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S2 November 6, 2017
Estate Planning Council offers multi-disciplinary expertise to guide you down a path toward financial security, family stewardship BY EMILY SHACKLETT
he Estate Planning Council of Cleveland is pleased to once again partner with Crain’s Cleveland Business in presenting our annual estate planning special section. The purpose of this section is to provide the community with timely information and valuable resources reflecting our multi-disciplinary approach to planning including financial, insurance, business succession, and estate and charitable planning matters. The articles and commentary on the pages that follow have been provided by some of the region’s most experienced professionals in these fields. They may help you to address your financial and estate planning concerns, or spur further discussion with your team of advisers. Estate planning is an often overlooked aspect of personal financial management. Millions of Americans do not have a current estate
plan and medical directives in place, leaving them vulnerable in the event of unexpected illness, accident or untimely death. Committing a modest amount of time to executing these important documents can save time, expense and hardship for families, loved ones and businesses. The recent hurricanes and wildfires that have deeply affected so many families around the world Shacklett are a poignant reminder that life can change at any time and we must prepare ourselves and our families for that possibility. Since the changing of the administration in Washington D.C., there has been much discussion about estate and income tax reform and the possibility of tax cuts for both individuals and businesses. For most of the year, experts have speculated
about the prospects, but recently, U.S. stocks hit record highs again as news came that the U.S. Senate adopted a fiscal 2018 budget resolution clearing the path for potential tax reform. With the ever-changing political and economic landscape, it is imperative that people protect and preserve the assets they have spent a lifetime building. It is wise to seek and rely upon the advice of experienced professionals who are familiar with income, gift and transfer tax laws and have expertise in making prudent financial and investment recommendations. Plenty of such experienced professionals make up the membership of the Estate Planning Council of Cleveland. They are prepared to help you evaluate how your personal financial goals could be affected by the changing tax, economic and legislative environment, as well as geopolitical risks. These professionals will provide
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Whether it’s retiring in comfort, educating your children or grandchildren or helping your loved ones, being able to live those values and fulfill your dreams lies in setting goals and carefully planning a course of action.
ance agents, appraisers and representatives from charitable organizations. Our members are committed to their clients and their community and are able to provide you with the assistance you will need to safeguard your financial future. Our website, www.epccleveland. org, is a valuable resource that can help you to identify the professionals you will need to assist you with your unique situation. We are pleased to present you with this special section in Crain’s Cleveland Business, which contains important insights and commentary on a variety of estate planning issues. We hope that you will find it to be an indispensable resource as you work with your advisers to plan a sound financial future. Emily Shacklett is a partner and senior advisor at Fairport Asset Management. Contact her at 216-431-2738 or email@example.com.
CONTENTS retirement Planning
Tax Planning Business Succession Planning
a wide array of planning services to address the complexities of your financial life and guide you toward a path of financial independence. They will assist you in making sound financial decisions to propel you toward your estate and financial planning goals. Perhaps you have family members with special needs. You may have a family business that you wish to transfer to a future generation or prepare for sale. Maybe you have charitable legacies that you wish to fulfill. The members of the Cleveland Estate Planning Council can help you with the advice, tools and techniques that will enable you to attain these and other goals. Founded in the 1930s, the Estate Planning Council of Cleveland is composed of more than 400 members working in the Greater Cleveland area, including attorneys, accountants, bankers and trust officers, financial planners, insur-
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November 6, 2017 S3
Bloodline trusts need to flex for future generations BY LACIE O’DAIRE
lients with children are faced with difficult estate planning decisions that sometimes necessitate a crystal ball to see into the future. A bloodline trust is often used to help minimize the uncertainty about the future and put clients at ease about the inheritance they are leaving their children. A bloodline trust (sometimes called a dynasty trust) can be drafted to keep assets in the bloodline of a family and away from creditors, as well as the exspouse of a beneficiary or spendthrift beneficiaries. The trust, rather than distributing
Estate Planning outright to children or grandchildren, continues to be held for future generations until it is too small or impractical to administer. It can essentially go on forever, so it is important that the trust be thoughtfully drafted to prevent unintended consequences. There are many provisions that require careful consideration, including the one regarding what happens to the trust upon each beneficiary’s death. Clients need to consider permitting a
beneficiary to have a limited power of appointment to combat unexpected circumstances, even though it may seem counterintuitive. For example, it is possible that a beneficiary may decide not to marry or to have children. Generally, a bloodline trust would reallocate a childless O’Daire beneficiary’s share to his or her surviving siblings or their children upon the beneficiary’s death. Perhaps this may be the desired result for some clients, but the trust could include a power of appointment that would allow bene-
ficiaries to appoint in their last will a portion of or their entire trust share to a spouse or partner to prevent an undesired financial hardship. The power of appointment could also be drafted to provide that a charity or a specific lineal descendant of the client be appointed the remaining trust property. As another example, consider a beneficiary who may have a lineal descendant with substance abuse issues, financial irresponsibility or income-based government assistance. Or, perhaps, the lineal descendant is estranged from the family. A limited power of appointment would allow the beneficiary to appoint trust property
away from the lineal descendent to another lineal descendant or a charity. This allows a beneficiary to essentially make changes to the trust to alter the trust for changed or unforeseen circumstances. If done properly, a bloodline trust can protect a family’s inheritance but also provide flexibility to adapt to the specific circumstances of future generations. Lacie O’Daire is a partner in the Tax & Wealth Management Group of Cleveland-based Walter | Haverfield. Contact her at 216-928-2901 or email@example.com.
End-of-life planning is key to ensure wishes are met BY MARY EILEEN VITALE
nd-of-life planning is essential to making sure your wishes are carried out not only at your date of death but beyond. Taking care of financial matters and personal affairs will also give your family peace of mind. The following include steps to take to assure you attain your desires:
COMPLETE AND UPDATE NECESSARY LEGAL Vitale DOCUMENTS:
Complete or update a will (and trust, if necessary) to direct the disposition of your assets. Keep the originals in a safe place that is known to and accessible by family members. Choose executors and trustees who are capable of acting to carry out your wishes. If you have
Estate Planning minor children, name custodians for them and trustee of assets for their care. Individuals named in these roles need not be the same person. Execute and update living wills and health care durable powers of attorney to provide instructions for your care in the event of your incapacity. Different states may have differing forms. If you have relocated, make sure this is up to date for the state of your residence. Re-title assets to the name of your revocable trust if one is in place in order to avoid probate on these assets and allow for an orderly transfer.
MAKE SURE THE RIGHT PEOPLE ARE IN PLACE:
Execute a durable general power of attorney (POA) to authorize an
agent to act on your behalf concerning financial matters. Review beneficiaries on assets that transfer directly to named beneficiaries such as life insurance, annuities, retirement plans and IRAs.
CONSIDER GIFTS, HEIRLOOMS: Consider specific bequests of personal property such as artwork and family heirlooms. Also consider charitable gifts.
MAKE LISTS: Prepare a list of advisers with their
contact information. Provide this information to your named executor, successor trustee or other trusted individual, as well as a copy of POAs, wills and trusts. Also prepare a list of financial assets with documentation of their location, as well as social security or pension plans that may provide death benefits. Be sure to provide a list of instructions for your executor including locations of safe deposit boxes, post office boxes, safes and combi-
nations for all. When it comes to funeral arrangements, consider preplanning and paying for burial arrangements. Be sure to notify family of the arrangements made. Taking care of the details early allows you to relax knowing your desires will be met. An estate is affected positively by doing your homework now. Mary Eileen Vitale is principal at HW&Co. Contact her at 216-378-7210 or firstname.lastname@example.org.
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S4 November 6, 2017
Keeping the champagne on ice Ohio law ups age limit on custodial accounts for minors Estate Planning
BY JOSEPH M. FERRARO and SUSAN L. RACEY
hio law now allows a donor to direct a custodial account for a minor to be held until the beneficiary turns age 25. An account established prior to this change, and irrespective of its value, is required to be distributed to the beneficiary at age 21 — giving the beneficiary much reason to celebrate and parents cause for headaches. The recent change will help to alleviate these concerns in the future by allowing the custodian to manage the account until the beneficiary is through
college and early adulthood. In order to delay the payout of the account to the beneficiary after age 21 (but not beyond age 25), the donor will have to specify the later age at the time the account is established. If a later age is not specified, the account must be paid out at age 21. The new law applies to accounts created after April 6, 2017, so existing accounts will not be able to be held beyond age 21.
Ferraro Racey The new law provides a limited right for the beneficiary to withdraw the account at age 21, which allows a donor’s transfer to the account to qualify for the gift tax annual exclusion (currently $14,000 per year, per donee). However, the donor can elect to not give the beneficiary this right and the custodian has no obligation to notify
the beneficiary of such right. As previously allowed, the donor or custodian may designate successor custodians, avoiding probate court involvement upon the custodian’s death or inability to serve. These recent changes have made custodial accounts more practical and flexible gifting tools. For some beneficiaries, the champagne flutes will just have to stay on the shelf for a few more years. Joseph Ferraro is an associate in the Tucker Ellis Estates, Trusts & Probate Group. Contact him at 216-696-5872 or email@example.com. Susan Racey is a partner in the Tucker Ellis Estates, Trusts & Probate Group. Contact her at 216-696-3651 or firstname.lastname@example.org.
hen the time comes to settle an estate, those involved hope there has been some thoughtful planning and that everyone can work together cordially. When it comes to the distribution of personal property, things can become difficult. Even the best plans, however,
Estate Planning may not take into account some of the less-obvious assets. While the cars, artwork and jewelry are easy assets to identify, other categories require a seasoned eye. Folk art is one of
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those fields that even renowned experts have a hard time accurately evaluating. Within the last year, a grotesque face jug that had been evaluPinney ated on the Antiques Roadshow for $30,000 to $50,000 was later identified as a 1970s school art project valued at $3,000 to $5,000. What makes folk art so valuable is also what makes it difficult to evaluate: its naiveté. Created by self-taught, untrained artists, folk art often results in childlike representations of the world that many see as ugly. While there are museums dedicated to its preservation and high prices can be realized for exceptional pieces, it’s not something that’s on everyone’s radar. The realm of folk art covers many items you may find
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GRATitude Low interest rate environment ideal for establishing a grantor retained annuity trust BY HOWARD ESSNER
in an estate: antique advertising, early textiles (samplers, quilts, coverlets), weathervanes and painted country furniture, to name a few. Historical ephemera are another tricky subject you may encounter when searching through those boxes of paper in the attic. While it can seem daunting to leaf through each page, attempting to decipher century-old script, the results can be worthwhile. There are hundreds of thousands of letters from Civil War soldiers, but a firsthand account of the Battle of Gettysburg outweighs a letter describing the weather and the condition of one’s boots. Some things that may need an expert to separate the wheat from the chaff include letters and signatures, antique photographs, advertisements and posters for famous events and entertainers, and old newspapers. An item’s value is a moving target and often the source of much discord. It’s important to get outside opinions to make sure nothing is overlooked and to realize the best result for your client.
grantor retained annuity trust is an estate tax planning technique designed to allow the intergenerational transfer of assets with little or no estate or gift tax liability. It is particularly powerful in today’s low interest rate environment. To establish a GRAT, the grantor transfers assets to an irrevocable trust, but retains an annual annuity payment, typically over a term of years. Assets remaining in the GRAT after the last annuity payment has been made are transferred to the beneficiary (heirs Essner or another trust). For tax purposes, the amount of the gift into the GRAT is the value of the assets transferred, plus a theoretical interest rate, minus the annuity payments paid back to the grantor. If the grantor sets up the trust so that the annuity payments equal the value of the assets transferred to the GRAT plus the theoretical interest, the transfer to the trust would have a zero value for estate and gift taxes. As long as the assets in the trust provide an investment return greater than the theoretical interest rate (2.4% for September 2017), there will be assets in the trust at the end of the term, and these assets will transfer to the beneficiary free of further estate or gift taxes. During the life of the GRAT, the grantor also pays the income tax on the taxable income of the GRAT, also a good estate planning strategy. There are two major risks. First, if the donor does not survive the term of the GRAT, the assets in the GRAT are brought back into his estate. Second, the trust assets might not produce returns in excess of the imputed interest rate, in which case the annuity payments will exhaust the GRAT. In both cases, the grantor is no worse off, other than the legal cost of establishing the GRAT.
Carrie Corrigan Pinney is business manager at Cowan’s Auctions Inc. Contact her at 216-292-8300 or email@example.com.
Howard Essner is managing director and family wealth advisor at Ancora. Contact him at 216-825-4000 or firstname.lastname@example.org.
Consult expert opinions to legitimize folk art’s value BY CARRIE CORRIGAN PINNEY
The decanting option Trustees can improve a trust’s vintage Estate Planning
BY LINDA M. OLEJKO
ost of us think of irrevocable trusts as being set in stone. The trust document, together with state and federal law, defines the beneficiaries, trustees, terms of distribution, tax consequences and many other things. Sometimes those terms no
longer correlate well with modern family or investment needs and tax law. Decanting is an act undertaken by a trustee to solve these perceived prob-
lems. The trustee of the existing trust creates a new trust. The assets from the existing trust are “poured” into the new trust, just as wine is poured from a wine bottle into a new vessel. The new trust is similar to the old trust but may, for example, correct drafting errors, update administrative Olejko terms, modernize investment options or, in some cases, add a general power of appointment to create a stepped-up income tax basis at a beneficiary’s death.
November 6, 2017 S5
Ohio is one of 26 states that have enacted a statute allowing decanting. Additional states permit decanting under their common law. In Ohio, a trust may be decanted without court or beneficiary approval (although seeking consents can be a good idea) so long as notice is given to the parties. The Ohio statute provides trustees with broad discretion to decant in many circumstances. If the trustees have unfettered discretion to make principal distributions, maximum flexibility is available. If the discretionary standard is narrow (health, education, maintenance
and support), then the materiality of the change will be carefully scrutinized. Extra care should always be used changing provisions of a trust exempt from federal generation-skipping transfer tax so as not to disrupt the tax exemption. Decanting is an invaluable tool if undertaken by a professional trustee with the experience necessary to ensure success. Linda M. Olejko, CFP®, CEPA, is a managing director of Glenmede. Contact her at 216-514-7876 or email@example.com.
Various circumstances can prompt an estate plan tune-up Estate Planning
BY STEVEN P. LARSON
he process of estate planning, from start to finish, can take months or even years. But at long last, you and your attorney have created the perfect estate plan for you and your family. After the documents are signed and handshakes exchanged, the next question that is almost always asked is, “so when do we need to look at this again?” Unfortunately, estate plans are not “set
it and forget it” documents. Estate planning attorneys draft documents based on multiple factors: client assets; client wishes; beneficiaries; marital and familial status; federal, state, and estate tax law; and asset protection needs, to name a few. Changes in any one or more of these factors could significantly alter the
outcome of the estate plan and potentially create negative consequences. ASSETS: Any significant increase or decrease in wealth can create unexpected tax consequences, such as an estate tax. Experienced estate planning counsel may be able to Larson offer suggestions on how to reduce or potentially eliminate any estate tax. FAMILY STATUS: Any change
in family status (marriage, divorce, birth of a child, death, etc.) should be followed up with a phone call to your attorney. Any of these events may significantly change the desired outcome of your estate plan. TAX LAW: Although your legal adviser should be in front of changes in tax law, it would be prudent to follow up with your attorney if there are any major changes in the tax law. In the past 15 years, federal estate tax
has been applicable on estates as small as $1 million up to its current level of $5.49 million. As a rule of thumb, whenever you experience a significant life event, after the dust settles it is important reach out to your attorney to determine whether any updates are needed to your estate plan. Steven P. Larson is an attorney in the Trusts & Estates group at McCarthy Lebit. Contact him at 216-696-1422 or firstname.lastname@example.org.
It’s the number of lives you get to make a real difference. With one simple action, you become part of something remarkable – you can help your clients shape the future of medicine. Our gift planning professionals will work with you to help your clients create a lasting legacy and achieve charitable goals. Be the next one. To learn more contact Stacey McKinley, Esq., email@example.com or 216.445.8552 or visit powerofeveryone.org.
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S6 November 6, 2017
Five qualities to look for when choosing the right estate planning attorney Estate Planning
BY NICOLE K. COUMOU and RONALD F. WAYNE
ow that you have made the important decision to protect yourself, your family and your business from the financial and emotional hazards that may arise without quality estate and business succession planning, how do you
identify a high-quality estate planning attorney who is right for you? Estate planning attorneys typically prepare documents to transfer property at death, assist with proper titling of
Finish what you start Be sure assets are retitled to avoid costly consequences BY HOWARD J. KASS
rowing up, how many times did a parent tell you to finish what you start? How about your teacher? School counselor? Clergy? We have all heard it, many times from many role models. Finishing what you start is good advice that usually serves us well, regardless of
Estate Planning the context. How does this apply to estate planning? Consider the typical estate planning process. Someone meets with an attorney to carefully design his or her estate plan. As a result of multiple
assets to avoid probate, plan for incapacity and assist with post-mortem administration of estates and trusts. Basic documents, such as wills, revocable or irrevocable trusts, durable powers of attorney and health care directives to accomplish the desired results are a good start, but you need and deserve more. Here are five important qualities and capabilities to look for when se-
meetings, conversations with family members, consultations with their tax adviser, along with their other trusted advisers, a well thought-out, intricate, plan is created to provide for an orderly disposition of their assets upon death. The resulting documents will likely Kass include, among other things, one or more trust agreements. At the conclusion of this long, sometimes exhausting, process, the family and their advisers may get together to celebrate the successful creation of the estate plan, together breathing what they feel is a well-
Lawyers who are creative cre•a•tive / kre'adiv/ adj. 1. Our ability to provide original solutions to help clients minimize tax consequences and strategically plan for the future. 2. walterhav.com
lecting your estate planning attorney and law firm:
Qualified lawyers who specialize in estate planning strive to minimize income, estate and gift taxes as part of their services. How an estate planning attorney drafts your will and trust instruments will be greatly influ-
deserved sigh of relief. But, wait! Something may be left undone. Have the trustors retitled assets to their trusts? This is the most prevalent failure I have encountered in all the estate planning cases with which I have been involved. Why go to the time, expense, effort and heartache, to create an intricate estate plan if the plan isn’t perfected by retitling assets into the name of the newly created trusts? Missing this one, final, piece can be financially devastating. Here’s an example: “Francis” was the matriarch of her family and had amassed significant wealth. Following her passing, I was provided with her voluminous estate planning documents that contained, among many other items, a generationskipping trust agreement. Since it was her intent to leave a significant portion of her estate to her grandchildren, having a GST trust was a shrewd decision on her part. Unfortunately, Francis died before
enced by current federal and state income and transfers tax laws that apply to your particular situation. Your estate planning attorney must be able to effectively explain how various taxes play into different aspects of your estate plan and give you choices as to the best outcome for achieving your personal goals. A sophisticated trusts and estates attorney will be well-versed in the area of individual retirement accounts (IRAs), Roth IRAs, 401(k)s, profit sharing and stock incentive programs. Intricate regulations and tax laws need to be considered when deciding CONTINUED ON NEXT PAGE
transferring any of her assets to the GST trust. Francis’ estate unnecessarily paid over $700,000 in GST tax because neither she nor her attorneys finished what they started. They failed to ensure that her assets were retitled to her trusts. That was a $700,000 mistake. Don’t make the same one. Howard J. Kass, CPA, CGMA, AEP®, is a tax partner at Zinner & Co. LLP. Contact him at 216-831-0733, ext. 159 or firstname.lastname@example.org.
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when to name trusts and when to name individuals as beneficiaries of differing kinds of retirement plans.
BACKGROUND IN BUSINESS
Clients with substantial wealth and business holdings need both tax planning and business planning advice. While tax and business planning tends to go hand in hand, your trusts and estates practitioner should be prepared to discuss the structure of your entities, your position in the company, governance issues, business succession alternatives and the consequences of integrating your business endeavors into your estate plan. The ability to understand the dynamics and inner workings of a family owned business is imperative to creating an estate plan that carries out the business ownerâ€™s true intentions. For instance, the estate and business succession plans of two different clients owning substantially similar businesses may differ dramatically depending on the structure of the business or that ownerâ€™s future goals.
minimum years of experience and exhibit extraordinary professional accomplishment are a prime resource in identifying quality estate planning attorneys. Word-of-mouth endorsements can also prove valuable. Finally, do not rely exclusively on online reviews that may have been generated either by one unjustifiably disgruntled former client or submitted by a well-intentioned family member.
Most quality estate planning attorneys are willing to either meet in person or at least by phone the first time without cost to make sure the engagement will be a good fit for both the lawyer and the client. Both the scope of the engagement and the cost of the services should be set forth in a signed engagement letter before you incur any financial obligation. Will you
be charged on a flat fee basis, an hourly rate, or a combination of the two? Focus on receiving good value, not the lowest price. An inexpensive but poorly constructed estate plan will eventually cost more to repair than would a well-conceived plan that minimizes taxes and avoids real or threatened litigation. You tend to get what you pay for in the estate planning world. Using these key criteria when
November 6, 2017 S7
selecting an estate planning attorney will help you identify and engage the attorney most able to meet your future needs and goals. Nicole K. Coumou is an associate at Buckingham, Doolittle & Burroughs LLC. Contact her at 330-258-6422 or email@example.com. Ronald F. Wayne is a partner at Buckingham, Doolittle & Burroughs LLC. Contact him at 216-615-7349 or firstname.lastname@example.org.
Preferably, your chosen estate planning attorney is a member of a firm with a robust trusts and estates practice group consisting of diverse members with differing skill sets. If your lawyer retires, which younger members of Coumou the firm are already familiar with your business, family and objectives? If your estate plan is challenged in court, does the firm have seasoned litigation attorneys who Wayne can defend your intended beneficiaries against assault? Complex situations often arise during the administration of an estate or trust. Is your trusts and estates attorney equipped with the right resources to handle real estate, tax, corporate and litigation matters that might arise? An estate planning attorney with ready access to other qualified attorneys in her firm allows for quick collaboration and the efficient production of client work.
Chose an attorney whose specialty is estate planning. Highly qualified estate planning attorneys are either board certified specialists or broadly recognized as experts in their field. They teach, speak and write about current hot topics. Key membership organizations for trusts and estates attorneys include Estate Planning Councils and Bar Association Section memberships that bring together skilled estate planning practitioners. Professional recognition organizations that require members to be elected by their peers, have certain
Whether we are feeding the hungry, comforting the sick, or caring for the elderly, our Jewish values inspire us to act. With the stock market at an all-time high, now is the time to donate appreciated securities to the Jewish Federation of Cleveland. To realize potential tax benefits in 2017, make this transfer before December 31, 2017*.
Take an active role in helping meet needs in the Jewish and general communities, today and in the future. To transfer securities, contact Kari Blumenthal at 216-593-2893 or email@example.com. *Ask your financial advisor for details.
S8 November 6, 2017
UNWINDING THE PLAN: modifying and terminating irrevocable trusts BY DANA MARIE DECAPITE
rusts generally allow for the planned, controlled, and tax-efficient distribution of wealth to individual and charitable beneficiaries. As estate planners, we spend much of our time discussing the benefits of creating and administering various types of trusts with our clients. Many of these trusts are created as irrevocable trusts (and therefore unmodifiable), while others become irrevocable upon the trust creator’s death. The irrevocability of a trust, while beneficial for a variety of tax and non-tax reasons, can create problems for trust beneficiaries when circumstances have changed to the point that modifying or terminating the trust becomes necessary. Luckily, the Ohio Trust Code allows for the modification and termination of trusts in certain specific situations. This article serves as an overview of circumstances allowing for a trust modification or termination, and some of the methods used to effectuate the desired change. Choosing the method for modifying or
terminating a trust generally involves two considerations: (1) the reason for the desired modification/termination, and (2) the parties seeking to modify/ terminate the trust.
CONSENT TO TERMINATION OR MODIFICATION. If the creator (the
“settlor”) and the beneficiaries of an irrevocable, non-charitable trust consent to and petition the court for the modification or termination, the court can order modifica- DeCapite tion or termination, even if doing so is inconsistent with the material purpose of the trust. In this situation, the reason for the termination is immaterial, but the necessary parties — the settlor and the beneficiaries — must consent to the desired change. The trustee is not a necessary party, nor is trustee consent
required; however, the trustee must follow the court order of modification if so granted. This type of modification or termination only applies to trusts that became irrevocable on or after January 1, 2007, the effective date of the Ohio Trust Code, and does not apply to special needs trusts. If the settlor is deceased or does not consent to the desired change, the beneficiaries may petition the court to terminate the trust. In this case, termination will only be granted if the court concludes that continuing the trust is not necessary to achieve any material purpose of the trust. Similarly, the trust may be modified (but not to remove or replace the trustee), if the modification is not inconsistent with the material purpose of the trust. In each of the situations requiring beneficiary consent, if one or more of the beneficiaries does not consent to a proposed modification or termination, the court may still approve such action; but only if the trust could have been modified or terminated if all beneficiaries had consented, and
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the interests of a non-consenting beneficiary are adequately protected.
CHANGE OF CIRCUMSTANCES.
Upon petition by a trustee or the beneficiaries, the court may modify the administrative or dispositive terms of a trust — or terminate the trust — because of circumstances not anticipated by the settlor, as long as modifying or terminating the trust furthers its overall purpose. In this case, the court should make the modification only if it advances the settlor’s probable intention. If termination is granted, the trustee is required to distribute the trust property consistently with the purposes of the trust, whether or not the trustee is party to the court petition.
ADMINISTRATION COSTS EXCEED VALUE. If the trustee concludes
that the value of the trust property is insufficient to justify the cost of administration, the trustee may unilaterally (without court involvement) terminate a non-charitable inter vivos trust with trust property less than $100,000, after giving notice to the qualified beneficiaries. Alternatively, if the trustee does not or cannot terminate a trust with property less than $100,000, because of the terms of the trust or otherwise, the court can modify the trust (and remove and replace the trustee). The court can also terminate the trust if the court determines that the value of the trust property is insufficient to justify the cost of administration.
PRIVATE SETTLEMENT AGREEMENTS FOR MODIFICATION. The
Ohio Trust Code allows for a non-judicial agreement to be entered into for the purpose of modifying a non-charitable irrevocable trust. This type of agreement generally can be used to modify the terms of a trust if the modifications are not inconsistent with any material purpose of the trust. However, there are very specific parameters and restrictions placed on the necessary parties to the agreement and the permitted modifications. Two or more of the following must be parties to the agreement: the settlor (if there are no adverse tax consequences); the beneficiaries; the current trustee; and creditors (if interest is affected by the agreement). There are prohibitions on using such agreements to terminate a trust, to change a beneficial interest, or to include terms/conditions that could not be otherwise properly approved by the court. It is important to note that irrevocable trusts are not necessarily “iron-clad” under the right set of circumstances and with the collaborative consent of necessary parties. A desire to modify or terminate an existing irrevocable trust should be evaluated on a case-by-case basis to assess the implications of such desired change and determine the appropriate judicial or non-judicial remedy under the current Ohio Trust Code. Dana Marie DeCapite is an attorney at Benesch. Contact her at 216-363-4443 or firstname.lastname@example.org.
November 6, 2017 S9
Secure your legacy through proper asset protection Estate Planning
BY JOSEPH M. MENTREK
reating, maintaining and ultimately transferring wealth have long been the goals of wealth managers, estate planners and their clients alike. Historically, such planning focused primarily on managing taxes. Recent changes in federal and state estate tax laws have reduced the attention on taxes for some. At the same time, an increasingly litigious society and aggressive creditors, including disenfranchised spouses facing divorce, have shifted the attention of many individuals and their planners to asset protection. For purposes of this discussion, we will consider asset protection to be a set of techniques and a body of law concentrated on insulating assets from the claims of creditors without concealment or tax evasion. Prior to 1997, asset protection planning was considered novel, Mentrek or even suspect, and was largely limited to planning with offshore trusts. Domestic trusts provided strong asset protection to beneficiaries, but only if the trust was created and funded by a third party. Strong asset protection was equated with loss of control. Self-settled trusts — those created by individuals for their own benefit — afforded no protection from creditors. The notion of asset protection was turned on its head and introduced to the mainstream in 1997 with the adoption of legislation in Alaska allowing for the creation of self-settled domestic asset protection trusts. As of today, 17 states, including Ohio, have some form of asset protection statute on their books. Consider some blocking and tackling in the context of asset protection. Asset protection is not about hiding assets; rather, it is about using existing laws to create barriers to discourage creditors. This is completely legal, but it must be accomplished before you face a creditor’s claim or it will not be effective. Asset protection will not work if there has been an actual intent
to hinder, delay or defraud present creditors (those with an existing enforceable liability) or future creditors (those with existing claims where a determination of liability is pending). It will, however, be generally effective against potential future creditors. Keep in mind that there is no “onesize-fits-all” solution, and asset protection is best accomplished using a combination of strategies to shelter assets in a variety of protected baskets. For instance, insurance should always act as a first line of defense against creditors’ claims. But for potential liability above policy limits, asset protection can be accomplished by something as simple as transferring assets from one spouse who may be more susceptible to claims (physicians, attorneys, CPAs, architects, or other professionals subject to personal liability for malpractice) to the other spouse who does not face such exposure. Similarly, most state statutes provide for certain types of assets that are legally exempt from the claims of creditors. Exempt assets in Ohio include annuity contracts and the cash value of life insurance held for the benefit of your spouse, children or dependents; balances in ERISA qualified plans (pensions), individual retirement accounts (IRAs) including Roth IRAs, regular IRAs and inherited IRAs; balances in Section 529 education savings plans; and equity of up to $136,925 in residential real estate (homestead exemption). The exemptions vary from state to state, so check with your adviser. The homestead exemption in Florida, for instance, is currently unlimited. Asset protection planning utilizing business entities and trusts can also be effective. Assets held in a corporation or limited liability company (LLC) are protected from the creditors of the owners of those entities. Likewise, the owner of an entity cannot be held responsible for the liabilities of the entity. Trusts also provide varying important
Your success is our foremost concern. You want positive outcomes — and no single path can lead you to them. That’s why Key Private Bank’s approach to wealth management is to provide focused, personalized solutions from experienced financial professionals who are ready to help you navigate whatever paths lie ahead. To learn more, contact Gary Poth at 216-689-5607 or go to key.com/kpb today.
Asset protection is not about hiding assets; rather, it is about using existing laws to create barriers to discourage creditors.
levels of asset protection. As mentioned earlier, a third-party-settled trust with spendthrift provisions (provisions where the beneficiary cannot assign, or pledge his interest, and which prohibit the ability of a creditor to reach the property) are universally accepted and recognized in all 50 states. Support trusts, discretionary trusts, split interest trusts (QPRTs, GRATs, CRATs and CRUTs), spousal lifetime access trusts and lifetime QTIPs also provide a certain level of asset protection because a creditor cannot levy on
assets beyond the extent of the beneficiary’s limited interest in the trust. Furthermore, the Ohio Legacy Trust is a self-settled domestic asset protection trust that has been available since 2013. The trust creator may be the beneficiary of a spendthrift trust that will protect assets from his or her own future creditors. Under Ohio statute, the trust document must be in writing, irrevocable and governed by Ohio law. It must provide for a qualified trustee, and must contain spendthrift provisions. The transferor
must make certain attestations, including a declaration of solvency at the time he or she set up the trust. Interestingly, there are a host of rights that may be retained by the transferor making the requirement of an independent trustee far less onerous. There are a variety of strategies you can employ, with or without professional assistance, that can provide you asset protection and peace of mind against creditors. If all else fails, you can still resort to something more exotic like an offshore trust in the Cook Islands, Isle of Man, or Nevis. Joseph M. Mentrek, Esq. is chair of the Estate and Succession Planning Group and serves on the firm’s executive committee at Calfee, Halter & Griswold, LLP. Contact him at 216-622-8866 or email@example.com.
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S10 November 6, 2017
IT’S RAMPANT, INVISIBLE AND LETHAL: the financial exploitation of the elderly BY DAVID P. MEYER
hile investment fraud is a concern for every individual investor, the risk is particularly troubling for the elderly because they are increasingly targeted as victims of financial exploitation. Exploiting the elderly has become so common that it is estimated that at least one in five elderly investors has been the subject of elder financial exploitation. In light of this growing problem, it is critical that elderly investors are aware of the many different forms of senior investment fraud and know of steps to take, Meyer including estate planning, that minimize the risk of losing hard-earned money through financial exploitation. Broadly defined, fraudulent exploitation is the unlawful act of using a senior’s resources for monetary or personal gain through intimidation, threat or deception. Senior investment fraud can be difficult to detect given that it takes many different forms and often involves a relative, close friend or a trusted adviser. For example, there are numerous cases involving Alzheimer’s patients having
Estate Planning their finances exploited by their trusted financial advisers or close family members who take advantage of the senior’s mental health condition. Investors between the ages of about 50 to 64, who are facing imminent retirement, are also frequently targeted as victims of Ponzi schemes, investment scams and stockbroker misconduct. Pre-retirees may be more susceptible to this type of fraud as they may be concerned about the financial strain of upcoming retirement and might be more trusting if they are acquainted with the con-artist. The growing concern of elder financial fraud is reprehensible, life threatening, and most importantly, invisible. There are many steps that can help prevent seniors from falling victim to financial exploitation. The first is knowing what to look for. With regards to family members taking advantage of their elders, red flags may include pressure from relatives to give loans, or finding that money has mysteriously disappeared. Investment advisers may also target senior clients to earn high commission by soliciting high-risk invest-
ments that are unsuitable for retirees. Red flags of churning and stockbroker misconduct include unauthorized transactions and significant decline in investments. Rogue advisers and fraudsters may also target seniors for Ponzi schemes and investment fraud. If the adviser is not returning phone calls, provides little information about the investments, promotes “private” or “special deals,” or offers side investments, these may all be signs to take caution. One of the most effective measures in preventing senior investment fraud can
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also be the most difficult — recognizing vulnerability. Unfortunately, difficulty in making financial decisions coupled with an impaired ability to recognize deception can make seniors a natural target for investment fraud. Signs that you or a loved one may be vulnerable to senior investment fraud include lack of confidence in making financial decisions, having trouble keeping up with bills due to confusion, giving gifts or loans that cannot be afforded and the inability to understand investment advice. Fraudsters target these traits in seniors who are less likely to pick up on red flags. Acknowledging vulnerability may help increase awareness in identifying these signs. Seeking the help of an estate planning professional can help ensure that senior’s mental health will not jeopardize their finances or their estate. It is important to educate individual investors about the benefits of having a power of attorney, and encourage investors to share details
of their financial affairs with estate lawyers and other professionals to help ensure that if the investor’s health deteriorates, their financial affairs will be properly handled. On top of individual measures to prevent senior exploitation, there are a number of new legal initiatives aimed at attacking the problem. For instance, Ohio has broadened the definitions of neglect, exploitation and financial harm, and expands the list of persons required to report suspected abuse or exploitation. Additionally, some states now require that certain individuals in the financial industry take specific training on how to recognize financial abuse of elder adults. These are simply a few examples among an extensive list of legislation aimed at protecting elders from financial exploitation. Unfortunately, preventative measures and legal initiatives are not always enough to prevent senior exploitation. The last method of fighting this problem is to file a claim to recover losses through the civil legal system. Through injunctive relief, restraining orders and revocation of powers of attorney, filing a claim can stop the problem and prevent additional losses. Additionally, seniors who have suffered financial exploitation may be able to recoup their losses. If the individual behind the exploitation is a registered financial adviser, the brokerage firm where he or she is employed may be liable for losses caused by the misconduct of the broker. Financial exploitation can be devastating, particularly for senior citizens with limited income. It is important that victims of financial exploitation seek the representation of legal counsel experienced in securities fraud. David P. Meyer, Esq., is founding principal with Meyer Wilson Co. LPA. Contact him at 614-358-3283 or firstname.lastname@example.org.
Tanzie D. Adams Charles F. Adler, III Richard A. Ahrens Ronald S. Ambrogio Bill Ambrogio Thomas D. Anderson Graham T. Andrews Heather A. Archdeacon Kemper D. Arnold James S. Aussem P. Thomas Austin Charles J. Avarello Andrew G. Bacharach, Jr. Amanda K. Baker Molly Balunek Peter Balunek Mary Lynne Baranek Kimberly J. Baranovich Albert J. Barnabei Lawrence C. Barrett Stephen Baumgarten Alexandra G. Beach Edward J. Bell Steven Berman H. William Beseth, III Gina Marie Bevack-Ciani Mohammed J. Bidar Michelle M. Bizily Alane Boffa Daniel L. Bonder Nicole K. Bornhorst David J. Bosak Aileen P. Bost Jill A. Branthoover Sandra J. Brantley Herbert L. Braverman Christopher Paul Bray Matthew Brigeman Don P. Brown Kenneth B. Brown C. Richard Brubaker Robert M. Brucken Bethany J. Bryant Martin J. Burke, Jr. Eileen M. Burkhart Christina M. Bushnell Samuel V. Butcher J. Donald Cairns Carl Camillo Leigh H. Carter William G. Caster Jennifer Chess James R. Chriszt Trevor R. Chuna Mark A. Ciulla R. Michael Cole Katherine E. Collin Jeffrey P. Consolo Calla Hoyt Cornett Barbara J. Cottrell Greg S. Cowan Steven Cox Thomas H. Craft Joseph Crea Deborah P. Cugel M. Patricia Culler Tia Marie D’Aveta Dana Marie DeCapite Thomas A. DeWerth Carina S. Diamond David S. Dickenson, II James G. Dickinson Sarah M. Dimling Nicholas P. DiSanto Mary Ann Doherty Lynda Doland Terry Ann Donner Timothy Doyle Emily A. Drake Therese Sweeney Drake Jill Dugovics William A. Duncan Carl J. Dyczek Howard B. Edelstein Elaine B. Eisner Michael E. Ernewein Heather R. Ettinger Erin C. Eurenius
Christina D. Evans Susan M. Evans Todd M. Everson Charles E. Federanich Joseph M. Ferraro J. Paul Fidler Julie E. Firestone Mary Kay Flaherty Linda Fousek Amy K. Friedmann Patricia L. Fries Robert R. Galloway Stephen H. Gariepy James E. Gaydosh Kyle B. Gee Christopher Geiss Thomas M. Genco Thomas C. Gilchrist Stephanie M. Glavinos
Howard Kass Toby Kaye Marta L. Kelleher Lesley Keller Alexis Kim Woods King, III Paul S. Klug Victor G. Kmetich James R. Komos Beth M. Korth Harvey Kotler Roy A. Krall Frank C. Krasovec, Jr. Thomas W. Krause James B. Krost Deviani Kuhar Craig A. Kukla Anthony C. Kure Kristen Kuzma
Jamie E. McHenry Sarah E. McIntosh Ryan P. McKean Kevin R. McKinnis Catherine A. Mekker Joseph M. Mentrek Claus D. Meyer Lisa H. Michel Charles M. Miller William M. Mills Wayne D. Minich Ginger F. Mlakar Marie L. Monago M. Elizabeth Monihan Robert C. Moore Kenneth R. Morgan Philip G. Moshier Michael J. Moss Joseph L. Motta
The Estate Planning Council of Cleveland
Caroline Gluek Ronald J. Gogul Scott A. Gohn James A. Goldsmith Susan S. Goldstein Tom S. Goodman Laura Joyce Gorretta Lawrence I. Gould David A. Grano Alicia N. Graves Karen L. Greco Sally Gries Anne Marie Griffith Nancy Hancock Griffith Elizabeth C. Griffiths Alan D. Gross James P. Gruber Ellen E. Halfon Patrick A. Hammer Sarah Hannibal Brian R. Hassett Lawrence H. Hatch Janet W. Havener Albert G. Hehr, III Theodore N. Hellmuth Kimberly Heman James M. Henretta Jean M. Hillman Joanne Hindel Mark L. Hoffman Harold L. Hom Robert S. Horbaly James M. Horkey Brent R. Horvath Michael J. Horvitz Douglas Ingold Lynnette Jackson Paula Jagelewski Christopher P. Jakyma Barbara Bellin Janovitz Joel J. Jensen Theodore T. Jones James O. Judd Stephen L. Kadish Matthew F. Kadish Matthew A. Kaliff Joseph W. Kampman Karen J. Kannenberg Lori L. Kaplan William E. Karnatz, Jr. Bernard L. Karr
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Louis D. LaJoe Gary E. Lanzen Steven P. Larson Donald Laubacher Paul J. Lehman Maureen Leneghan Kevin J. Lenhard David M. Lenz Wendy S. Lewis Keith M. Lichtcsien Dennis A. Linden James Lineweaver David F. Long Ted S. Lorenzen Amy R. Lorius Janet Lowder Edward C. Lowe Lisa K. Lowy Robert M. Lustig James M. Mackey David S. Maher Stanley J. Majkrzak Chad Makuch Timothy Patrick Malloy Laura J. Malone Michelle Mancini Karen T. Manning Wentworth J. Marshall, Jr. Michael W. Matile Donald C. May Nancy McCann Karen M. McCarthy Dawn E. McFadden Daniel A. McGowan Erica E. McGregor Katharine N. McHale
Susan C. Murphy Hoyt C. Murray Norman T. Musial Christine A. Myers Raymond C. Nash Jodi Marie Nead Lisa Wheeler Neely Robert Nemeth Michael H. Novak Michael T. Novak Anthony J. Nuccio Eric A. Nye Michael J. O’Brien Lacie L. O’Daire Linda M. Olejko Matthew S. Olver Leslie A. O’Malley Richard M. Packer James B. Perrine Michael J. Perry Dominic V. Perry Marla K. Petti Thomas Pillari Jennifer N. Pinkerton Douglas A. Piper Rebecca Yingst Price Douglas Price Maria E. Quinn Susan Racey Joseph Radigan Uma M. Rajeshwar Timothy L. Ramsier Melissa Anne Register Linda M. Rich R. Andrew Richner Radd L. Riebe Elton H. Riemer Theodore J. Robbins Lisa Roberts-Mamone Kenneth L. Rogat Carrie A. Rosko Philip B. Rosplock Lisa J. Roth Larry Rothstein David Rubis Alexander I. Rupert Kenneth J. Sable Patrick J. Saccogna Jennifer A. Savage Ronald S. Schickler Bradley Schlang
Dennis F. Schwartz Jennifer B. Schwarz June A. Seech John S. Seich Doris A. Seifert-Day Emily Shacklett Stanley E. Shearer John F. Shelley Douglas E. Shostek Roger L. Shumaker Lisa Paul Sierk Gary M. Sigman Mary Jean Skutt Mark A. Skvoretz John M. Slivka N. Lindsey Smith Clinton Robert Oney Snyder Sondra L. Sofranko James Spallino, Jr. Richard T. Spotz, Jr. William L. Spring Laura B. Springer Stacey Staub Kimberly Stein Laurie G. Steiner Saul Stephens E. Roger Stewart Beverly A. Stiegele David J. Stokley Diane M. Strachan Thomas B. Strauchon Thomas E. Stuckart John E. Sullivan, III Linda DelaCourt Summers Joseph T. Svete Scott E. Swartz David A. Szabo Julie A. Taft Richard Tanner Barbara Theofilos Maryann Fremion Thomas Kurt M. Thomas Jerry C. Thomas James K. Thompson Donna Thrane Eric Tolbert Floyd A. Trouten, III Mark A. Trubiano Stephenie Truong Thomas M. Turner Diann Vajskop Robert A. Valente Jaclyn L.M. Vary Missia H. Vaselaney Amy Vegh Catherine Veres Mary Eileen Vitale Michael A. Walczak Kimberly A. K. Walrod Neil R. Waxman Julie A. Weagraff Michael L. Wear Stephen D. Webster David G. Weibel Jeffry L. Weiler Richard Weinberg Miles P. Welo Heather Welsh Katherine E. Wensink Elizabeth Wettach-Ganocy Terrence B. Whalen Andrew Whitehair Frederick N. Widen Erica K. Williams Geoffrey B.C. Williams Scott A. Williams Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz Carol F. Wolf Brenda L. Wolff Alan E. Yanowitz James D. Yurman Jeffrey M. Zabor Michael J. Zeleznik David M. Zolt Gary A. Zwick Donald F. Zwilling
S12 November 6, 2017
The ‘ A RT’ of inheritance Be sure will and trust address inheritance rights associated with assisted reproductive technology Reconnect and take the Lead like a Girl Scout!
For more information or to donate, please visit gsneo.org/donate or gsneo.org/alumnae
BY M. ELIZABETH MONIHAN and COLLEEN MEREDITH
as your family been touched by Assisted Reproductive Technology? In 2015, 72,913 babies, or 1.6% of all infants, were born in the U.S. through ART, according to recent fertility clinic statistics from the Centers for Disease Control and Prevention. You, your children or grandchildren could bring an ART child into the family. Genetic material Monihan can be stored for a long time in a fertility clinic. An ART child could be born many years after the death of one or both of the parents. When planning your estate, you must address this possibility in your will or trust agreement.
Estate Planning New Ohio law provisions became effective in 2017, clarifying inheritance rights of posthumously born children, or more remote descendants, and extending the time period during which an ART child could be born and counted as an heir. If you die without a will in Ohio, an ART Meredith child must be born within 300 days after your death to be counted as an heir. You may not want to include a later-born ART child or grandchild as an heir. But if you do, you can extend the time to determine your heirs to one year and 300 days,
with a special provision in your last will and testament. You can extend that time period even longer, up to five years, with a special provision in a trust agreement. If you stored genetic material at a fertility clinic, plan what should happen in the event of a divorce or breakup, disability or death. You also should review your estate plan with your estate planning attorney to determine how to carry out your wishes on leaving an inheritance to your family members, including possible ART children. Your attorney can help you understand how the new laws affect your estate planning intentions for your family. Lisa Monihan and Colleen Meredith are attorneys at Schneider Smeltz Spieth Bell LLP. Contact them at 216-696-4200 or by email at memonihan@sssb-law. com or email@example.com.
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November 6, 2017 S13
Empower fiduciaries to manage digital assets BY STEVE HINKLE
ith society’s increasing reliance on Internetbased technology, nearly everyone owns virtual or digital assets. Many assets that were once tangible and controlled by physical possession are now managed electronically. In this environment, planning for digital assets becomes even more important. Digital assets can include the following: n personal email accounts and messages; n data stored on hardware, such as computers, thumb drives, smartphones and tablets; n photographs, videos and music playlists stored on these devices; n software and licenses (Windows and similar “Office” software, Quicken, TurboTax, and apps for mobile devices); n online financial accounts, such as bank and investment accounts; n social media and social networking accounts (Facebook, LinkedIn and Twitter); and n online sales accounts (PayPal, eBay) These assets often have little or
Estate Planning no monetary value in themselves. For example, software is often nontransferrable at death. However, personal websites, emails and social media accounts may have tremendous sentimental value to a decedent’s family. Also, access to online sales and investment accounts can significantly increase the ease of estate and/or trust administration. For example, banking, Hinkle investment and retirement account statements may reside only online. Federal data privacy laws and online account agreements may prohibit the service provider from turning over online communications to anyone other than the account owner without his or her consent. This makes it important for the account owner to update estate planning documents to empower fiduciaries to access and manage his or her digital assets.
An ESOP may be logical vehicle for retirement, tax purposes BY JENNIFER A. BARNES
s a successful business owner, you have worked your entire life to build up your greatest asset, your business. You are now ready to retire and enjoy life more. What are your plans for your greatest asset? Do you have the next generation to take over or do you have to sell your company? There is a third option: Sell to an employee stock ownership plan. An ESOP is an employee-owner plan that provides employees of the company ownership through a retirement plan. The company sets up a trust to which it makes annual contributions. The con- Barnes tributions and assets are allocated to employee accounts. Once vested, the employee can retire and receive taxable payments over time. The trust is governed under the Employee Retirement Income Security Act and will be subject to minimum standards. Once the ESOP is set up, you sell the company stock to the plan. The ESOP will provide you a down payment and a
ESTATE PLANNING STEPS
Your will should have specific language authorizing your executor to manage digital assets. Your power of attorney should expressly allow your attorney-in-fact to access and manage your digital assets, including an affirmative statement
in the POA allowing access to the content of your electronic communications.
direction of your fiduciaries.
Your will, power of attorney and revocable trust should include provisions granting consent to your service provider to disclose the contents of electronic communications to appropriate individuals at the
Steve Hinkle is senior vice president at Key Private Bank, Family Wealth/ Wealth Services. Contact him at 216-689-0333 for questions about this article. To inquire about Key Family Wealth’s services, contact Gary Poth at 216-689-5607.
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retirement Planning note for the remainder of the value of the company. The company continues, but with the ESOP/S-Corp. structure, there is no federal tax liability on the business income of the S-Corp. The business income tax savings is used annually to pay off the note. You have received money for retirement while securing the future of your company and employees. This is a simplified example but proves the point that this is an option. The keys to success are that the company has a leadership team strong enough to carry on without the owner. Additionally, the company needs to have sufficient cash flow and low debt ratios to sustain the transaction. The first step to determining whether this is a viable option is to have a feasibility study completed and discuss the various options with your tax adviser. Jennifer A. Barnes, CPA, MT, is director of tax at Pease & Associates LLC. Please contact her at 216-348-9600 or firstname.lastname@example.org.
Create a legacy of love. Consider future patients and families of Hospice of the Western Reserve when you are creating your estate plan. Ensure that compassionate, comfort care is accessible to each generation by making a legacy gift. Contact Laura Frye, Planned Giving Officer at 216.255.9066 or visit hospicewr.org/planning. ASK FOR US BY NAME
S14 November 6, 2017
High-income earners often overlook key tax-reducing strategy retirement Planning
BY JIM LINEWEAVER
nytime you can minimize taxes on an investment of $100 million, you’re doing something right. Max Levchin, founder of enormously popular travel and entertainment review site Yelp, did just that. Before Yelp’s IPO, he placed his huge ownership stake (some 15,317,779 shares) in a Roth IRA. After the IPO, reports from sources like USA To- Lineweaver day and The Motley Fool suggested it grew by as much as $100 million to $200 million. Thanks to his Roth strategy, Max did so tax-free. Despite Max’s enormous tax savings, Roth IRAs are often overlooked by high-income earners. The reason is that investors are often concerned about
the initial costs of a Roth conversion. While you will be required to pay taxes to make that conversion, there are many advantages that can make it ultimately worthwhile. For example, you can convert a traditional IRA, 401(k), or other employer pension plan, bypassing the income requirements that might otherwise keep you from contributing to a Roth. You can then use the funds within the Roth IRA to purchase stocks, bonds or even real estate. If you had purchased $100,000 of Amazon stock— to take a strategy from Max’s book —
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at its IPO, that would be worth nearly $5.5 million today. These holdings can then grow tax-free and can be accessed for taxfree distributions as early as age 59½. You can let your Roth keep growing for as long as you’d like. You can even choose to leave your Roth IRA to a child or grandchild, allowing them to make withdrawals over their lifetime to help with college or a first house. Because of its flexibility, the Roth IRA is a powerful estate planning tool that allows you to take control of your finances and your legacy. Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Lineweaver Wealth Advisors, LLC. Lineweaver Wealth Advisors, LLC is not affiliated with Triad Advisors. This explanation is provided for information purposes only and is not to be construed as or considered to be tax advice. Jim Lineweaver, CFP®, AIF®, is president at Lineweaver Wealth Advisors and Lineweaver Financial Group. Contact him at 216-5201711 or www.lineweaver.net.
IRA charitable rollover: Enjoy a tax benefit, make a difference BY ALEXANDRA BEACH
egislation signed at the end of 2015 permanently extended the IRA charitable rollover, making this popular gift option an established way to give. If you are 70½ or older, the IRA Charitable Rollover is an exceptional opportunity for you to make a charitable gift and satisfy your annual required minimum distribution without paying taxes. To understand the advantages of an Beach IRA charitable rollover, it helps to understand IRA basics: n Since an Individual Retirement Account is a tax-deferred retirement account, contributions within stated limits are tax deductible for the designated tax year. Contributions, appreciation and earnings are not taxed until they are withdrawn. n When IRA owners reach age 70½, they are required to take yearly minimum distributions—even if they don’t want or need the income. n IRA distributions are taxed as ordinary income at a marginal tax rate as high as 39.6% in 2017. Before the IRA charitable rollover arrived, the only way to make a lifetime charitable gift using IRA assets was to make a withdrawal, pay the tax, send the proceeds to a nonprofit organization and hope that the charitable deduction would offset the income tax due on the withdrawal. With the IRA charitable rollover, it’s a one-step solution: instruct your IRA
retirement Planning custodian to transfer a specific dollar amount directly to the nonprofit.
IRA CHARITABLE ROLLOVER POINTERS
n You must be 70½ or older on the date of the distribution to participate. n You must direct the distribution to a qualified 501(c)(3) nonprofit orga- nization. Donor-advised funds, 509(a)(3) supporting organizations, charitable remainder trusts, and gift annuities are not eligible. n You may contribute one or more rollovers for an annual total of $100,000, which will count toward your minimum required distribution. n You may not take an income tax charitable deduction for the rollover. n You may not roll over funds from a 401(k), 403(b), or 457 plan. Only distributions from a traditional or Roth IRA qualify.
November 6, 2017 S15
Life insurance: A valuable gift planning option BY BRIAN M. TULLIO
n the world of charitable gift planning, gifts of life insurance offer a welcome degree of certainty and flexibility. Life insurance provides a host of benefits for both the donor and charity, including: n Substantial leverage; n An almost-certain policy benefit provided for the charity; n No erosion of the gift due to estate and/or income tax; n Ease of implementation and maintenance; and n Great flexibility in meeting donors’ philanthropic goals, regardless of their economic status.
insurance Planning All of these advantages make life insurance a desirable charitable gift-planning vehicle. As a result, advisers have used life insurance to structure gifts in a variety of ways. In different situations, some options are better than others for the donor Tullio and the charity. The easiest and simplest way to make a gift of life insurance is to
name the charity as a beneficiary of an existing policy. While no immediate income tax charitable deduction is provided, this gives donors flexibility, allowing them to retain control of the policy and its cash value. The donor can simply complete a change of beneficiary form provided by the policy carrier, which generally is found online. However, a major drawback for the charity if this option is chosen is that because the donors could change their minds and perhaps name someone else as the beneficiary at a later date, the charity has difficulty CONTINUED ON NEXT PAGE
If you’re 70½ or older, this is an excellent gift option to consider before giving cash or writing a check. Ask your tax adviser whether an IRA charitable rollover is right for you. If it is, contact your IRA custodian to request a qualified charitable distribution and be sure to let the nonprofit organization know that they should expect a distribution from your IRA. Alexandra Beach, Esq., is a senior gift planning officer at University Hospitals. Contact her at 216-844-0432 or alexandra.beach@UHhospitals.org.
Preserve Your Legacy a single-minded focus. We employ sophisticated estate planning techniques to meet individual and family goals in the disposition of an estate, while minimizing transfer and estate taxes. Contact: Kimon P. Karas, John S. Seich, or Steven P. Larson, 216.696.1422
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S16 November 6, 2017
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relying on the policy benefit. A better option for both donor and charity might be to contribute a paidup policy directly to the charity. In this case, the donor would relinquish control by transferring ownership of the policy to the charity. The donor would receive an immediate income tax charitable deduction for the lesser of either the donor’s adjusted cost basis or the policy’s replacement cost.
Finally, while more complex than these other gift options, premium-financed life insurance policies allow a donor to take full advantage of the leverage provided by life insurance for the purpose of establishing a large deferred gift.
(Because this is a non-cash charitable contribution, likely in excess of $5,000, Section B of IRS Form 8283 should be filed to validate the
charitable deduction.) Another good option would be to establish a new insurance policy and, shortly afterward, transfer ownership
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to the charity. Then, the donor would pledge cash payments to assist the charity in covering the cost of the premiums. The donor would receive
a charitable deduction for making the cash contributions to the charity. In turn, the charity would benefit from immediate control of the policy and its cash value, allowing it to rely on the policy benefit. Finally, while more complex than these other gift options, premium-financed life insurance policies allow a donor to take full advantage of the leverage provided by life insurance for the purpose of establishing a large deferred gift. For a premium-financed life insurance gift, a donor would set up an irrevocable life insurance trust (“ILIT”) to serve as the owner of a single or joint life survivorship insurance policy. The ILIT then would secure financing for a loan, normally renewed annually, covering the policy’s premium costs. To accomplish this, the trust will pledge the policy as collateral, and the donor may decide to post additional out-of-pocket collateral, as well. Premiums typically will continue for several years. When the policy benefit is distributed to the trust, the trust will use a portion of the benefit to pay the loan principal and interest, while the remaining benefit will be distributed to the charity. Although no charitable income tax deduction will be generated for the donor, the particular type of policy used for this (a modified endowment contract) will appreciate during the life of the donor. This will generate a larger benefit than is produced by a conventional policy. There are other variations of this strategy that can be used to maximize the policy benefit, reduce collateral requirements or provide for cash distributions. Therefore, although premium-financed policies can be very complex, the benefits for charities are substantial, making this an attractive option for them and for more affluent donors. All of this information is only the tip of the iceberg when devising a charitable plan with life insurance. These contributions also can be facilitated with gift annuities and charitable remainder trusts, whereby the income generated can be used to pay premiums on an insurance policy. Also, incorporating life insurance into a blended gift provides for the charity both now and in the future. With this brief glimpse into charitable planning with life insurance, you can see the many ways in which such a flexible gift vehicle can help your clients meet and achieve their philanthropic goals. Brian M. Tullio, Esq., LL.M., is assistant director of gift planning at Cleveland Clinic. Contact him at 216-442-5358 or email@example.com.
November 6, 2017 S17
Explore life settlement before jettisoning policy BY CHRISTINE MILLEN and RAYMOND NASH
on’t surrender or let a life insurance policy lapse without checking into a life settlement first. You could be leaving money on the table. Life insurance is a valuable planning tool that can help families and business owners mitigate a variety of risks. However, the planning needs of today may differ in the future. In the past, if policyholders had a change in Millen circumstance making a life insurance policy no longer needed or wanted, they had limited options. These options included either surrendering a policy
insurance Planning for its available cash value or letting a policy lapse. Today, there is an additional option policyholders should consider before letting a life insurance policy go: a life settlement. A life settlement is the sale of a life insurance policy to a qualified institutional buyer. The policy owner receives cash Nash today, or a smaller retained death benefit amount, and the investor takes over the premium obligation in exchange for future death benefit proceeds.
Questions to ponder when considering a private company valuation BY LARRY VAN KIRK
aluations are critical for public and private companies alike. Accurate, non-biased valuations can inform private company board decisions, internal transactions, executive compensation and sale and investment decisions.
Why should a private company board consider a valuation?
Boards obtain a valuation for sale or purchase of company equity, internal stock transactions and incentive compensation plans. Some boards Van Kirk include valuations during the strategic planning process when management considers a significant strategic move that may impact company value.
When should a board seek a fairness opinion or an independent valuation for a sale?
Each situation depends on the relationships of the parties and potential for controversy or contentiousness. An outside fairness opinion may not be needed with multiple bidders and high confidence in the sale process and pricing, but a fairness opinion or independent valuation is prudent if controversy is possible. For example, if there is one interested buyer and no other bidders, a fairness opinion might instill confidence in the price and offer an outside view without risk escalation.
Do internal transactions
tax Planning or executive incentive compensation require a valuation?
Valuations of internal stock transactions or stock incentive compensation programs are required to meet both tax requirements, per Section 409A of the Internal Revenue Code, and financial reporting requirements, per the Financial Accounting Standards Board’s Accounting Standards Codification, ASC 718. Board members should understand these value derivations and indications, especially for compensation or audit subcommittees.
Can the board evaluate the impact of management policies with the valuation?
Discussing the value drivers guides healthy review of many policies. For example, the board can review how buying a new piece of equipment impacts cash flow, and, ultimately, value. Is it a revenue enhancer or a value enhancer? For companies with a strong generational divide, knowing the implications of a growth-oriented philosophy versus a risk-tolerant philosophy is critical for investment or spending decisions. Larry Van Kirk is managing director of Valuation Research Corp. Contact him at 513-579-9100 or firstname.lastname@example.org.
The marketability of a policy is dependent on several factors, which are greatly influenced by the age and health of the insured. Generally, a life settlement works best for older insureds (ages 70 and older) who have experienced a decline in health since their policy was acquired. The type of policy — such as universal life or whole life — can also affect the purchase price. Typically, whole life policies are less attractive to buyers because of their limited flexibility. Universal life policies, even with no-lapse guarantee features, are generally attractive to purchasers. Universal life survivorship policies can also have value, if both insureds have experienced a change in health. The price paid for a policy represents the net present value of the policy, which is discounted from
FOR SALE the face amount. It is calculated by considering future premium expenses, health prognosis of the insured and other risk factors.
With looming tax reform, which could eliminate or substantially alter estate taxes, many more life insurance policies may become unnecessary. This could make life settlements an even more valuable option for policyholders to consider in the future. However, it’s important to keep in mind that a life settlement isn’t the right fit for everyone. That’s why it’s important to get the help of a trusted insurance adviser to navigate the secondary market. Christine Millen is vice president of operations and marketing at Heirmark. Contact her at 440-630-9400 or email@example.com. Raymond Nash is CEO and principal at Heirmark. Contact him at 440-630-9400 or firstname.lastname@example.org.
Your legacy helps create a healthier community. Leave your legacy. Remember University Hospitals in your estate plans.
Gifts to University Hospitals continue the legacy of giving from generation to generation – by enabling us to live our mission every day:
To Heal. Enhancing patient care, experience and access To Teach. Training future generations of physicians and scientists To Discover. Accelerating medical innovations and clinical research And with your support, we’ll continue to provide the same high-quality care that we have for more than 150 years. Join the many who are transforming lives forever.
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S18 November 6, 2017
Ohio’s income tax residency rules H.B. 292 attempts to clarify ambiguous situation tax Planning
BY JOSEPH F. VERCIGLIO
hio has an income tax, and the current rates range from 0.495% for annual income less than $5,250 to 4.997% for annual income greater than $210,600. Ohio’s income tax applies differently to residents and non-residents, so it is important to understand Ohio’s residency rules. Subject to credits for taxes paid in other jurisdictions, Ohio residents pay Ohio income tax on their worldwide income, such as dividends and capital gains. Ohio non-residents pay Ohio income tax only on Ohio-sourced income, such as wages earned in Ohio, Ohio gam- Verciglio bling winnings, income or gain from property in Ohio, or income or gain from a pass-through entity doing business in Ohio. An Ohio resident can, therefore, save income tax by becoming a resident of a state that has lower rates than Ohio or no income tax like Florida. The question often is: how much time can I spend in Ohio and not be considered an
Ohio resident for income tax purposes? Under Ohio law, an individual is a resident for income tax purposes if “domiciled” in Ohio. “Domicile” is not defined in Ohio’s statutes. Under Ohio common law, “domicile” generally means an individual’s residence at which the individual intends to reside indefinitely (which can be difficult to discern). Ohio Revised Code Section 5747.24 attempted to provide clarity on this issue. This Code Section provides that an individual will be irrebuttably presumed to not be domiciled in Ohio for the year if the individual: n has fewer than 213 “contact periods” with Ohio (a contact period is essentially an overnight stay in Ohio); n the individual has a residence outside Ohio; n and the individual files by April 15 of the succeeding year or such later date prescribed by the tax commissioner a form with the commissioner containing a
statement verifying that the individual was not domiciled in Ohio during the year, and such form does not contain a false statement. The requisite form is the affidavit of Non-Ohio Residency/Domicile (Ohio Form IT DA).
Many believed that this Code Section provided a “bright line” rule, such that as long as the requirements were met, the individual would be irrebuttably presumed to not be domiciled in Ohio for the year regardless of common law domicile facts to the contrary. In 2015, the Ohio Supreme Court’s holding in Cunningham v. Testa, 144
values vision impact
Ohio St.3d 40, 2015-Ohio-2744, set forth that Code Section 5747.24 does not, however, provide a bright line rule. The determination of an individual’s residency typically arises as follows: An individual files the affidavit, and the tax commissioner contends that the taxpayer was an Ohio domiciliary based, for instance, on a claim of 213 or more contact periods, or a showing by the commissioner of common law domicile facts (even when an individual has fewer than 213 contact periods) which represent a substantial basis for the commissioner rejecting the individual’s claim of non-Ohio domicile.
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Such a contention, if successful by the commissioner, would make the taxpayer’s affidavit false, which means under Code Section 5747.24 the irrebuttable presumption does not apply. When the presumption does not apply and the individual has fewer than 213 contact periods, the individual is presumed to be domiciled in Ohio. He or she but can rebut the presumption with a preponderance of evidence to the contrary. This is a standard that requires a presentation of facts that show that, more likely than not, the individual was not domiciled in Ohio. The standard increases to clear and convincing evidence to the contrary when the individual has at least 213 contact periods. Clear and convincing evidence is that which will provide in the trier of fact a firm belief or conviction to the facts sought to be established. An individual, therefore, must take certain actions and keep good records to be able to substantiate non-Ohio domicile. Some common law facts tending to show that an individual is not domiciled in Ohio are: out-of-state voting records; out-of-state driver’s license; receipt of mail at non-Ohio residence; plane tickets showing dates spent outside Ohio; credit card receipts showing date and location of use outside Ohio; titling of vehicles outside Ohio; and homestead treatment of non-Ohio residence. Ohio Administrative Code Section 5703-7-16 provides a list of factors that should not be considered in making a determination of an individual’s domicile, including the recitation of residency in an individual’s estate planning documents; and the location of the individual’s financial advisers, law and accounting firms, and health care providers. In response to Cunningham v. Testa, Ohio House Bill 292 was introduced earlier this year, which attempts to solidify Code Section 5747.24 as a true “bright line” rule and do away with any concern of a common law domicile analysis. H.B. 292 generally tracks the requirements of current Code Section 5747.24, but allows for filing the affidavit later in the year. It also adds the following requirements: the individual did not (i) with respect to the residence outside Ohio required under current law, claim a federal depreciation deduction; (ii) hold a valid Ohio driver’s license or Ohio I.D. card; (iii) claim Ohio’s homestead exemption; or (iv) receive in-state tuition based on a claim of Ohio residency. It remains to be seen whether this clarifying bill will become law. Joseph F. Verciglio is a partner at Baker & Hostetler. Contact him at 216-8617713 and firstname.lastname@example.org.
Your time is a gift Gift-planning advisers, nonprofits can make a difference together BY DIANE M. STRACHAN
ne of the greatest gifts you can give your favorite charity is time. As a gift planning professional, you can have a tremendous impact by volunteering to serve on the gift planning advisory committee of your favorite charity or nonprofit organization — somewhere your knowledge and skills are sure to make a difference. Volunteering your time to a gift planning advisory committee is a winwin for you and the organization you choose to support. Nonprofits have limited resources, regardless of size. By volunteering your expertise, your time is meaningfully spent providing insight and feedback Strachan on ways to help the organization. As a committee member, you will receive an insider’s knowledge to share with others. You may get a behind-thescenes look at the people and programs that make things happen and develop an even greater appreciation for the group’s vision and mission. As a gift planning adviser, you will be uniquely positioned to share what you learn from your clients and network of contacts. You will have first-hand knowledge of the questions clients have for the nonprofits they choose to support. Having this “insider” information will help the charity tailor its messaging, appeals and marketing, and can be shared through letters, newsletters, and emails to donors and potential donors. Your expertise will help position staff at the charity as trusted experts in gift planning. One advantage for the charity you choose to support is that you are more likely to become a donor, or increase your level of giving, once you become a member of the gift planning advisory committee. As a volunteer adviser, you can help staff learn about trends, policies and vehicles in the gift planning industry. Consider sponsoring a staff member to attend a conference on charitable planning, and follow up afterward to discuss ways in which you can work together to strengthen its program. You can encourage the nonprofit staff to seek new ways to market and educate donors about its gift planning program and the many ways the group can help donors achieve their philanthropic goals. As a member of the gift planning advisory committee, you will learn personally just how fulfilling it can be when the donor’s and charity’s philanthropic needs are met.
Fundraising is always important to the nonprofit organization, and gift planning events are an excellent
way to attract potential donors. Gift planning advisory committee members often help underwrite the cost of the
November 6, 2017 S19
charitable Planning gift planning event while enjoying a unique opportunity to market their companies to a broad audience. If you find that your favorite charity does not have a gift planning advisory committee, you should not hesitate to provide input about what it takes to start one.
If you already serve on a committee, then provide the organization with specific ideas about how you, as the professional adviser, can make the gift planning advisory committee even more effective for the charity and more meaningful to you. After all, your time is the greatest gift of all. Diane M. Strachan, CFRE, is director of philanthropy at The Cleveland Museum of Art. Contact her at 216-707-2585 or email@example.com.
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S20 November 6, 2017
Donor-advised funds satisfy a variety of planning objectives BY SAUL A. STEPHENS
ver the past decade, the growth of donor-advised funds has been increasing at a rapid rate. Their simplicity to set up, their flexibility and their tax-saving capabilities have proven to be an excellent tool in estate planning and business exit strategies. However, who should consider a DAF to accomplish their planning objectives? Those donors who: n Experience a high-income year and want to set aside assets now to fund future giving; n Want to minimize taxes when selling highly appreciated asset(s); n Question how best to support
charitable Planning several charities over a number of years through one gift; n Prefer flexibility to change their charitable beneficiaries; n Want to engage family members in charitable giving as a way to pass on family values; n Are concerned about the time and complexity in gifting appreciated assets to more than one charity or want to manage and track giving in a simple and organized way with one annual tax receipt;
n Have favorite charity(ies) that cannot accept non-cash donations; n Need time to decide which charities to support or want to be able to give anonymously to certain charities; n Plan to sell a business or other assets or anticipate inheritance; Stephens n Have fluctuating income that makes it hard to maintain a steady level of giving; and n Are concerned about the cost and complexity of a private foundation.
These funds can provide a myriad of estate and charitable solutions, but
also asking some pertinent questions will allow a potential donor to determine what DAF may be the best choice for them. Some questions to consider are: n Are you affiliated with any other organization? n What kind of contributions or investments can be made? n What kinds of grant distributions or succession are allowed? n What are the costs? Reviewing your financial planning goals with your adviser is critical for reaching your charitable inclinations, but also asking the right questions will give the insight needed to make charitable giving tax-efficient, flexible
and enjoyable as possible. Securities offered through 1st Global Capital Corp., Member FINRA, SIPC. Investment Management Solutions (“IMS”) Platform fee-based asset management accounts offered through 1st Global Advisors Inc. All other financial planning services offered through The Wealth Center at Meaden & Moore. The Wealth Center at Meaden & Moore and 1st Global Capital Corp. are unaffiliated entities. Saul A. Stephens is a financial advisor with The Wealth Center at Meaden & Moore. Contact him at 216-928-5418 or firstname.lastname@example.org.
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Essential questions to consider when deciding to give BY BETH DARMSTADTER
haritable giving by individuals in the U.S. increased nearly 4% in 2016 and accounted for more than three-fourths of all donations made, according to Giving USA’s annual report on philanthropy. Individuals — not corporations or foundations — gave an estimated $282 billion in 2016. Americans have no problem giving. The challenge for many, however, is deciding when, where and how to give. Answering those Darmstadter questions begins with listening to and finding out not only what is important to donors but also what is going on in their lives. Based on these factors — a medical issue or a pending move, for example — a donor may not be able to make a significant gift today. Waiting, or deciding instead to make a planned gift, such
charitable Planning as naming an organization as a beneficiary of a life insurance or retirement plan, for instance, might be more appropriate. It’s not always easy finding the right fit when it comes to choosing how to share a portion of one’s hard-earned money. A good starting point in helping people direct their donation is to find answers to some key questions. Does the organization: n Have a mission that reflects the individual or family’s personal passion and/or charitable interests? n Have a track record of operating in the black? n Provide updates to the community on the impact of its philanthropic dollars? n Spend no more than 30% of the money it raises on administrative costs?
n Use donations to support needs that are essential to the well-being of the community?
Donors may be too overwhelmed to think about where to focus their philanthropic dollars, especially if the organization is large and complex. They may wrongly assume that their modest donation isn’t worthy. Breaking down needs into “sizable” projects that match the donors’ interests will help them understand that their gift can still make a difference in even the largest organizations or fundraising campaigns. This is the time when an individual can benefit from a conversation that focuses on specific areas that might interest them, areas where their gift — regardless of size — will have an impact. Beth Darmstadter is director of individual giving for MetroHealth’s department of Foundation and System Philanthropy. Contact her at 216-778-1630 or email@example.com.
Planned gifts to ensure the future BY MARY GRACE HERRINGTON
haritable giving is an important aspect of estate planning. As you consider the myriad of methods for preparing your assets, planned giving is a fantastic way to leave a gift that will allow an organization to continue its good work after your lifetime or set up Herrington a way to benefit an organization during your lifetime. Planned gifts also offer
charitable Planning financial benefits that may not be available with other types of gifts. For those who wish they could support causes and organizations they believe in but aren’t financially able to make major contributions right now, planned gifts are a great way to extend your assets into the future. Here are just three ways you can make a significant difference for a charitable organization
November 6, 2017 S21
THE GIFT OF REAL ESTATE
without opening your wallet.
A LEGACY CONTRIBUTION
In order to ensure organizations you believe in continue their missions way into the future after your lifetime, you can leave a portion of your estate to them in your will. With the advice of a financial or legal adviser, this can be as simple as including a sentence such as: “I give [sum, percentage or description of property] to [charitable organization] to be used for its general tax-exempt purposes, but without other restriction as to use.”
There are several ways to give property to an organization, but they all have the same benefits. Not only do you alleviate the stress of you or loved ones having to sell your real estate down the line, but appreciated property you own for more than one year is subject to a charitable income tax deduction.
A FUTURE ASSURANCE
One of the easiest and most flexible ways to leave a gift is through a beneficiary designation. You can leave any percentage of your IRA or retire-
Private family foundations help build a legacy BY DIANE TOMER
hether planning for your family’s long-term economic security, or to educate future generations about charitable giving, establishing a private family foundation may be an approach to consider. Family foundations are a
charitable Planning practical way to educate and involve family members in life-long giving. They also reduce your income tax, and over time, the revenue investment
may surpass the initial funding. “Family foundation” typically implies the active involvement of donors or members of the Tomer donors’ family in the foundation. While more time consum-
ing, more costly to maintain and more complex to administer compared to other charitable giving techniques, a private foundation can provide families with a lasting legacy in their family name and be the engines toward positive change. A private family foundation is a distinct and separate legal entity that
ment plan, your life insurance policy or your commercial annuities to a charity. It’s as simple as filling out a change-of-beneficiary form with the overseeing entity. No matter what your financial situation is now, there is always a way to give back to your community later through planned giving. A few small actions now can make a lasting difference for your favorite nonprofit organizations and the people they serve. Mary Grace Herrington is chief development officer at WVIZ/PBS, 90.3 WCPN and WCLV 104.9 ideastream. Contact her at 216-916-6270 or firstname.lastname@example.org.
may be funded with an initial gift of $250,000. A good time to consider this option may be when you have sold a business, received an inheritance, or won the lottery. It is an interesting option for long-term charitable gifting goals and teaching future generations the power of philanthropy. Diane Tomer is director of development and marketing at Recovery Resources. Contact her at email@example.com.
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S22 November 6, 2017
Many ways to share the benefits of charitable giving BY JULIE A. WEAGRAFF
e all know that charitable giving can benefit our community and help make the world a better place. But giving back has other benefits as well. The opportunity to give back through philanthropy can enrich your life in many ways. There have even been research studies that indicate giving back can make you happier. Today, there are more ways than ever
charitable Planning to give. Thanks to technology, you can give whenever and wherever you want. It’s easier than ever to share your giving experience with others through social media. You can be a donor and a champion for organizations by sharing your support within your network of contacts. You can reach far more
people than you ever dreamed possible — just think about the rippling effect of the ice bucket challenge. If giving makes you happy, then giving more should make you even happier, right? Monthly giving, Facebook giving, Go- Weagraff FundMe, walks, runs, galas, benefits, auctions, are just a few of the opportunities that are available to support your
The power and simplicity of endowed giving BY DANIELLE M. LOCKE
magine creating a permanent legacy that will keep on giving to your favorite cause or charity — forever. Now, imagine that you can make a gift during your lifetime that would allow you and your family to witness the change in the community you helped make. This is the power of endowment funds. And it’s within reach for everyone.
charitable Planning To get started, donors simply make a permanent, tax-deductible donation to a community foundation or charity. The amount varies, but at the Community Foundation of Lorain County it can be as little as $10,000 deposited over
a five-year period. The principal is invested wisely, and the income is used to provide ongoing, sustainable funding for causes or organizations. Because only a percentage of the investment earnings are distributed as grants or scholarships, an endowment allows you to give more over time, far more than a one-time gift would be worth. An endowment with a community foundation can be personalized to ful-
favorite causes. When it comes to giving back, don’t stop there. In addition to your financial support, consider serving on a committee or a board of a nonprofit organization. The time you invest will reap even greater dividends. You will get to know your fellow volunteers and feel a camaraderie in supporting a cause that is near and dear to your heart. By giving your time and your resources you will develop a greater appreciation and richer understanding for the mission of the organization
you support. You will become aware of the challenges that nonprofits face and will become more invested in your community. As you do, think about your legacy and experience the happiness of knowing that your giving will have a positive impact on future generations.
fill any charitable goal or passion. You can create a fund in your name or your family’s name, in memory or honor of a loved one, and to benefit a specific cause or charity. The endowment fund can be established now or at the time of passing. All funds held at the Com- Locke munity Foundation of Lorain County are public, which means anyone can donate to the fund at any time. By starting
your endowment before death, you can encourage friends and family to support the growth of your fund. An endowment is unlike any other gift because it has permanence. Your gift will continue to grow, make grants annually in your name and have lasting impact on your community forever.
Julie A. Weagraff, MNO, CFRE, is director of fund development at Girl Scouts of North East Ohio. Contact her at 330-983-0399 or firstname.lastname@example.org.
Danielle M. Locke, CAP®, MPA, is a gift planning officer at Community Foundation of Lorain County. Contact her at 440-984-7390 or email@example.com.
The art of giving. Give the gift that supports CMA while providing additional income to you and your family. Benefits of your Charitable Gift Annuity include:
• Rates of return up to 9%, plus a guaranteed income stream for life • A significant charitable deduction, and minimized capital gains tax if using appreciated securities • A lasting legacy for you and your family For more information about charitable giving, contact Diane M. Strachan, CFRE at 216-707-2585 or firstname.lastname@example.org
November 6, 2017 S23
Do well and do good with charitable gift annuities BY MATTHEW A. KALIFF
n a low interest-rate environment, a charitable gift annuity offers an attractive solution for an individual or couple seeking steady income, an attractive return and low risk. A CGA gives the added satisfaction of doing well by doing good. With a CGA, a charitable organization promises to pay a fixed annual income for life in exchange for an irrevocable contribution of cash or marketable securities, such as publicly traded stock. The annual income payments go to the donor or a designated beneficiary. The amount of the income payments depends in part on the age of the beneficiary at the time of the contribution: the older the beneficiary, the greater the annual payment. Deferring the start of receipt of payments also increases their amount. The charity keeps any funds that remain unpaid from the CGA at the death of the last beneficiary. A CGA has several financial benefits. First, it provides immediate and guaranteed income. Because the CGA is sponsored by a charity, the donor may receive a charitable income tax deduction. Also, a portion of the annual income payments are tax-free.
charitable Planning There may also be savings on capital gains if the donor uses appreciated securities for the CGA. Here is an example of how a CGA can simultaneously increase cash flow and support a charity: Janet, age 76, loyally gives to a local food bank. Janet owns 200 shares of a publicly traded stock that she bought years ago for $10,000. The shares are currently worth $20,000 and pay Janet an annual dividend of $500. Janet is retired and she would like to increase her cash flow. Janet Kaliff decides to contribute the stock shares to the food bank to fund a 6% CGA. The food bank will pay Janet $1,200 annually for life, which is $700 more than the annual dividends she earned from the stock shares. Moreover, $465 of each annuity payment will be taxfree for 16 years. The balance of each payment will be allocated among ordinary income and capital gain. Assuming a 15% tax rate, Janet can claim a current tax deduction of $9,384.
She also avoids tax on a portion of the $10,000 capital gain. Per Janet’s request, the food bank will use any remaining CGA funds for an endowment in Janet’s honor after her death. Janet achieved her twin goals of greater cash flow and supporting her favorite charity. She even created a permanent philanthropic legacy. When considering a CGA, be sure that the sponsoring charity has the resources to guarantee uninterrupted annuity payments. Compare CGA rates among different charities. Most follow the standard rates set by the American Council on Gift Annuities. The sponsoring charity should provide a complete, personalized illustration of how the CGA will work based on your circumstances. As with any important financial decision, consult with your legal or financial adviser. The illustration used above is for educational purposes and is not professional tax or legal advice. Consult a tax, financial, or legal adviser about your specific situation. Matthew A. Kaliff is assistant managing director of Endowment Development at the Jewish Federation of Cleveland. Contact him at 216-593-2831 or email@example.com.
IRA bequests are an effective charitable giving tool BY ANN E. SALEK
state planning is typically a time for introspection. What have I built during my life, both personally and financially? What type of legacy do I want to leave? As such, planning your estate is the ideal time to consider your philanthropic goals. Once you establish your goals, you can then work with a planner to determine the most appropriate ways to accomplish your goals. By planning carefully, your gift can show gratitude, ensure a loved one’s name lives on or even support future capital needs. Because of the generous planning of legacy giving donors, Hospice of the Western Reserve has become a stronger and more effective Salek agency. Many of these gifts were bequests, but more recently qualified plan assets —such as IRAs — have become popular vehicles for planned giving. Many people accumulate a large percentage of their wealth through IRAs. Since the amount accumulated in an IRA has never been subject to income tax, individuals must carefully consider the income-tax consequences. A charity is an ideal beneficiary because a charity does not pay income tax, so it
charitable Planning will receive the entire bequest amount. In contrast, if an individual is the beneficiary, the individual will include any distribution from the IRA in their adjusted gross income. When leaving IRA money to a charity, it is best to designate the charity directly on the beneficiary designation form. The IRA is useful for lifetime charitable donations as well. In 2016, Congress made permanent the law that allows an individual to donate their required minimum distributions to a charity. The IRA owner can satisfy their RMD requirement, and the distribution will not increase their adjusted gross income. Careful consideration and planning must take place so that the distribution goes directly from the IRA fund to the charity. The individual should contact their IRA administrator, as well as the charity, to coordinate the donation. Ann E. Salek is a member of the Planned Giving Advisory Council for Hospice of the Western Reserve and is an estate planning attorney with the firm of Critchfield, Critchfield & Johnson in Medina. Contact her at 330-723-6404 or firstname.lastname@example.org.
TOGETHER, WE CAN HELP YOU LEAVE YOUR MARK ON CLEVELAND. The MetroHealth Foundation, Inc. is a 501(c)(3) charitable organization. Founded in 1954, it supports The MetroHealth System’s mission of leading the way to a healthier you and a healthier community through service, teaching, discovery and teamwork. To learn more, contact Beth Darmstadter, director of individual giving, at 216-778-1630 or email@example.com.
CHANGE IS HEALTHY The MetroHealth Foundation • 2500 MetroHealth Drive, Towers 135A, Cleveland, OH 44109
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