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CGNA: Preface and Users' Guide, Part 2
This article is an excerpt from Charitable Gifts of Noncash Assets, a comprehensive guide to illiquid giving by Bryan Clontz, ed. Ryan Raffin. Published by the American College of Financial Services for the Chartered Advisor in Philanthropy Program (CAP), with generous funding from Leon L. Levy. For a free digital copy, click here, and to order a bound copy from Amazon, click here.
How to Use This Book to Capitalize on this Historic Opportunity
Now, you, as a frontline advisor or gift planner, have a reference tool you can use to determine whether or not you have a good prospect for a gift asset. These resources should be valuable whatever assets the client has, no matter how complex or unusual. The book is designed to support a three step process.
First, with the particular asset in mind, you will turn to “the quick take-aways,” written about that asset by Bryan Clontz, MS, MSFS, CLU®, CFP®, ChFC®, AEP, RICP®, CAP®. Bryan has worked on dozens, if not hundreds, of cases involving that asset.
Second, if the gift seems promising, you can read the “intermediate review,” by Ryan Raffin, JD, writing in plain English, with you as either a front line advisor, or a gift planner in mind. The “review” will not make you an expert, but it will give you what you need to know to consult with the experts, such as the client’s attorney or CPA.
Third, you will find the advanced, “advisor level” essay on that asset. Bryan Clontz, Ryan Raffin, and noted tax expert, Laura Peebles, CPA carefully chose these advanced essays. Their respective authors have updated the essays as of September 2016. These advanced treatises are designed for you, the front line advisor or nonprofit gift planner, to share with the client or donor’s own tax and legal advisors. Your sharing the article will save them time, and will save the client money. The article will position you as key resource on the client’s planning team.
As you consider reaching out to the experts, also consider getting in touch with an intermediary or two. Today, some charities do, and many charities do not, accept gifts of noncash assets. They either will not accept them, or they may, but the process takes too long, and the deal falls through. Instead, advisors and nonprofits often detour the gift of the noncash asset through an intermediary, such as a national gift fund, religious foundation, or Bryan’s own organization, Charitable Solutions, LLC. These organizations can work with you and with client advisors to accept the noncash asset, place it in a donor-advised fund, sell it, and then transfer the cash, at the donor’s suggestion, to the nonprofit the donor loves.
Finally, if you as a nonprofit gift planner do work for an organization that can and will accept gifts of noncash assets, by all means, keep this reference tool at your fingertips. It can guide you, your in-house experts, your gift acceptance committee, and your business office, in garnering these potentially transformational gifts.
Developing a Pipeline of Noncash Asset Gifts
Accepting gifts of noncash assets assumes you have a pipeline of such gifts, and, sadly, most nonprofits today do not. Generally, as Bryan Clontz would agree, and as his case studies in this book suggest, these assets come from closely held business owners in transition as they exit their business. If you are a nonprofit gift planner, you more than likely have, in your own backyard, many such “millionaires next door,” or “diamonds in the rough.”To help them make a transformational gift is inherently a team effort. They need expert technical planning to build up the value of the firm prior to sale, to find a buyer, calculate how much they need post-exit to sustain their lifestyle, how much they wish heirs to ultimately receive, how to reduce taxes in favor of charity and children, when to give, and how best to give, with what asset to give, and through what tool or strategy. As complex as all that is, no gift will be consummated unless the nonprofit gift planner has stoked charitable passion, and built a vision for charitable impact in line with the donor’s newfound charitable capacity.
A Case In Point: JD and Mary Riley
The courses I teach in the Chartered Advisor in Philanthropy program (CAP®) land on a Capstone Case, “The Riley Case.”That case clearly demonstrates that without cross-disciplinary collaboration, for “gifts of noncash assets,” we are vastly under-serving our business-owning clients and donors.
JD and Mary, age 70, with three grown children, and seven grandchildren, own two S corporations, worth about $18 million, including the underlying real estate. Their total net worth is just shy of $22 million, with other major assets including a home, vacation home, and a ranch leased to JD’s brothers. They have an IRA, and a small investment portfolio. What they do not have is cash. They live on $20,000 a month after tax. They give today about $30,000 a year, with $10,000 being their biggest gift, and several charities getting $5,000 each. They say they would like to leave their estate 75 percent to heirs, 25 percent to charity, and zero percent to estate taxes. They are also concerned about taxes on the sale of the business, which they plan to exit in 1–3 years. Dave Holaday, ChFC®, CAP®, a nationally known financial planner, was asked to compute the Riley’s philanthropic capacity, assuming they made tax-smart decisions, as they sold the business. Using a donor-advised fund or supporting organization for $5 million of the business, and a charitable lead trust at death, Dave computed that the Rileys could go from giving $30,000 a year to giving $450,000 a year until life expectancy, and a like amount for another 18 years after their death. All that without shortchanging any of their other goals.
Now here is the kicker: in surveys of top advisors, in presentations to estate planning societies, financial planning associations, and associations of philanthropic planners, over 75 percent of the advisors say that the plan is perfect with only one defect: The Rileys will not sign it. They will not sign, say these top advisors, because the plan is so complex, but more importantly because the family simply does not have enough charitable passion or purpose to justify $450,000 a year in giving. The fifteen-fold increase in giving would leave them speechless.
So why don’t their charities build that vision? Reasons given include these: The Rileys today are just small-time givers, so why bother with them? The case will take too long to come together. Advisors may kill the deal. The funds may detour through a donor-advised fund before coming to the charity. The fundraiser has quotas, and the metrics often preclude investing time in people like the Rileys.
Yet, here we have a family who can give more than $10 million over time, starting soon, if and only if we collaborate across our sectors to do what is right. That is why the Chartered Advisor in Philanthropy (CAP®) program was created, and why this book was commissioned.
Chartered Advisor in Philanthropy
The Chartered Advisor in Philanthropy designation is a three course, Masters level curriculum, designed to bring professional advisors and nonprofit gift planners together to better serve their shared clients and donors. Many of these ideal CAP® clients and donors are successful business owners, transitioning to philanthropy as they exit their business. Study Groups for CAP® are springing up around the country, as advisors and nonprofit people meet to learn together, and then perform together. The potential for philanthropy and for our communities is staggering. Our business owning families will do more, and be more fulfilled, and our communities will do so much better, if we collaborate. If you are interested in learning more about CAP® and CAP® Study Groups, please go here, or call Elaine Gulezian at 610-526-1479. Together, we can take advantage of the historic opportunity in our own backyards.