education: past conferences

NOTES OF ADVISORS IN PHILANTHROPY CONFERENCE
April 27-29, 2006
Rosemont, IL

Thursday, April 27, 2006

Bob Veres
The Next Society

Our society and our culture is changing dramatically. We are moving from consumerism to fulfillment as a driver of our society, causing people to do certain things. The Internet is largely responsible for this change. It has become a major medium for communication. But it has not become a very effective advertising medium. (Pop-Up blockers, etc.) It has sped up the pace at which information is delivered, but has not provided any fulfillment for individuals. It has allowed corporations to outsource routine services at a much lower cost.

For Financial Planners, this change in society can be best met through a four-step process that Bob has called "life planning".

1. Discover
Example: George Kinder's 3 questions:
1. If you were told that you were only going to live for 2 more years, what would you do differently?
2. If you were told that you only had 24 more hours to live, what would be your biggest regret?
3. If you had all the money in the world, what would you do differently?

Another example: Bob's 30 Goals exercise. Write down 30 Goals for your life. You'll find there are things about yourself you have not yet uncovered.

2. Dream
Imagine a vision for the future.

3. Design
Planners know how to help people reach their goals through a methodical design process.

4. Deliver
The most important skill the planner can offer is that of "nagging". You take the client's goals, dreams and desires and give them back to them in a form where they can see their progress.

Bob predicts that in 8 more years, the Wire Houses will no longer be serving the retail investor market. It will be dominated by independent financial advisors who are dedicated to doing life planning.

Jim Smyth, Esq.
Pat Crotty, Esq.
Asset Protection: Onshore Same as Offshore

We all have an ethical obligation to help protect our clients' assets to make sure they can meet their life goals. Asset protection planning is designed to protect the clients' assets in much the same way that a corporation shields its shareholders from unforeseen events that could destroy their wealth.

Four core strategies that are commonly used for basic asset protection are:
♥  RLT
♥  ILIT
♥  CRT
♥  FLP

Good asset protection protects against both upward and downward liabilities.

There are more aggressive Asset Protection techniques including:
♥  Offshore Trusts
♥  Alaska Trusts
♥  Delaware Trusts

The Fraudulent Conveyance Act applies to both Domestic and International Asset Protection Trusts. Therefore, no asset protection technique is going to be effective if the intent of the technique was to defraud creditors.

ERISA Retirement Plans do provide asset protection, which came out of the 2005 Bankruptcy Act. Retirement Plans can own C-Corp stock and LLCs/LLPs, which in turn can own operating businesses.

Whether Offshore or Onshore asset protection structures are used, proper reporting and administrative compliance are critical to keep them in force and to keep the asset protection in place. An Offshore Trust that does not file proper reports can get the trustmaker into trouble. It's often the maintenance function that gets them in trouble, not the fact that it was offshore.

Charitable structures can also serve as an asset protection technique. Those could include Charitable Limited Partnerships, which are also used to create income tax deductions and reduce estate taxes.

Also, ERISA plans and Roth IRAs can be structured to provide asset protection for certain real estate and certain business assets in a Self-Directed environment.

SUMMARY
1. Offshore Trusts and Onshore Trusts are equally usable for asset protection, but Offshore Trusts have greater reporting requirements.
2. Insurance and annuities still have tax benefits when used in conjunction with asset protection trusts.
3. Retirement plans are very powerful in asset protection planning.

Friday, April 28, 2006

Presentation of 2006 AIP Leadership Award to Scott Fithian

Paul Schervish accepted the first AIP Leadership Award on behalf of Scott Fithian who unable to attend due to illness.

Dr. Paul Schervish
Boston College
Financial Advisement as a Biographical Event

In 1930, John Maynard Keynes wrote "The Economic Possibilities for our Grandchildren". From this writing, Dr. Schervish believes that we are now living in the time that Keynes wrote about where we have more wealth than we need for our own purposes and as a result have the capacity to give to others. We now live in an age where our character meets financial capacity to create our Moral Biography or moral compass.

The "new physics of philanthropy" uncovers the vectors that are now in play to cause people to want to give more to charity. Parents are now encouraging their children to develop their own moral biography and chart their own path of charitable giving.

Two models of charitable giving motivation:
1. The Scolding Model - giving out of a sense of guilt and obligation.
2. The Inclination Model - giving out of our desire to care for others.

The Money, the Meaning and the Motives -
The top five percent of income earners donate 50% of all charitable gifts. Based on Federal Estate Tax records, the larger estates have larger charitable bequests as a percentage of the estate value, rather than less as most people would think.

Advisors are going to be more crucial in helping people figure out both their Financial Capacity as well as their Moral Compass to see where the two intersect. This is done best through the Inclination Model, not through the Scolding Model. Advisors need to help them make wise choices where their Moral Compass intersects with their Financial Capacity.

David Holaday
Anatomy of Sophisticated Case Design

Dave went through several case studies showing how he approached some very sophisticated planning cases.

He did caution us that when using a T-CLAT to benefit grandchildren it can create Generation Skipping Tax at the eventual termination of the T-CLAT. You can avoid this problem by using a T-CLUT instead, but you cannot zero out a T-CLUT like you can a T-CLAT.

Jarrett Bostwick
Tax Updates and How We Move Forward

His firm is taking more of a proactive stance in using charitable tools for income tax planning, not just estate planning, and to help people over age 70 plan for exiting their IRAs. He is also seeing more charitable planning done as part of closely held business exit strategies.

Three new classes of philanthropists:
Venture philanthropists - partners with charities, capital raising for projects, commitments of time, $$$, and resources.
Philanthrocapitalists - changing the way charities do business, strategic alliances, networks.
Social Entrepreneurs - corporate run organizations which are be design intended to use business strategies to achieve charitable ends. Themes of Social Entrepreneurs = children's rights, anti-corruption, public health, micro-finance, etc.

Jarrett stated that "structured products", i.e., Alternative Investments, are becoming more commonplace in philanthropy planning by both individuals and charities. Charities need to be cautious about their procedures for evaluating and choosing Alternative Investments. They need to be aware of the high fees in hedge funds, as well as the potential UBTI issues found in most Hedge Funds.

With rising interest rates, CRTs are on the rise, older clients are looking at CRATs again for fixed income cash flow, CLATs are becoming less popular but still being used in the right circumstance.

Litigation is up for charities. Donors are suing charities for breach of fiduciary duties, i.e., Robertson Case at Princeton University. A $650,000,000 endowment is currently at stake where the heirs are suing Princeton over breach of fiduciary duties. Conflicts of interest issues are beginning to be litigated as it pertains to how investment committees operate, i.e., who sits on the board versus where is the endowment being managed and by whom? Under Sarbanes Oxley charities need both a Document Retention Policy and a Whistle-Blower policy. Many do not have even these basic policies, which makes them an easy target for anyone who wants to cause trouble.

The IRS is pulling all Estate Tax returns filed with FLPs on them. That does mean that we should no longer use FLPs for planning, but it does reinforce the fact that any FLP structure needs to be administered properly and accurately so they will not crumble under IRS audit.

"Principal Protected Notes" are beginning to appear as investments for charities. They are designed to "track" the upside of the S&P, but are guaranteed to receive a rolling 3 month CD rate on the downside.

Senator Grassley is still trying to reform Donor Advised Funds, particularly as it pertains to requiring them to distribute 5% per year over a rolling five year period.

In spite of all these things, philanthropic planning is still the greatest tax subsidy out there. It is still the best way to facilitate wealth transfer planning in a legitimate way.

Paul Shoemaker
Working With Clients to Help Them Succeed in Their REAL Career.

Social Venture Partners is a place where members of a community can go to pool their money and their time to impact their local communities. People that join an SVP Chapter ultimately increase their charitable giving annually. They become more strategic in their giving. They also increase their civic involvement.

He gave examples of several SVP members who transitioned their life into something more purposeful after seeing how much they could impact their communities through philanthropy and SVP.

Paul believes that we, as philanthropic planners, are key to helping people find more fulfillment in their life.

There is an association of SVP chapters (Social Venture Partners Int'l.) whose web site is at www.svpi.org.

Gerald Treacy
The Uses of Life Insurance in Corporate Philanthropy: An Overview Opportunities

Business Asset Sale Trust -
A business that is selling an appreciated asset can use a 20 year CRT to sell it through, thus avoiding the 35% income tax on the asset sale at the corporate level. The remainder can go to a Business Foundation at the end of the 20 year term. The business can "make up" for the loss of the asset by buying life insurance on the key executives. This works in a C-Corp as well as an S-Corp or an LLC.

Merger and Acquisition Trust -
A business that is being acquired can be sold to the buyer through a 20 year CRT, whether it is an asset sale or a stock sale. But there may be rules against the selling corporation being liquidated

Business Executive Compensation Trust - This concept is a special use of the Business Asset Sale Trust. The business transfers assets to a term of years CRT. The business then uses the CRT income stream to compensate the executive as in a deferred comp agreement. The corporation gets a triple tax benefit: 1. Avoids tax on appreciation of asset sold. 2. Corporation gets charitable deduction for setting up CRT. 3. The corporation gets to deduct the deferred comp payments that are paid out to the executive.

Business Charitable Equity Options to Plan for Spiked-Income Years -
Business issues stock options to a charity that entitles the holder to purchase a share of company stock which, when they vest, can be turned in by the charity in exchange for actual shares of the corporation and immediately redeemed after the options vest. The corporation does not take a tax deduction until it redeems the shares presented by the charity. This allows the business to plan in advance for a future high-income year when it may need a large charitable deduction to offset some of it's tax that year, and getting some good will and publicity ahead of time.