using a Community Foundation

Allyson Baumeister, C.P.A.John Hunter, J.D., C.P.A.

Nancy E. Jones

October 4, 2011

Charitable Planning ...

Community Foundation of North Texas

Top 10%Established in 1981Assets: $145,000,000Total grants 2010: $ 8 millionTotal grants

since 1981: $130 million

CFNTx Assets 1985-2010

19851988199119941997200020032006200920102011 $-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

$160,000,000

2010 CFNTx Grant Dollars

Animal<1% Arts/Culture

5%Civic12%

Education21%

Envi-ron-

mental<1%

Human Services31%

Religion30%

Sports/Leisure1%

When should you be thinking about using a Community Foundation ?

Trigger points Client is selling a business

Wants to establish a private foundation with less than $5 – 10 million.

Closely held shares or highly appreciated non cash assets

Client is transferring wealth to generations

Client is making charitable gifts in a will

DeductibilityGifts of cash are deductible up to 50% of

AGI (30% AGI in

PF )

Gifts of appreciated property are deductible up to 30% of AGI. (20% in PF)

Gifts of closely held stock are deductible up to 30% of AGI (limited to COST basis in PF)

Additional considerationsNO 5% minimum spend rate from a CF fund NO excise tax on investments in a CF

NO separate audit

NO mandatory Form 990-PF filing

Self-dealing issues minimized

Comparison

AdvantagesEase, little paperworkNo 990, no separate

auditAnonymity or

recognitionChoices of

InvestmentsFamily InvolvementMaximum Tax

DeductibilityLocal knowledgeNo minimum 5%

payoutSelf dealing not an

issue

DisadvantagesNo ultimate control Investment choicesSome Grants not

possible(tables, scholarships, grants to individuals)

Donor does not have prestige of own Foundation

Designated Fund

Client can assist a charity without giving the charity ultimate control of gift

Can set up “If, then” constructs

CF as 3rd party ensures compliance with restrictions

 

Bequests

Often easier to use the foundation to make all the charitable distributions for an estate;

Use a side letter to provide detailed instructions and conditions (Client’s will cites the Fund)

Private Foundation TransferPrivate foundation administration may

become burdensome or costly

Transfer assets to a donor advised fund at the Community Foundation and terminate private foundation status.

Foundation’s name carries over to the donor advised fund

Procedures for Converting a Private Foundation

Execute a donor advised fund agreement to name fund and advisor(s)

Pay any investment excise taxes owed prior to dissolution

The private foundation files a Form 990-PF for the termination year.

John D. Hunter, J.D., C.P.A. The Blum Firm, P.C.

Vice-Chair, Professional Advisor Outreach Committee for the CFNT

Benefits of Using Community Foundation of North Texas

Local Leadership and administration are just down

the street

KnowledgeableNancy Jones understands!Uses sophisticated counsel

Client-Friendly2-3 page agreements (not 14!)Wants to sit down with and get to know clientClients have all had positive feedback

Benefits of Using Community Foundation of North Texas

(continued)

Consistency

FlexibilityCan use own investment manager if assets

large enoughWill base investment decisions on timing of

expected distributions

McCord Transfer: Sale of SharesClient sells X shares to the Dynasty Trust in exchange for a Promissory Note

$Y Million = FMV of X shares less charitable gift amount

(C) as determined by appraisal

Promissory Note for $Y Million

Stock with FMV = $Y MillionClient

Community Foundation of North Texas

Estimated $C

Dynasty Trust

No Net Gift

Amount Above $Y Million

McCord Transfer: Valuation Agreement

Community Foundation of North Texas

Dynasty Trust Valuation Agreement

McCord Transfer Technique(to Donor Advised Fund

with Valuation Agreement)

Provides third party confirmation of value

Transfers wealth to the next generation

Establishes a donor advised fund

There is some 4958 risk if the value is too low

Estate/Gift Tax auditors are not tax-exempt auditors

McCord Transfer Technique(to Donor Advised Fund

without Valuation Agreement)

Provides third party confirmation of value

Transfers wealth to the next generation

Establishes a donor advised fund

Avoids Gift Tax

Risk that more goes to charity because of audit

McCord Transfer Technique(to CFNT Designated Fund or CFNT Field of Interest Fund)

Same facts but establishes designated fund or field of interest fund

Provides valuation certainty

Tested in Fifth Circuit

Allyson B. Baumeister, CPA, Partner

Sanford, Baumeister & Frazier, PLLC

Chair, Professional Advisor Outreach Committee for the CFNT

The Community Foundation as a Partner in a Business Sale

Sale ScenarioBusiness owner is selling stock in closely-held

company

Owner wants to make a charitable gift of company stock prior to the sale

Owner wants to maximize the charitable contribution to the organization as well as his contribution deduction for tax purposes

The Community Foundation as a Partner in a Business Sale (Cont.)Steps for Owner to take for tax deduction

purposesMust obtain appraisal of company stock prior

to sale by qualified appraiserMust make charitable gift prior to saleMust work with Community Foundation in

accomplishing the above stepsCommunity Foundation sells the stock that

they have received for full fair market value as of date of sale

Gift can be spread out over period of time as sales proceeds are received

The Community Foundation as a Partner in a Business Sale (Cont.)Results of charitable transfer prior to sale

Owner receives a tax deduction for the full fair market value of the stock as of the date of contribution

Owner does not recognize gain on sale of the stock that is transferred to the Community Foundation

Foundation receives full sales proceeds related to the stock that they have received at the time of sale and at the time of any future payments associated with the sale

The Community Foundation as a Partner in a Business Sale (Cont.)Results of charitable transfer prior to sale

Community Foundation receives a larger contribution since no tax is paid on the gain resulting from the sales transaction

Owner is able to accomplish charitable goal and withstand IRS scrutiny as long as the Community Foundation receives proceeds equal to or greater than the amount of the appraised value and charitable deduction claimed.

Questions and Comments