Intersex people are assigned a sex at birth — either male or female — and that decision by medical providers and parents may not match the gender identity of the child. Not all intersex folks identify as being part of the LGBTQIA+ community.

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ASEXUAL Asexuality is the lack of sexual attraction to others, or low or absent interest in or desire for sexual activity. It may be considered a sexual orientation or the lack thereof.

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PLUS + The ‘plus’ is used to signify all of the gender identities and sexual orientations that letters and words cannot yet fully describe.

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NON-BINARY • Gender identity refers to how someone conceptualizes their gender.

This identity is distinguishable from a person’s sexual orientation and sex assigned at birth.

• Someone who is non-binary does not identify as exclusively male or female. They may identify as both, neither, or some combination of the two. For example, someone who identifies as non-binary may feel more masculine on some days and more feminine on other days. Their gender expression, the way they present themselves (including clothing choices), may fluctuate – or they may choose to dress more androgynously.

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CISGENDER Cis, short for cisgender (pronounced sis-gender, or just sis), is a term that means whatever gender you are now is the same as what was presumed for you at birth. This simply means that when a parent or doctor called you a boy or a girl when you were born, they got it right.

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GAY MARRIAGE • On June 26, 2015, the U.S. Supreme Court ruled that same-sex couples had the right to marry. The narrow, 5-4 decision did away with same-sex marriage bans in 14 states.

• Thirty-five states ban same-sex marriage in their constitutions, state law, or both, according to the National Conference of State Legislatures and Stateline research. All were invalidated in 2015 by the Obergefell v.

Hodges ruling. But should the now-more-conservative U.S. Supreme Court overturn the right to same-sex marriages, those state laws and constitutional amendments would kick in.

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RESPECT FOR MARRIAGE ACT The Respect for Marriage Act guarantees federal recognition of any marriage between two individuals if the union was valid in the state where it was performed. It also requires states to accept the legitimacy of a valid marriage performed elsewhere and protects interracial marriages.

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MARRIAGE V. DOMESTIC PARTNERSHIP • Access to Benefits • Social Security Benefits to the surviving spouse • Community and Separate Property analysis • Separate Debt Analysis

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ORIENTATION V. LIFE STYLE/CHOICE

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CHILDREN • Bio parents • Adopted children • Surrogacy • Step-Parents

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45-2-120.

Child conceived by assisted reproduction other than child born to gestational carrier.

45-2-117. No distinction based on marital status.

Except as otherwise provided in Section 45-2-114, 45-2-119, 45-2120 or 45-2-121 NMSA 1978, a parent-child relationship exists between a child and the child's genetic parents, regardless of the parents' marital status.

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DOMESTIC PARTNERS • Gay or Straight- need documents • Domestic Partnership Agreements • House ownership • Household expenses • Break-Up • Death • Tangible Personal Property

• Powers of Attorney • Cremation authorization

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24-12A-2. NO WRITTEN INSTRUCTIONS; PRIORITY OF OTHERS TO DECIDE DISPOSITION A. Except as provided in Subsection B of this section, if a decedent has left no written instructions regarding the disposition of the decedent's remains, the following persons in the order listed shall determine the means of disposition, not to be limited to cremation, of the remains of the decedent: (1) the surviving spouse; (2) a majority of the surviving adult children of the decedent; (3) the surviving parents of the decedent; (4) a majority of the surviving siblings of the decedent; (5) an adult who has exhibited special care and concern for the decedent, who is aware of the decedent's views and desires regarding the disposition of the decedent's body and who is willing and able to make a decision about the disposition of the decedent's body; or (6) the adult person of the next degree of kinship in the order named by New Mexico law to inherit the estate of the decedent.

B. If a decedent left no written instructions regarding the disposition of the decedent's remains, died while serving in any branch of the United States armed forces, the United States reserve forces or the national guard and completed a United States department of defense record of emergency data form or its successor form, the person authorized by the decedent to determine the means of disposition on a United States department of defense record of emergency data form shall determine the means of disposition, not to be limited to cremation.

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PROFESSIONAL ETHICS • 16-804. Misconduct.

• It is professional misconduct for a lawyer to: A. violate or attempt to violate the Rules of Professional Conduct, knowingly assist or induce another to do so or do so through the acts of another; B. commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects; C. engage in conduct involving dishonesty, fraud, deceit or misrepresentation; D. engage in conduct that is prejudicial to the administration of justice; E. state or imply an ability to influence improperly a government agency or official or to achieve results by means that violate the Rules of Professional Conduct or other law; or F. knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law.

G. engage in conduct that the lawyer knows or reasonably should know is harassment or discrimination on the basis of race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity, or marital status in conduct related to the practice of law. This paragraph does not limit the ability of a lawyer to accept, decline, or withdraw from a representation in accordance with Rule 16-116 NMRA. This paragraph does not preclude legitimate advice or advocacy consistent with these rules.

[As amended by Supreme Court Order No. 08-8300-029, effective November 3, 2008; as amended by Supreme Court Order No. 19-8300-012, effective December 1, 2019.]

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REPRESENTING TRANS CLIENTS • Respect Pronouns • Don’t ask about procedure that are done • Trans individuals may be gay or straight • Non-gender language in estate planning documents as the norm

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NAME CHANGES • There is proposed legislation to change the law regarding publication • There are approved Supreme Court documents to do this yourself and the self-help desk can assist • Use of the “dead name” in estate planning documents- depends on if there is a legal name change

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Cristy J. Carbón-Gaul

The Law Office of Cristy J. Carbón-Gaul Pronouns: she, her, hers https://www.mypronouns.org/what-and-why Mailing address: 10515 4th St., NW Albuquerque, New Mexico 87114 Hand deliveries/ Client Meetings: 10143 4th St., NW Albuquerque, New Mexico 87114 505.899.5696 cristy@carbon-gaul.com carbon-gaul.com

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The Charitable Giving Conversation Juaquin Moya Khia Griffis Randy Royster Albuquerque Community Foundation

SESSION 4 12:30 PM

The Charitable Giving Conversation Juaquin Moya, VP of Philanthropic Advising Khia Griffis, Director of Community Impact Randy Royster, President & CEO

Introducing Charitable Giving in the Estate Planning Conversation How would you describe the role that charitable giving has played in your life?

Are there nonprofits, service areas, or projects that you want to be a part of your legacy in the community?

Active Giving vs. Estate Giving client wants to give during their lifetime

client only wants to give through estate

Donor Advised Fund (DAF)

Estate Fund

easier than private foundation can include estate arrangements a r can c an grant to any 501(c)(3) in good g ood standing

protects donor intent endowed in perpetuity can be specific or adaptable

3 Questions to Ask To T o Help Donors Think About Planned Giving g

What time frame do you want to make an impact in?

What geographic area do you want to create impact in?

How much flexibility do you want to leave for grant decisionmaking?

What W Wh hat time frame does the client want to make an impact ct in? in?

Short Term

Perpetuity

grant out all dollars shortly after receiving

endow dollars to create annual returns forever

Passthrough Fund High Impact Grant

Donor Advised Fund Estate Fund Other Endowments

What W Wh hat geographic g area does the client want to make impact act in? in?

Local

Statewide

look for institutions with a pulse on ongoing work

look for locally based and run institutions

Community Foundations Nonprofits

New Mexico Community Trust

National

International

look oo o ok for institutions that align with the client's life ok

look for US-based institutions that do international work

Alma Maters Nonprofits in hometown

Charities Aid Foundation UNICEF

How H ow much muc flexibility does the client want to leave e in in grant grant decisionmaking?

Less Involved

More Involved

Tenets of the Charitable Giving Conversation g existin Rely on work ions & t u t i t s n i nd

There a re no right/w rong an swers

Donor In tent wil l be ho nored above all else .

Create stability over time Encourage clients to allow mechanisms for updates to grant priorities and recipients over time.

Community Foundations protect donor intent through Variance Power requests.

a dation rk y Foun it n the wo u m o Com tions d tu ti s in thropic . ts philan for you cipien rant re g ic if n c e em t, spe e and nd agre fu in Purpos d specifie ument. can be te doc not esta

Questions?

Contact us for a site visit or more information! juaquin@abqcf.org

ABOUT OUR COMMUNITY FOUNDATION We can help you make a lasting difference.

Albuquerque Community Foundation is a tax-exempt public charity created by and for people in the Greater Albuquerque Area. We enable those with philanthropic interests to easily and effectively support the issues they care about — immediately or through a planned gift. You can establish a charitable fund by contributing a variety of assets and can then recommend grants — in your name, if you choose — to nonprofit groups you want to support.

Unique Features of the Foundation Personalized Service. For individuals, families, and private foundations, we offer efficient stewardship of their philanthropic funds, professional grant-making and monitoring, and the most generous tax benefits provided by law.

The Foundation Administers a permanent community endowment comprised of many gifts, large and small, and uses the earnings from that endowment to make grants to other nonprofit organizations. Since our establishment in 1981, our total grant distributions are nearly $74 million, and we have funded over 10,000 grants to nonprofit organizations serving the Greater Albuquerque Area.

Local Expertise. Our professional staff has an in-depth understanding of the issues, opportunities, and resources that shape our community. We monitor all areas of community need, including arts & culture, at-risk children & youth, education, environmental & historic preservation, health, and human services. We can help you learn more about the organizations and programs that make a difference in areas you care about most.

Community Leadership. We invest in the long term and bring people and organizations together, convening diverse voices to address local issues and opportunities. Our business is building community.

Things We Know: • Needs will change, unfortunately they will never cease.

• Impact matters—Collaboration increases impact.

• We support the entire community.

505.883.6240 abqcf.org

Continued on next page…

History & Today: Ten reasons to give through your community foundation

1. We are a local organization with deep roots in the community.

2. We have broad expertise on community issues and needs.

3. We provide highly

•

In 1981, the founders of the Albuquerque Community Foundation each contributed $10,000 (a considerable sum at the time). The Foundation was thus begun with an extraordinary idea: Charitable giving should be the responsibility of many, not just a select few. Driven to improve the greater Albuquerque area, the Foundation has grown to become a leader in community philanthropy.

•

The Foundation strives to make sure every philanthropic investment returns the greatest emotional, civic, and financial benefit possible.

In 2022, the Foundation: • • •

Received new gifts of $9.07M Endowment grew to $129.9M Distributed over $6.00M in grants

personalized service tailored to your charitable and financial interests.

4. Our funds help people invest

in the causes they care about most.

5. We accept a wide variety of

assets, and can facilitate even the most complex forms of giving.

6. We partner with professional advisors to create highly effective approaches to charitable giving.

7. We offer maximum tax

advantage for most gifts under state and federal law.

8. We multiply the impact of gift dollars by pooling them with other gifts and grants.

9. We build endowment funds that benefit the community forever and help create personal legacies.

10. We are a collaborative

community leader, coordinating resources to create positive change.

For more information and ideas on ways to integrate your financial and estate planning with charitable giving, ask your professional advisor or contact us.

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ALBUQUERQUE COMMUNITY FOUNDATION 101 A resource for professional advisors and their clients throughout the state of New Mexico

Who We Are Albuquerque Community Foundation is proud to be a partner and resource for professional advisors throughout the state of New Mexico. For all those assisting clients with charitable planning, we want to help you help them as they explore and create their philanthropic legacy.

Fund Types Albuquerque Community Foundation operates numerous types of funds that your clients may be interested in.

• Our standard Donor-Advised Fund (DAF) allows the donor/client to have total control over making grants. They can support any 501c3 nonprofit in the U.S. and globally, and they can rest assured that their gift is being carefully supervised. DAFs have a minimum balance of $25,000, which can be grown over 5 years.

• Our Impact Fund and Field-of-Interest Fund are great options for a donor/client who does not want to be actively involved in the grantmaking. They can share an area of interest with us, such as Education, and we take care of the rest. These funds have a minimum of $10,000, which can be grown over 2 years.

• Our Scholarship Fund enables donors to give educational support to deserving students in our community. The client can work with us to set out parameters for applicants, participate in the selection committee, and even meet the recipients at our annual party. These have a minimum of $50,000 or $100,000 depending on scope, which can be grown over 5 years.

• Our Estate Fund is for clients who do not want to give during their lifetime, but wish to leave a legacy in our community. They can share organizations, fields of interest, or other specifications and know that we will steward their name and gift forever. The more information that a donor is willing to share with us about their charitable plans while they are living, the better we can fulfill their vision.

Investment Options We are working to expand the investment selection available to donors and we will have investment options utilizing an Environmental, Social, and corporate Governance (ESG) responsible approach. This selection will be available by June 2023.

If a client is interested in opening a fund with a balance higher than $250K, they can opt to retain an investment manager of their choice. All other funds are managed under the Foundation’s published investment strategy as part of our endowment, which grants the funds the benefit of a larger investment pool.

We use a competitive fee schedule that prioritizes long term growth, financial stability, and impact into the community. Our fees range from 0.5% to 1.5% for standard funds.

Continued on next page…

Contact Us The Philanthropic Advising team at the Foundation is the best contact for you. You can reach out to us at any time to discuss philanthropy. We are more than happy to provide nonprofit recommendations, further information, or draft fund agreements for you to use.

Juaquin Moya Vice President of Philanthropic Advising juaquin@abqcf.org

Kate Leung Donor Development Senior Associate Estate Planning Conference contact kate@abqcf.org

Remi Ward Donor Relations Senior Associate remi@abqcf.org

Albuquerque Community Foundation 505.883.6240 624 Tijeras Ave NW Albuquerque NM 87102

COMPARING PERSONAL APPROACHES TO GIVING Private Family Foundation versus a Donor-Advised Fund If you’re looking for a highly personal way of giving without all the guidelines, responsibilities, and costs that come along with establishing and maintaining a private foundation, then a Donor-Advised Fund could be the right charitable vehicle for you.

Items to Consider

Private Foundation

Community Foundation Donor-Advised Fund

Setup procedure

Must incorporate and apply for IRS tax-exempt approval

Simple agreement; can be set up in as little as one day

Initial costs

Range of setup fees

$250 setup fee

Ongoing costs

Liability insurance, direct administrative costs

Pooled administration, low costs

Up to 30% of adjusted gross income Up to 20% of adjusted gross income Deduction limited to basis

Up to 50% of adjusted gross income Up to 30% of adjusted gross income Deduction at fair market value

Excise taxes

Usually 2% of investment income annually

None

Investment, accounting, audit, and tax returns

Trustees must perform, contract, or hire staff for these services

Community Foundation handles all investments and accounting, files annual tax return and provides annual independent audit

Grantmaking

Must research and identify agencies and/or Community Foundation program staff programs to fund educates donors regarding agencies and programs; provides information on qualified giving opportunities

Grant management

Must ensure all recipients are qualified 501 (c) 3 organizations

Community Foundation verifies potential grantee’s status. Plus, donors can access the Foundation’s strategic grantmaking services

Distribution requirements

Required distributions must be made, whether or not the Foundation’s investment has gains; self-dealing restrictions

None. Donors can make grant recommendations at their discretion

Privacy

Tax return is public record

Donor may choose to remain anonymous

Tax benefits - Cash - Appreciated stock - Closely held stock

505.883.6240 abqcf.org

EXAMPLE OF A DONOR ADVISED FUND AGREEMENT This agreement (“Agreement”) is made this [date], between [donor name] (“Donor”), and the Albuquerque Community Foundation, a New Mexico nonprofit corporation (the “Foundation”).

The parties agree as follows: 1.

Establishment of Fund. The Foundation receives and administers funds as endowments for various charitable, scientific and educational purposes. Donor desires to establish a permanent donor advised endowment fund in the Foundation to be known as the [fund name] (the “Fund”), effective upon receipt of assets acceptable to the Foundation.

2.

Property of the Fund. The Fund shall include the property received herewith; such additional property as may from time to time be transferred to the Foundation by Donor for inclusion in the Fund; such property as may from time to time be transferred from any other source for inclusion in the Fund and accepted by the Foundation; and all undistributed income from such property. The property of the Fund shall not include a distribution from an IRA. All gifts to the Fund are irrevocable. The Fund shall be the property of the Foundation held by it in its corporate capacity and shall not be deemed a trust fund held by the Foundation in a trustee capacity. The Foundation shall have the ultimate authority and control over all property in the Fund and the income derived therefrom, in accordance with the Articles of Incorporation and Bylaws of the Foundation, as may be amended from time to time, and the terms of this Agreement applied in a manner not inconsistent with such Articles and Bylaws. The Foundation may commingle the Fund with other funds of the Foundation for investment purposes.

3.

Purpose. The purpose of the Fund shall be for grants exclusively for charitable, scientific, or educational objectives, subject to the purpose and intent of the Foundation, applicable law and Internal Revenue Service regulation. Grants may not be made to benefit an individual or to fulfill any legally enforceable pledge or obligation. Grants may only be used for charitable purposes which do not confer any private benefit on the donor or any other person.

4.

Advice by Donor. Donor may render suggestions and advice, in writing, as to the distributions from the Fund. The Foundation will make a good faith effort to act upon the advice and recommendations of Donor but may accept or reject any advice or recommendations of Donor in the sole and absolute discretion of the Foundation.

Further, x% percent (%) of the annual distributable amount of the Fund shall be transferred to the Foundation’s “Impact Fund” for the purposes of supporting those most pressing needs of the Greater Albuquerque area, in the sole opinion of the Foundation.

Initials _______ _______ _______

Donor Advised Fund Agreement Page 1 of 3

5.

Successor Advisor(s). Donor may designate and authorize, in writing, successor advisor(s). Successor advisor(s) may recommend distributions from the Fund, as provided in this Agreement, upon the death or incapacity of Donor. Upon receipt of sufficient proof of Donor’s death or incapacity, the Foundation will notify successor advisor(s) of their successor rights and duties. The Foundation retains the right to terminate successor advisement if the successor advisor(s) is incapable or unwilling to fulfill the responsibilities of advisement. Donor appoints [successor name] as successor advisor(s).

6.

Termination of Advisement. Upon termination of advisement by Donor or Donor’s successor advisor(s), the Fund shall become a separate named fund within the Foundation’s “Impact Fund” for the purposes of supporting those most pressing needs of the Greater Albuquerque area, in the sole opinion of the Foundation.

7.

Amount and Timing of Distributions. The amount available for distribution shall be as stated in the Foundation’s current distribution policy, unless otherwise agreed upon by the Foundation and Donor, in writing. Within the first five (5) years of the Fund’s existence, 50% of the Fund shall be permanently endowed. Thereafter, an additional 10% of the fund will be permanently endowed each year until the fund is 100% endowed at end of 10 years. At no time shall the distribution reduce the Fund’s balance below the minimum amount required to establish a Donor Advised fund as of the date of this Agreement ($25,000). The Foundation will consider distribution suggestions as soon as is practicable.

8.

Fund Activity. A Fund is considered active when there is regular communication between the Foundation and the Donor regarding the existence and purpose of that fund. Activity is stated in the Foundation’s current Fund Activity Policy, unless otherwise agreed upon by the Foundation and Donor, in writing.

9.

Fees. The Fund shall be charged an initial set up fee of $250. An administrative fee, plus actual investment management fees, will be charged in accordance with the most current fee schedule of the Foundation.

10.

Reporting. Donor will receive quarterly statements of the Fund’s fiscal activity, income, and distributions.

11.

Variance Power. Pursuant to paragraph 6 of this Agreement, Termination of Advisement, the Board of Trustees of the Foundation shall have the power to modify the provisions of this Agreement designating use of the Fund if the purposes for which it was created ever become obsolete, incapable of fulfillment; inconsistent with the charitable, scientific, and educational needs of the Albuquerque community; or inconsistent with the purpose and intent of the Foundation.

12.

Foundation. If the Foundation ceases to be a qualified charitable organization or if the Foundation proposes to dissolve, the assets of the Fund shall, after payment or making provision for payment of any liabilities properly chargeable to the Fund, be distributed in such manner and to such organization or organizations in the Albuquerque community as satisfies the requirements of a qualified charitable organization and serves purposes similar to those of the Foundation.

Initials _______ _______ _______

Donor Advised Fund Agreement Page 2 of 3

13.

Name Restriction. Under no circumstances shall the name of the Foundation be used in any pamphlet, newsletter, brochure or in any other way by the Donor for purposes of soliciting donations without advanced written approval from the Foundation.

14.

Definitions and Construction.

A. As used in the Agreement: (1) “Qualified charitable organization” means an organization described in §501 (c)(3) of the Internal Revenue Code and which is not a private foundation under §509 (a) of the Internal Revenue Code; and (2) References to any provision of the Internal Revenue Code shall be deemed references to the U.S. Internal Revenue Code of 1986 as the same may be amended from time to time.

B. The Fund shall be a component part of the Foundation. Nothing in this Agreement shall adversely affect the status of the Foundation as a qualified charitable organization.

This Agreement shall be interpreted so as to conform to the requirements of the Internal Revenue Code and any regulations issued pursuant thereto, as they apply to the intended status of the Foundation.

15.

Indemnification. Donor shall indemnify, hold harmless, and defend the Foundation, its officers, directors/trustees and employees (“indemnitees”) against any claims, liabilities, or loss or expense, including without limitation attorney’s fees and court costs, which arise as a result of the participation of said indemnitees in the administration of the Fund.

16.

Binding Effect. This Agreement is binding on, and the benefits inure to the parties, their successors and assigns, is specifically enforceable, constitutes the entire agreement of the parties, is governed by and construed under the laws of the State of New Mexico. In the event any paragraph within this Agreement is deemed unenforceable, it shall not destroy the remaining provisions of the Agreement. All other provisions of this Agreement shall continue to bind all parties herein.

DONOR:

FOUNDATION:

________________________________ Donor

Albuquerque Community Foundation, a New Mexico nonprofit corporation

DATE: __________________________ ________________________________ Donor DATE: __________________________

By ______________________________ R. Randall Royster, President & CEO

DATE: _____________________________

Donor Advised Fund Agreement Page 3 of 3

Addendum A EXAMPLE OF AN ESTATE AMENDMENT TO A DAF AGREEMENT [fund name] Donor wishes to establish recipients and purposes for distributions made from the [fund name] after termination of advisement. Annual distributions of the fund shall be made in the amounts and to the [organizations/areas of interest] indicated below. In the event that any of the organizations cease to exist or are no longer qualified charitable organizations, the Foundation shall make a good faith effort to find other organizations fulfilling the same mission or otherwise uphold the intent of the Donor. [nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

[nonprofit name] [nonprofit details] x%

DONOR:

FOUNDATION:

________________________________ [donor name]

Albuquerque Community Foundation, a New Mexico nonprofit corporation

DATE: __________________________

By ______________________________ R. Randall Royster, President & CEO DATE: ____________________________

[fund name] Addendum A Page 1 of 1

EXAMPLE OF AN ESTATE ENDOWMENT FUND AGREEMENT This agreement (“Agreement”) is made this [date], between [donor name] (“Donor”), and Albuquerque Community Foundation, a New Mexico nonprofit corporation (the “Foundation”).

The parties agree as follows: 1.

Establishment of Fund. The Foundation receives and administers funds as endowments for various charitable, scientific and educational purposes. Donor desires to establish a permanent endowment fund (the “Fund”) in the Foundation, effective upon receipt of assets acceptable to the Foundation to be known as the [fund name] (the “Fund”).

2.

Property of the Fund. The Fund shall include the property received from the estate of Donor; such property as may from time to time be transferred to the Foundation by Donor for inclusion in the Fund; such property as may from time to time be transferred from any other source for inclusion in the Fund and accepted by the Foundation; and all undistributed income from such property. All gifts to the Fund are irrevocable. The Fund shall be the property of the Foundation held by it in its corporate capacity and shall not be deemed a trust fund held

by Foundation in a trustee capacity. The Foundation shall have the ultimate authority and control over all property in the Fund and the income derived therefrom, in accordance with the Articles of Incorporation and Bylaws of the Foundation as they may be amended from time to time, and the terms of this Agreement applied in a manner not inconsistent with such Articles and Bylaws. The Foundation may commingle the Fund with other funds of the Foundation for investment purposes.

3.

Purpose. The purpose of the Fund shall be for grants exclusively for charitable, scientific, or educational objectives, subject to the purpose and intent of the Foundation, applicable law and Internal Revenue Service regulation, and shall be distributed as outlined in Addendum A to this Agreement. [or: shall support Organization or Field of Interest]

4.

Distributions. The amount available for distribution shall be as stated in the Foundation’s current distribution policy, unless otherwise agreed upon by the Foundation and Donor, in writing.

5.

Fees. The Fund shall be charged an initial set up fee of $250. An administrative fee, plus actual investment management fees, will be charged in accordance with the then applicable fee schedule of the Foundation.

6.

Variance Power. The Board of Trustees of the Foundation shall have the power to modify the provisions of this Agreement designating use of the Fund if the purposes for which it was created ever become obsolete; incapable of fulfillment; inconsistent with the charitable, scientific, and educational needs of the Albuquerque community; or inconsistent with the purpose and intent of the Foundation.

Initials _______ _______ _______

[name of fund] Fund Agreement Page 1 of 4

7.

Foundation. If the Foundation ceases to be a charitable organization, or if the Foundation proposes to dissolve, the assets of the Fund shall, after payment or making provision for payment of any fees properly chargeable to the Fund, be distributed in such manner and to such organization or organizations in New Mexico as satisfy the requirements of a qualified charitable organization, and serve purposes as similar as possible to those set forth in this agreement.

8.

Name Restriction. Under no circumstances shall the name of the Foundation be used in any pamphlet, newsletter, brochure or in any other way by the Donor for purposes of soliciting donations without advanced written approval from the Foundation.

9.

Definitions and Construction.

A. As used in the Agreement: (1) “Qualified charitable organization” means an organization described in § 501 (c) (3) of the Internal Revenue Code and which is not a private foundation under §509 (a) of the Internal Revenue Code; and (2) References to any provision of the Internal Revenue Code shall be deemed references to the U.S. Internal Revenue Code of 1986 as the same may be amended from time to time.

B. The Fund shall be a component part of the Foundation. Nothing in this Agreement shall adversely affect the status of the Foundation as a qualified charitable organization. This Agreement shall be interpreted so as to conform to the requirements of the Internal Revenue Code and any regulations issued pursuant thereto, as they apply to the intended status of the Foundation.

10. Indemnification. Donor shall indemnify, hold harmless, and defend the Foundation, and its officers, directors/trustees and employees (“indemnitees”) against any claims, liabilities, or loss or expense, including without limitation attorneys’ fees and court costs, which arise as a result of the participation of the indemnitees in the administration of the Fund.

11. Binding Effect. This Agreement is binding on, and the benefits inure to the parties, their successors and assigns, is specifically enforceable, constitutes the entire agreement of the parties, is governed by and construed under the laws of the State of New Mexico. In the event any paragraph within this Agreement is deemed unenforceable, it shall not destroy the remaining provisions of the Agreement. All other provisions of this Agreement shall continue to bind all parties herein. This Agreement may be modified only in writing signed by the parties.

Initials _______ _______ _______ [name of fund] Fund Agreement Page 2 of 4

DONOR:

FOUNDATION:

________________________________ [donor name]

Albuquerque Community Foundation, a New Mexico nonprofit corporation

DATE: __________________________

By ______________________________ R. Randall Royster, President & CEO

________________________________ [donor name] DATE: __________________________

DATE: ____________________________

[name of fund] Fund Agreement Page 3 of 4

Addendum A Distributions On the [date], [donor name] (the “Donor”) established the [fund name] (the “Fund”) through an agreement (the “Agreement”) with Albuquerque Community Foundation (the “Foundation”).

Donor wishes to provide the following specifications for receipt and distribution of funds: The annual distributions of the Fund thereafter shall be made equal amounts to the following fields of interest/charitable organizations in [area] for [purpose]: [Field of Interest of Choice] [$xxx.xx] [Organization of Choice] [%]

DONOR:

FOUNDATION:

________________________________ [donor name]

Albuquerque Community Foundation, a New Mexico nonprofit corporation

DATE: __________________________

By ______________________________ R. Randall Royster, President & CEO

________________________________ [donor name] DATE: __________________________

DATE: ____________________________

[name of fund] Fund Agreement Page 4 of 4

Randy Royster President & CEO randy@abqcf.org

Juaquin Moya Vice President of Philanthropic Advising juaquin@abqcf.org

Khia Griffis Director of Community Impact khia@abqcf.org

Ethical Issues Involved in Representing a Fiduciary Nell Graham Sale Of Counsel Pregenzer Baysinger Wideman & Sale

SESSION 5 1:15 PM

Ethical Issues When Representing a Fiduciary in New Mexico Nell Graham Sale

Once upon a time, there was an old lady who lived by herself in a cabin in the Sandia Mountains. Her name was Elizabeth La Rouge, and today she is 93 years old and confined to her bed. She has a daughter, Katherine La Rouge, who lives in Denver. Elizabeth has not spoken to Katherine for 26 years, because all those years ago, Katherine became pregnant and was not married. Katherine gave birth to a daughter, Rose La Rouge, who is now a post graduate student in environmental studies at UNM. Rose’s primary interest is the reintroduction of wolves into the US wilderness areas.

Elizabeth had her estate plan prepared by attorneys Jacob and Wilhelm Grimm. One of the documents that Brothers Grimm P.C. prepared was a durable financial power of attorney. They used the New Mexico statutory form provided in NMSA 46B-1-301, a copy of which is included in these materials. Elizabeth appointed Rose as her agent under the power of attorney, which became effective at the time it was signed. Upon learning of her appointment, Rose decided that she needed counsel to represent her as agent. She is young and has never done anything like this before. Since this room is filled with attorneys, I will call on people in the audience as needed when Rose needs advice.

Rose tells her attorney that her grandmother lives alone and is a very strong-willed woman, as evidenced by her refusal to speak to Rose’s mother for all these years. While physically weak, she is still very sharp. Rose visits her every Thursday when she has no classes. During these visits, Grandmother insists that she can handle her affairs on her own but is glad to have Rose visit and to bring her chocolates from Buffett’s Candies. Rose reports to you that the house is 1

immaculate, and Grandmother appears to be safe, well fed, and content. Rose also tells you that Grandmother has a neighbor, Mr. JD Wolf who looks in on her, tends to the yard and appears to fix her meals, runs errands and keeps her company.

You talk to Rose about her duties as an agent under a power of attorney. She is not just a kind relative but has duties beyond family loyalty. You question Rose about whether she knows about Elizabeth’s financial affairs, and she tells you that Elizabeth is very private and refuses to discuss money with Rose. Should you insist that Rose confront her Grandmother about letting her manage her finances? Rose is concerned that Grandmother will revoke the power of attorney if she believes that Rose is too pushy. You consult the Rules.

16-102. Scope of representation and allocation of authority between client and lawyer.

A. Client’s decisions. Subject to Paragraphs C and D of this rule, a lawyer shall abide by a client’s decisions concerning the objectives of representation and, as required by Rule 16104 NMRA of the Rules of Professional Conduct, shall consult with the client as to the means by which they are to be pursued.

Having consulted this Rule, you decide that Rose seems to understand her Grandmother well enough, and while you can advise her about actions that she is empowered to take under the power of attorney, she will have to use her own judgment. However, you are also concerned that Rose may not fully understand that she is a fiduciary and what that means. You consult Rule 16101 to make sure that you fully understand the issue, in particular, to whom you owe a duty.

Rule 16-101. Competence.

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.

To begin with, you refer to the power of attorney document itself, as well as NMSA 46B1-114, to see how it describes the duties that Rose has, which include: 2

To act loyally for the principal’s benefit; To avoid conflicts that would impair the agent’s ability to act in the principal’s best interest; To act with care, competence, and diligence.

To keep a record of all receipts, disbursements and transactions; To do what the agent knows the principal reasonably expects her to do and to act in the principal’s best interest; To act in good faith; To do nothing beyond the authority granted in the power of attorney; and To disclose the identity of the agent whenever acting for the principal.

Given that Grandmother refuses to allow Rose to help her with her finances, what would you advise as options for Rose? Furthermore, do you as attorney for Rose have any duties or obligations to Grandmother, as well as to Rose? Would you be liable if Rose failed to monitor Grandmother’s bank and other accounts? Let’s suggest that Rose at least file a copy of the power of attorney with any financial institutions that she can learn about, get electronic access, and get copies of all statements sent to her going forward, even without getting permission to do this from Grandmother. She would be acting behind Grandmother’s back. Is that proper?

Let’s also suggest that Rose find out more about Mr. Wolf. Her inquiries, as well as your research, reveal that Mr. Wolf is a fairly recent neighbor. He previously owned JD Wolf Demolition, but that company dissolved due to bankruptcy within the last year. He appears to be renting the property next door. He also appears to be providing needed help to Grandmother, and she seems to like him.

3

Because Grandmother worked for Sandia Labs, Rose goes to Sandia Credit Union and discovers that indeed Grandmother does have a substantial account there, and through the power of attorney, Rose learns about regular transactions being made, mostly automatic, such as the monthly power bill. She also learns that occasional checks are being written to Mr. Wolf, presumably for groceries and prescriptions. The amounts are not suspiciously high.

Time passes. You advised Rose to suggest to Grandmother that she hire a professional care giver to help her out in the house, rather than relying exclusively on Mr. Wolf. Grandmother refused, because she did not want a “stranger” in her house, and she likes Mr. Wolf. Rose also suggested that Grandmother might benefit by moving to an assisted living community in Albuquerque. Grandmother refused, stating that she wanted to remain in her own home.

After several weeks more, Rose noticed during one of her weekly visits that Mr. Wolf had a brand-new pickup truck parked in his driveway. “My goodness,” she said to Mr. Wolf. “What a shiny new truck you have.” Mr. Wolf said to her, “All the better to run errands for Elizabeth with,” his eyes gleaming. When she got home, Rose pulled up the Sandia Credit Union account of her Grandmother, and there it was, a cash disbursement of $40,000 to Mr. Wolf. What should she do now? Rose confronted Grandmother about this disbursement, and what she received was a glare and “Mind your own business!” “But your business IS my business,” Rose stammered.

Stony silence from Grandmother.

Rose consulted her attorney. Could she take any further action? Should she sue Mr. Wolf on behalf of Grandmother? Should she file a petition for Guardianship and Conservatorship to protect Grandmother? Should she call the police or contact Adult Protective Services? You understand that while Rose is your client, she is a fiduciary, and your representation must include

4

a duty that you as well as Rose may have to Grandmother. You consider what your responsibilities to your client might be if Grandmother has diminished capacity. You consult Rule 16-114.

16-114. Client with diminished capacity.

A. Client-lawyer relationship. When a client’s capacity to make adequately considered decisions in connection with a representation is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client.

Does Elizabeth have diminished capacity? She is not your client, as the Rule describes, but as the attorney for a fiduciary for Grandmother, and therefore, you may owe a duty yourself to Grandmother, can you advise your client to take actions to protect her? However, you and Rose agree that Grandmother is making unwise decisions, but she is very stubborn and seems to know what she is doing and is willing to assume the risks.

Finally, you are concerned about whether Rose, as well as you as her attorney, may owe a duty to the beneficiaries of Grandmother’s estate if Rose does not take further actions, even if Grandmother objects. You consult the case law in New Mexico to see if there are answers to these questions. The seminal case on whether or not an attorney for a fiduciary owes a duty to beneficiaries of an estate is Leyba v. Whitley, 120 N.M. 768, 907 P.2d 172 (1995). In that case, the New Mexico Supreme Court ruled that the attorneys for the Personal Representative of an estate in a wrongful death suit owed a duty to the statutory heirs of the decedent and were liable for legal malpractice when the Personal Representative used the estate’s assets for her own benefit to the detriment of the beneficiaries. Would you as Rose’s attorney owe an ethical duty not only to Rose but to Grandmother as well as the beneficiaries of Grandmother’s estate? And if so, would a breach of such a duty be actionable as legal malpractice?

5

In a case following the Leyba case, Spencer v. Barber, 299 P. 3d 388 (2013), the New Mexico Supreme Court analyzed the relationship between the ethical duties of New Mexico lawyers as described in the New Mexico Rules of Professional Conduct and the tort of legal malpractice. As you may know, a New Mexico attorney who is accused of an ethical violation, that is, a violation of one of the Rules of Professional Conduct, is subject to the scrutiny of the Disciplinary Board, the decisions of which may be reviewed by the New Mexico Supreme Court.

The ultimate penalty is being disbarred. In the Spencer case, the Court quoted from the New Mexico Rules of Professional Conduct, which state in the section titled Scope “[v]iolation of a rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached.” Scope (2008) emphasis added. The Court went on to say that “although the Rules of Professional Conduct cannot be used as a basis for civil liability, the rules may be used to explain [an attorney’s] professional obligations to [the principal or to beneficiaries].” Spencer, paragraph 19.

Considering that the principal in this case refuses to follow the recommendations of the agent, you realize that Grandmother is represented by counsel, so perhaps they should be consulted in this matter. You contact the Grimm brothers to see how they suggest moving forward. The Grimm brothers respond that they were only retained to prepare estate planning documents for Elizabeth and getting involved in the matters between her and her granddaughter is outside the scope of their representation. They also state that it is the routine in their practice to give all original documents to their clients and they do not retain copies of signed documents.

Furthermore, Elizabeth instructed them to never reveal the contents of those documents while she is alive. Can they adhere to that restriction even now when Rose’s duties are being circumvented

6

and she may be exposed to liability to unknown beneficiaries? You consult Rule 16-106 regarding whether Brothers Grimm P.C. may be violating this Rule.

16-106. Confidentiality of information.

A. Disclosure of information generally. A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by Paragraph B of this rule.

It appears that none of the exceptions in Paragraph B apply here, so Rose will not get to see the documents unless Grandmother relents.

The following week, Rose arrived at Grandmother’s house and was confronted on the doorstep by Mr. Wolf, carrying a rifle which he aimed at Rose. “Where is Grandmother?” Rose asks. “She died yesterday, and her body has been removed.” stated Mr. Wolf. “Before she died, she threw her Will into the fire. However, earlier she signed a Transfer on Death Deed which upon her death gave me this house. So get off my property or I will shoot.” Rose left the property fearing for her own safety. She called you immediately. What are the options now?

First of all, it should be understood that Rose’s duties to her Grandmother as agent under the power of attorney ended upon her death. And, therefore, your duty of that representation of Rose also ended. However, you meet with her to summarize the situation so she has some clarity about how to proceed. Rose asks you to continue to represent her. Should you agree to that?

If indeed the Will has been destroyed, Elizabeth’s estate is now intestate. Who is the intestate beneficiary by statute? Katherine, Elizabeth’s daughter and Rose’s mother. You advise Rose to call her mother and tell her what has happened. It will be up to Katherine to retain counsel for herself. She may decide to petition to be appointed Administrator of the estate. Or she may ask Rose to do that, and Katherine will take actions as the sole beneficiary of the estate. Does 7

Rose have a cause of action against Mr. Wolf? I believe that she does, based on undue influence and fraud. Rose can be the wronged party arguing that Mr. Wolf used his influence over Grandmother to steal from her and also to abrogate Rose’s authority as agent. Of course, Katherine can also sue Mr. Wolf for undue influence. As you know, incompetence is not required in such a claim. But does Katherine have a claim against Rose and her attorney for failure to protect Elizabeth’s assets? Or is this a case where the actions and opinions of the principal prevented the agent, and her attorney, from carrying out the duties she had as a fiduciary? What do you think?

8

SECURE 2.0: Applications for Advisors Madison Jones Attorney Rodey, Dickason, Sloan, Akin, & Robb, P.A.

SESSION 6 2:25 PM

The Corporate Transparency Act: Applications for Advisors 1. Does the company I work at need to report as a Reporting Company? a. Check the exemptions. b. Mark your calendar for January 1, 2025. c. How will you handle future updates?

2. Do we need to alert clients who may be Reporting Companies? a. Who are your “clients?” b. What needs to be communicated? c. By when?

3. Do we need to alert clients who may be Company Applicants and/or Beneficial Owners? a. Who are your “clients?” b. What needs to be communicated? c. By when?

4. What services will we provide to clients in the future? a. Will you provide corporate formation services? b. Will you act as a Company Applicant? c. Will you facilitate a corporate services company acting as the Company Applicant? d. Will you help clients evaluate if they are Reporting Companies? e. Will you help Reporting Companies determine who their Beneficial Owners are? f. Will you file reports with FinCEN? g. Will you accept responsibility for updating reports? h. Will you help compel information from Beneficial Owners?

5. How will your company monitor compliance? Will you follow the AML pillars?

© Rodey, Dickason, Sloan, Akin & Robb, P.A.

Tales from the (Fiduciary) Crypt – True Stories of a Corporate Trustee Daniel Montoya President & CEO Heritage Trust

SESSION 7 3:35 PM

TALES FROM THE (FIDUCIARY) CRYPT TRUE STORIES OF A CORPORATE TRUSTEE

Northern New Mexico's first independent trust company

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Why Choose a Corporate Trustee?

If your client is considering a family member or friend to serve as trustee, make sure they have the time, knowledge, and desire to assume this role.

Also, while their choice may be competent and trustworthy, they may predecease your client, retire, move to another location, or simply not have the time required.

For all these reasons, your client may want to name a corporate trustee.

A corporate trustee can provide:

Objectivity.

Impartiality.

Experience.

Permanence.

Reliability.

Compliance with government oversight, regulation and examination.

Northern New Mexico's first independent trust company

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The Glamorous Life of a Trust Officer 1.

2.

3.

4.

5.

6.

7.

8.

Serving as Entity Agent at custodians and financial institutions Five star lunches with Beneficiaries to authorize and make distributions Wining and dining Investment Advisors Golfing with Attorneys Consulting with Care Managers and Medical professionals on client needs Jetsetting to exotic lands to view personal property, homes and real estate – Shangri-La Managing P&I accounting, including providing financial reports to beneficiaries Managing the fiduciary return process, including providing key documents to CPAs

Northern New Mexico's first independent trust company

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The Real Life of a Trust Officer 1. Hostage Negotiator - “my funds” versus “trust funds” 2. Master of Excel – complex but simple 3. Valuation Expert – only use values everyone can agree on 4. Parent – say No and mean it 5. Social Worker – personal budgeting and life coaching 6. Parole Officer – drug testing, use of funds, and other requirements 7. Care Manager – sometimes you have to find/hire a care team 8. Pet Manager – when pets are children …

9. Property Manager – appraisals, inspections, repairs, oh my 10. Personal Property Manager – no two estates are alike!

11. Investment Monitor – AARs in the COVID era 12. Paralegal – you do what you have to do 13. Forensic Accountant – digging into the data 14. Security Guard – managing threats

Northern New Mexico's first independent trust company

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True Stories 1.

2.

3.

4.

5.

Heritage Trust presents “True Stories” as information for others doing estate planning.

These “True Stories” are not intended to provide advice.

Please consult your own attorney, CPA or other advisor for establishing your estate plans or estate plans for your clients.

While our “True Stories” are loosely based on real world experiences, we have changed the names and facts in order to maintain client confidentiality and privacy.

Disclaimer: No actors were harmed in the production of our videos. (There were no actors.)

Northern New Mexico's first independent trust company

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VIDEO:

You Can’t Make This Stuff Up! https://youtu.be/Spy3eosaSdQ

Northern New Mexico's first independent trust company

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The Grantors & Beneficiaries 1.

Grantors – Married 50 years; Father was the first to die, Bypass and Marital Trusts created and became Irrevocable; Survivor’s Trust created for Mother, which she later amended to include children and grandchildren, created trust for grandson 2. Three children: 2 Daughters and 1 Son (predeceased Grantors) 3. Grandchildren: a. Daughters each had two daughters b. Son had a daughter and a son i.

Grandson unable to manage financial affairs, fourth trust created for him until he turned 60 a) On Grandson’s death, his trust transferred by intestate to his estranged daughter 4. 8 beneficiaries, plus one heir

Northern New Mexico's first independent trust company

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The Trusts 1.

2.

3.

4.

At Mother’s death, second Daughter became Trustee of Bypass Trust and Marital Trust, but family conflicts caused her to resign in favor of HTrust.

At Mother’s death, a corporate trustee was appointed as Trustee of Survivor’s Trust, but wanted to resign due to difficulty with Grandson and managing his Trust.

HTrust took over all four Trusts to better manage assets and make distributions.

In appointing documents, HTrust required that everyone agree to a flat monthly distribution amount to Grandson, including Grandson.

Northern New Mexico's first independent trust company

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The Trust Assets 1.

2. a. b. c. d. e. f.

3.

4.

5.

6.

Investment and Bank accounts Real Estate: Family home Two rental homes Three homes being used by family members Three office buildings Office Building in historic building 60 acres of vacant mountain land Land and restaurant Family LLC that owned the restaurant Vehicle Superfund site

Northern New Mexico's first independent trust company

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The Distributions See the Distributions Spreadsheets

Northern New Mexico's first independent trust company

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Lessons Learned 1.

2.

3.

4.

5.

6.

7.

Build trust with each and every family member – meet with them where they live and breathe.

Communicate regularly – everyone gets the same information at the same time.

Create plans that are easy to understand – explain the plan and answer all questions.

Develop valuations with sound reasoning and backup – make sure everyone agrees.

Make interim distributions when possible – build trust.

Remain impartial no matter what happens.

Always do what you say you will do!

Northern New Mexico's first independent trust company

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VIDEO:

Taking Control of The Reins https://youtu.be/1ghxqeXkCs

Northern New Mexico's first independent trust company

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The Parties 1.

2.

3.

The Grantor – Father – Individual Co-Trustee The Mother – Divorce Petitioner The Corporate Co-Trustee of the Family Trust – the two that resigned and HTrust The only daughter & sole beneficiary Freddie, the horse The horse trainer and custodial parent Guardian Ad Litem no. 1 Corporate Trustee of Parental Support Trust Guardian Ad Litem No. 2 HTrust and Guardian Ad Litem No. 3 The Court The Mediator

4.

5.

6.

7.

8.

9.

10.

11.

12.

Northern New Mexico's first independent trust company

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The Legal Issues 1.

Court ordered appointment of Successor Corporate Co-Trustee Missouri Law governs the Trust 2.

Fraudulent conveyance 3.

Divorce & Custodial agreement 4.

Parental Support Trust and UTMA account vs. the Family Trust 5.

Guardian Ad Litem misfeasance 6.

Petition for Declaratory Judgment 7.

Mediation and Settlement a.

Reimbursement of funds b.

Removal of individual Co-Trustee c.

Amendment of Trust FBO Daughter i.

The Fertile Octogenarian ii.

Protect the Interests of the Beneficiary d.

Trustee Hold Harmless – just in case! a.

Northern New Mexico's first independent trust company

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The Trust Modification 1.

Affidavit of the Grantor:

“It is my intention to insure that the remaining assets of the Family Trust go to my daughter. As such, I am agreeing to the modification of the Family Trust to name my daughter and her descendants as the only beneficiaries of the Family Trust.

If I father or adopt any children in the future, I will provide for such children to receive by separate gifts, transfers or devises a benefit equivalent to, if not greater then, any benefit they might have received pursuant to the terms of the Family Trust, before modification to name my daughter and her descendants as sole beneficiaries.”

2.

Amending the Trust Agreement: “The Family Trust Agreement is modified in the following respects:

The provisions of the Trust Agreement are hereby amended in their entirety such that, from this point forward for all purposes of the reading and interpretation, Olivia shall be considered the sole child of Frank, regardless of whether Frank later fathers or adopts other children, and any and all provisions to the contrary are deleted.

The provisions of the Trust Agreement relating to the designation of a Trustee are changed, so that there shall be one sole Trustee, a licensed corporate trustee, necessary to administer the Trust in the future. The beginning Trustee shall be HTRUST, who has been already designated in the Second Modification to the Trust, with the same qualifications. The Trustee may resign at any time, although the resignation will not take place until a successor corporate trustee is named. After twenty five years of age, Olivia may remove the Corporate Trustee, and name another, so long as the trustee meets the administrative conditions of the Second New Mexico's first independent trust company Modification of the Trust, and agrees to serve asNorthern Corporate Trustee. “

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The Trustee Hold Harmless “NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows: Frank hereby acknowledges and represents that he has no children, either natural or adopted, other than his daughter, and that he has no present intention of having any, and that any possibility of his doing so is remote.

He therefore agrees that, by entering into this Modification, if, in the future, he should father or adopt any children, they cannot benefit from the Family Trust, and that he will provide by separate gifts, transfers or devises for them to receive a benefit equivalent to, if not greater than, any benefit they might have received before this modification. He further agrees that, in the event, however remote, that a person claiming to be a descendant of his other than Olivia should make a claim to a right as a beneficiary, he, if living, or his estate, if not, will hold Olivia, her GAL, and HTRUST, and any of their employees, agents, attorneys, successors or assigns, harmless from any such claim, including the payment of any and all attorney’s fees or costs of defense against such claim, or any amount awarded for such a claim, if successful.

Olivia also agrees, that, in the event, however remote, that a person claiming to be a descendant of Frank’s, other than herself, should make a claim to a right as a beneficiary of the Family Trust, that she, if living, or not, her estate, or any estate of a successor of hers, will hold HTRUST, or any of their employees, agents, attorneys, successors or assigns, harmless from any such claim, including the payment of any and all attorney’s fees or costs of defense against such claim, or any amount awarded for such a claim, if successful.”

Northern New Mexico's first independent trust company

16

Lessons Learned 1.

2.

3.

4.

5.

6.

7.

8.

Do your due diligence! Know what you are getting into.

Don’t trust anyone, especially if they seem too good to be true.

Get to know the beneficiary.

Don’t be limited by tunnel vision - keep the big picture in mind.

Don’t be distracted by drama or shiny objects.

Intervene when you have to do so.

Represent the beneficiary and do all you can to help them.

When all else fails, get everyone to mediation.

(File a Petition for Declaratory Judgment if that is what it takes!)

Northern New Mexico's first independent trust company

17

18

OUR HIGHEST STANDARDS, YOUR PEACE OF MIND

We are a state-chartered, locally-owned trust company devoted to families & their advisors. Our independent, innovative spirit gives us the tenacity to resolve unique situations—from simple to complex.

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Mineral interest, real estate and unique asset management Investment management Family governance and education

marital, family, generation-skipping, QTIP or charitable trust LV EHVW IRU \RX

Estate settlement and probate administration Custody services

For over 150 years, First National 1870 has been Creating Possibility in the lives we touch and the communities we serve. We invite you to learn more about us at

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WHAT IS YOUR CLIENT’S LEGACY? The Jewish Community Foundation partners with donors and organizations to embrace the Jewish value of “Tikkun Olam,” Repairing the World Maximize your clients’ impact with charitable giving options WKDW ŎW WKHLU SHUVRQDO QHHGV • 'RQRU DGYLVHG IXQG • 3HUSHWXDO HQGRZPHQW • $IWHU OLIHWLPH OHJDF\ JLIW Learn more about partnering with us to achieve your client’s philanthropic vision: Contact Erika Rimson, 505.348.4472 or visit jcfnm.org.

MISSION To build, invest and manage endowment funds to enhance the quality of our community through informed strategic grantmaking.

• • • • • • • •

VISION A strong community…

Has a foundation built by and for all people, that works as a partner, ally, and catalyst for a better future Works toward equity, justice, and healing by addressing systems of oppression and harm Provides high quality educational opportunities without debt or barrier Gives everyone access to healthcare, affordable housing, secure & healthy food sources, and safe neighborhoods Has a rich, well-preserved history and an environmentally sustainable future Creates economic opportunities for all and ensures long-term economic prosperity Nurtures artistic and cultural development while sharing learning opportunities with all Builds a sense of belonging and helps all people achieve their personal definition of success This is the future we want to build.

VALUES Trust and we work to build relationships based in authenticity, actionable change, adaptability, and cultural humility.

Equity and we will address ongoing injustice and work to change systems of oppression and harm.

Integrity and we commit to providing high quality service with humility and respect.

Accountability and we will be responsible for and transparent in all the ways we learn, strive, and adapt in our journey toward becoming our community’s foundation.

624 Tijeras Ave. NW, Albuquerque, NM 87102 abqcf.org | 505.883.6240

@ABQFOUNDATION

Sign-up for Newsletter: Email clarissa@abqcf.org

Your Safety.

Your Security.

Our Passion.

New Mexico’s Experts in Workers’ Compensation With New Mexico Mutual you get industry expertise, plus the outstanding service only a local company can offer. From accident prevention to claims adjusting, you’ll be working with local professionals who have years of experience on the ground. Plus, your dollars will stay in New Mexico, making our economy stronger.

Let us provide workers’ compensation insurance for your business. Ask your agent for a quote. If you don’t have an agent yet, we’ll help you find one.

NewMexicoMutual.com 505.345.7260

We are rooted in Albuquerque

and have invested in the community for over 40 years. We pursue ways to make donations of all sizes have a larger and longer impact than they would otherwise have on their own.

When you think about Albuquerque Community Foundation, we hope you will think of four words: Trust, Equity, Integrity and Accountability. They describe who we are, what we do, and will continue to be, forever.

Our Philanthropic Advising Team is looking forward to learning more about how we can make your philanthropic aspirations a reality this year, or how we can better support you in your current giving.

@ABQFOUNDATION

624 Tijeras Ave. NW, Albuquerque, NM 87102 abqcf.org | 505.883.6240

CONNECT WITH US! Remi Ward Donor Relations Senior Associate remi@abqcf.org

Juaquin Moya Vice President of Philanthropic Advising juaquin@abqcf.org

Kate Leung Donor Development Senior Associate kate@abqcf.org