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Planting the seeds for a prosperous and purposeful legacy 3 | The nuts and bolts of basic estate planning 14 | Ways business owners can leverage life insurance 16 | Planning opportunities for women 22 | Donor stewardship requires authentic gratitude

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president ’s letter

Estate Planning Council offers breadth of expertise to guide you on a path toward financial security By PETER BALUNEK

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 advisors. Estate planning is an Balunek 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. Life can change at any time, and we must prepare ourselves and our families for that possibility. The 2019 exemption from gift, estate and generation-skipping transfer taxes is now $11.4 million, and interest rates are low. There is no better time than now to

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Providing Practical and Efficient Solutions to Achieve Your Family and Business Objectives

implement estate planning strategies to take advantage of these favorable laws and conditions. 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. Whether you have a plan in place or need to create one, it makes good financial sense to meet with your trusted advisors prior to year-end to find out what you can be doing to take advantage of new and existing planning opportunities. 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. Plenty of such experienced professionals comprise 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. 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, insurance agents, appraisers and representatives from charitable organizations. 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 advisors to plan a sound financial future. peter Balunek, CFp, CLU, ChFC, is a life insurance professional at Falls Advisory Group. Contact him at 440-247-5858 or peter@ fallsadvisorygroup.com

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november 4, 2019

The nuts and bolts of basic estate planning By MARGARET M. METZINGER

know, I know, you’ve been meaning to get to it. Now is the time to start thinking about your family’s needs in the event you suffer catastrophic injury, terminal illness, or even death. These are not easy subjects to contemplate, but without even the most basic estate plan in place, your family could experience unnecessary financial burdens and time-consuming stress at a time already wrought with emotional turmoil, sadness and potential family disputes. By planning ahead, you can make decisions now so your family won’t have to in the future. The type of estate planning documents you need is driven by a number of factors, including marital status; the size of your family, and any family members with special needs; household income; the extent of your assets; life insurance, disability insurance or long-term care insurance; your standard of living; general health considerations; potential inheritances from others; and how long you plan on working before retirement. There is no one-size-fits-all estate plan — each is tailored to the specific needs

of the client based on these factors and others, the existence of which come to light during your first meeting with your estate planner. It is important to provide your attorney with as much information as possible. A well thought out estate plan will provide a solid foundation that can grow with you and can be modified to meet your changing needs. The following discussion outlines some of the estate planning tools available to you when you start thinking about your estate plan. Metzinger First, you need a will, frequently referred to as a last will and testament. This document allows you to identify the beneficiaries of your estate and designate what each beneficiary will receive upon your death. You have many options available to you in making these designations. For instance, you can make specific bequests (gifts) of real property, cash, stock, jewelry, cars, artwork, or other items of personal property to one or more individuals or charities. You can also divide your assets equally among a group of beneficiaries or identify specific amounts

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planning or percentages of your net estate (what remains after taxes, expenses and costs) to pass onto your beneficiaries. Your will can be modified or revoked at any time as long as you retain the mental capacity to take such actions. Second, there may be circumstances where a trust should be considered. Trusts can be used to manage your property during your life and administer the use of such property by your beneficiaries after your death. You can allocate some or all of your property to a trust; you can limit the use of trust income and/or principal; you can give the trustee complete discretion over the management and distribution of the trust assets for the benefit of your beneficiaries and the power to direct when, and under what circumstances, trust assets should be distributed to your beneficiaries free of trust. There are many types of trusts that can be utilized based on your situation. Some trusts are modifiable and revocable, and others are irrevocable and cannot be changed.

Next, advance directives — sometimes known as health care directives — provide notice to your family and physicians about what happens to you from a medical perspective at the end of your life. A living will is a declaration of your wishes and spells out what types of medical treatment you want at the end of your life, in the event you are unable to speak for yourself. A health care power of attorney enables you to appoint someone to make medical decisions on your behalf, in the event you are unable to make such decisions for yourself. Your “agent,” sometimes referred to as an “attorney in fact,” will interact with your medical care team on your behalf as both your advocate and spokesperson. This person likely will be called upon to make immediate medical decisions for you during a time of great emotional turmoil, so you should choose someone who can handle this responsibility. Once your advance directives are executed, you should provide your physician with copies that can be scanned into your electronic medical record. As another consideration, a general durable power of attorney is used to assist in the management of your

financial affairs. This document allows you to designate another person, your “attorney in fact” or your “agent,” to oversee your financial matters in the event you become incapacitated. A power of attorney may be revoked by you in writing at any time, provided you retain the legal capacity to do so. Also, any authority given to your attorney in fact pursuant to a power of attorney is extinguished upon your death. Finally, in addition to the powers given to your attorney in fact in your advance directives and power of attorney, you have the ability to nominate a person to become your legal guardian should the need arise. A legal guardian is appointed by the probate court, upon proper application and proof of your incapacity, in the county in which you reside. A legal guardian can be appointed to handle your financial affairs, your personal care, or both. You should consult with your lawyer to ensure that you designate an appropriate person to become your legal guardian if the need arises. Margaret M. Metzinger is a partner at Frantz Ward. Contact her at 216-5151075 or MMetzinger@frantzward.com.

Dedicated to Helping Clients Protect Their Legacy. Trust is essential when choosing an advisor to help you protect your assets and preserve your legacy. Ulmer’s estate planning attorneys have decades of experience and will work with you to maximize opportunities, minimize risk, and create a customized strategy that provides peace of mind. • Estate Planning • Wills and Trusts • Succession Planning

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The intricacies of selling a business: planning ahead and after Glenmede works with many clients and their advisors in planning for liquidity events. The following case study shows how Glenmede collaborated with a mergers and acquisitions ﬁrm to meet one client’s needs before and after the sale of a business.

hrough hard work and perseverance, many owners have the opportunity to sell thriving businesses for a signiﬁcant proﬁt. However, this positive outcome introduces its own set of challenges. Maintaining and growing the proceeds of a sale require very different skills than building a company.

Many owners meet the challenges by engaging a range of trusted advisors. First, an owner may need a ﬁrm to identify a buyer and consider post-sale goals. It is just as important, however, for sellers to work with a relationship-driven wealth management advisor who can help deﬁne the seller’s objectives and create a long-term plan. A Olejko holistic wealth plan should incorporate the seller’s lifestyle objectives and simultaneously address philanthropic and legacy goals. In addition, a wealth manage-

ESTATE

PLANNING ment advisor should be equipped to help educate and orient children and grandchildren about prudent stewardship of newfound wealth.

A recent case study: selling a family’s manufacturing business The co-owner of a manufacturing company — jointly owned with his siblings — decided to sell the business. The primary objective

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was to identify a buyer who would continue the family’s mission with respect and understanding. The transaction was complex, involving many family members and a variety of property holdings. The family hired a mergers and acquisitions advisor to determine a valuation, find a suitable buyer, structure the deal and remain involved after the sale to ensure a seamless transition. Selling the business, however, was only the beginning. The former owner realized he needed an experienced and trusted partner to help organize and invest his assets and provide financial guidance as he embarked on the next phase of his life. Proceeds of the sale included $25 million outright to the former co-owner, $15 million in trust for the benefit of his children — ranging from elementary school age to the late 20s — and an equity stake in the business providing financial benefits if the company were sold again. The Glenmede team worked with the client’s investment banker to understand nuances of the transaction. Next, the team reviewed all financial documents in the process of organizing the client’s many financial accounts. They reviewed estate planning documents to guarantee that fiduciaries and successor fiduciaries were current, and that retirement plan and life insurance beneficiary forms were complete and reflected the client’s desires. With the review completed, Glenmede created a holistic balance sheet accounting for all the family wealth, including liquid and non-liquid assets. Based on a clear understanding of the client’s goals, the team began the process of creating a long-term wealth plan. A key element involved establishing a comfortable level of expenditure that preserved enough income for continuing growth in wealth. The plan also incorporated tax-efficient philanthropic activities and wealth transfer to the next generation. It allowed enough flexibility to accommodate changes in family circumstances and priorities, as determined by periodic reviews. Glenmede’s experience providing financial education to the next generation was important because the client wanted to prepare inheritors for managing assets responsibly and upholding the family’s values. As a first step, the Glenmede team recommended involving the children in family philanthropic discussions and age-appropriate activities. From these conversations, the children gradually would learn general financial knowledge and sound financial practices, and eventually participate in discussions about the underlying investment strategy of

‘‘

A holistic wealth plan should incorporate the seller’s lifestyle objectives and simultaneously address philanthropic and legacy goals.

‘‘

BY LINDA M. OLEJKO

their own portfolios. At that point, more advanced concepts, such as tax-efﬁcient charitable giving, would be introduced. Typically, we engage in a goals-based wealth review for each family member. The goal is forging a path toward long-term ﬁnancial security, a meaningful legacy and developing a strategy for philanthropic gifting.

Conclusion In many cases, closely held business owners should seek professional advice before a transaction takes place, so they can take advantage of strategies only available pre-sale. Matters such as valuation discounts, gifting and maximizing the tax efﬁciency of pre-sale transfers must be planned long in advance. ● Whether sellers choose to work with advisors before or after a sale, it is crucial to ﬁnd a partner with a comprehensive, long-term approach and experience building lasting relationships. Implementing a wealth strategy can take years — selling a business is just one step in the process. ●

Linda M. Olejko, CFP, CEPA, is a managing director in Glenmede’s Greater Cleveland office. Contact her at Linda.Olejko@glenmede. com. This material is intended to be a re-

view of issues or topics of possible interest to Glenmede Trust Company clients and friends and it is not personalized investment, estate planning, tax or legal advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation. This material may contain Glenmede’s opinions, which may change without notice after date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. This publication may not be used as legal or tax advice.

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november 4, 2019

I am the trustee of a trust. Now what? Engaging a team of trusted advisors can help ensure obligations are executed effectively

By STEPHANIE M. GLAVINOS

pon becoming trustee of a trust, the trustee will frequently engage an attorney and seek advice from other advisors to assist them throughout the trust administration process. Many trustees accepting the position do not understand the responsibilities involved in a trust administration. A trustee client should rely upon their advisors to explain not only the fiduciary duties imposed by state law, but also the obligations charged under the specific terms of the trust. For advisors, counseling trustees on the administration of the trust often becomes a continuing representation that lasts throughout the duration of the trust administration. Assuming the role of trustee is a commitment that comes with duties to the beneficiaries. A trust creates a fiduciary relationship between a trustee and the trust beneficiaries. It is essential from the outset of a

trust administration that the trustee is educated on the legal duties of a fiduciary and the consequences of failing to discharge the trustee’s duties. The trustee is required to administer the trust in strict accordance with its terms. If the trustee fails to do so, this can be a breach of its fiduciary duty, and the beneficiaries have the right to take legal action against the trustee personally. Many trustees, once apprised of the Glavinos personal risks involved with the job of trustee, may choose to carry insurance coverage available to trustees to insulate against this potential liability. Identification of the trust beneficiaries should be done at the beginning of the trust administration. The specific terms of the trust, including timing and guidelines, will govern the parameters for making distributions to the beneficiaries. The

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planning trustee must adhere to these standards, as they are duty bound to carry out the specific terms of the trust. One of the trustee’s primary duties is to safeguard the trust property in a reasonable manner. Initially, this process can be time-consuming as the trustee’s job requires locating and inventorying all of the assets that are either already in the trust or that will be subsequently transferred to the trust. A trustee must prudently manage the trust assets. Many trustees require guidance with regard to their investment duties. They should be advised to employ all necessary agents and financial advisors to assist with the development of an investment strategy that takes into account the needs of the current beneficiaries as well as the potential future remainder beneficiaries.

The trustee has a continuing obligation to keep the current beneficiaries reasonably informed regarding the assets of the trust and information relating to the administration. At least annually, the trustee should prepare a trust report identifying the trust property, liabilities, receipts and disbursements. This report should also disclose the source and amount of any compensation paid to the trustee. A trustee is entitled to compensation for services rendered in the administration of a trust, but it is vital that the trustee follow the terms of the trust that govern trustee compensation or, in its absence, adhere to applicable state law. A trustee also should take care to recognize potential conflicts of interest and avoid entering into transactions that might benefit a trustee personally. Unless the terms of the trust provide otherwise, a trustee must treat the beneficiaries with impartiality and

cannot favor one beneficiary’s needs or desires above another beneficiary. The trustee must ensure that a trust complies with all federal and state income tax laws. A trustee has a duty to timely file all requisite tax returns and pay any trust income or estate tax obligations owed by the trust. Where applicable, the trustee must also send a schedule K-1 to the beneficiary detailing the beneficiary’s share of the trust income and deductions. It is prudent for a trustee to engage an experienced income tax preparer to assist with this job. A trustee should be educated and advised as to the duties and responsibilities highlighted in this article, and rely upon advisors to counsel them through this process. Stephanie M. Glavinos is an attorney at Ulmer & Berne LLp. Contact her at 216-583-7230 or sglavinos@ulmer.com.

HELPING CLIENTS PROTECT THEIR LEGACY Protecting what you have built for the next generation takes careful planning and an experienced partner who understands your goals and objectives and can tailor a plan to help you achieve them. At Hahn Loeser, we work with our clients to navigate the evolving tax laws, minimize tax exposure and create a strategy that will help you preserve your legacy.

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Planning for a trust beneficiary who falls within the ‘diminished capacity’ gray area By DANA MARIE DECAPITE

hen faced with decisionmaking during the estate planning process, there are numerous factors to consider. Each family situation and wealth structure is unique, as are the beneficiaries inheriting under each estate plan. One particularly complicated planning consideration arises when planning for a beneficiary with diminished capacity. Unlike a typical special needs planning scenario involving a beneficiary with a permanent mental or physical disability, many individuals and families are faced with the issue of planning for a beneficiary with potentially “temporary” diminished capacity.

Temporary diminished capacity is likely subjective to the party implementing the estate plan, and for that reason, it is not easily diagnosed in the estate planning setting. A beneficiary with temporary diminished capacity may include a financially unsophisticated beneficiary; a minor beneficiary; or a beneficiary with a substance abuse or addiction-related illness, untreated mental DeCapite illness, long-term job loss, or any other life situation creating a circumstantial and temporary need for heightened planning. These types of beneficiaries may never require needs-based assistance and may not have a permanent

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planning disability, but their life situation is volatile, and inherited wealth may have a universally negative impact on the beneficiary. To ensure estate planning goals are met and to avoid devastating consequences for the beneficiary, it is important to plan properly for a beneficiary who falls within this “diminished capacity” gray area. An estate planning practitioner can help navigate this planning scenario, where traditional planning may result in an overly accessible inheritance, and commonly used special needs planning

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techniques may be a bit too restrictive. This article discusses important elements to consider when planning for a beneficiary with temporary diminished capacity and drafting techniques that can be used to plan effectively for that beneficiary.

Evaluating beneficiary capacity It is critical to diagnose temporary diminished capacity appropriately through the estate planning process. The family must consider the beneficiary’s ability to reside alone; the beneficiary’s ability to maintain employment and/ or a source of income; the amount of medical care necessary for the beneficiary and whether the need will increase exponentially and atypically over time; the age and life expectancy of the beneficiary; the anticipated costs associated with maintaining the beneficiary’s current quality of life and standard of living; the potential for capacity to decline further or to be restored; whether needs-based assistance will be necessary for the beneficiary after the death of a caretaker family member; and the other assets of the beneficiary, if any. These considerations are useful in building the structure of an estate plan to guarantee the outcome of the estate plan and to protect the beneficiary.

Planning techniques for beneficiaries with temporary diminished capacity The plan for the beneficiary’s inheritance should accomplish the appropriate balance of rigidity and flexibility and should also maintain quality of life for the beneficiary from an educational, medical, social and support standpoint. Many of the estate planning techniques appropriate for planning for beneficiaries with temporary diminished capacity are standard — however, it is the appropriate layering of these techniques that is critical. A widely accepted planning technique for wealth transfer is the likely starting point for planning for a beneficiary

with temporary diminished capacity — dynastic trust planning. Using a dynastic trust as the baseline, and then drafting in the necessary flexibility to tweak the document to the beneficiary’s specific level of incapacity, can create the appropriate checks and balances for the lifetime of the beneficiary. The following planning techniques, layered on top of dynastic trust planning, are opportunities to grant or restrict the control of the beneficiary as it relates to the eventual administration of the trust: ● Naming of appropriate trustee/co-trustees, trust protector, trust advisor and other independent advisors; ● Allowing the beneficiary to serve as co-trustee or sole trustee of his/her trust at a certain age, upon the occurrence of a certain event, or in the sole discretion of a third party; or, conversely, explicitly prohibiting the beneficiary from serving in any fiduciary or quasi-fiduciary capacity; Drafting of dispositive provisions conditioned upon certain timing, the occurrence of an event, or the easily ascertainable behavior of the beneficiary; ● Using a limited power of appointment allowing the beneficiary the ability to appoint trust property to other individuals/ charitable organizations, either during their lifetime or in a testamentary capacity upon death; ● Using an “In Terrorem” provision to deter a beneficiary from challenging the plan, for a situation where beneficiaries are treated differently as to amount or method of inheritance. Addressing and planning for the temporary diminished capacity of a beneficiary is a difficult, but critical, conversation to have with your estate planning practitioner. There are numerous effective planning strategies that can help achieve estate planning goals while also protecting a beneficiary who does not fit neatly into a pre-existing estate planning mold. ●

dana Marie deCapite is a partner at Hahn Loeser & parks LLp. Contact her at 216-274-2465 or ddecapite@ hahnlaw.com.

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november 4, 2019

Organ donations can save lives Estate planning an ideal time to address wishes

By GORDON BOWEN

here are 1,731 people in Northeast Ohio anxiously waiting for one phone call that will save their life. That’s right. There are 1,731 people in Northeast Ohio waiting for a life-saving organ transplant — 3,125 wait in Ohio and 112,886 wait across the United States. Unfortunately, only some of them will be lucky enough to answer the phone call informing them they have a new chance at life. In 2018, 186 people in Northeast Ohio died waiting or became too sick to transplant. The national number? 11,545. Our nation’s organ shortage is one of the few medical crises where the scientific and clinical solution is available. Today’s organ transplant surgeries overwhelmingly are successful, and transplant survivors go on to live fulfilled lives, contribute to the workforce and create and enjoy loving families. The primary reason so many still die waiting is painfully simple: Not enough Americans are registered organ, eye and tissue donors.

This is a problem with a solution. And there is no better time to learn about the need for organ, eye and tissue donation than when planning your estate. It’s no secret that most people will avoid conversations about their mortality. Well, guess what? If you’re planning your estate, then you have already overcome that hurdle. Here are the key things to know about organ, eye and tissue donation: ● You are never too old to be an organ, eye and tissue donor. Gifts from donors of Bowen all ages can be viable for transplant. Don’t rule yourself out. ● An organ donor can save up to eight lives, and a tissue donor can help heal and save more than 50. ● In almost all situations, you can still have the specific funeral arrangements you desire. Donation professionals will do everything to respect and honor your wishes. ● The donation process is anonymous.

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planning Identifying info is only shared if recipients and donor families both agree

then evaluates the health of the donor’s organs and matches viable organs with potential recipients across the country. The team provides care for the donor and family throughout the process.

The Ohio Donor Registry Organ, eye and tissue donation starts

How does organ, eye and with the Ohio Donor Registry, which is managed by the Ohio Department tissue donation work? Lifebanc manages the organ, eye and tissue donation process in Northeast Ohio. Lifebanc is one of 58 organ procurement organizations in the United States, each designated to serve a specific geographic area. Lifebanc is independent of the hospitals in its region. Hospitals are required to refer imminent deaths meeting certain criteria conducive to organ donation to Lifebanc. For organ donation to occur, a patient is almost always on a ventilator and progressing to brain death. Once brain death has been determined or a family elects to withdraw care, Lifebanc’s team of social workers and clinicians work with the family to inform them of the opportunity of donation, their loved one’s registered donor status or obtain consent for the donation process to proceed. The team

of Public Safety. It operates on the legal principle of first-person consent. That means when an adult in the state of Ohio registers on the Ohio Donor Registry, they are declaring their wishes to be an organ, eye and tissue donor. That declaration is legally binding, and no one can overturn it. Most people know they can register to be an organ, eye and tissue donor when conducting business at a Bureau of Motor Vehicle office. Most people also want to spend as little time in the BMV as possible. There is an easier and quicker way. Anyone with a stateissued ID can register online at lifebanc. org/estate. The process takes about three minutes. There often is confusion in the estate planning world regarding organ, eye and tissue donation and living wills. While

any declaration of intent to save lives through donation is positive, it is most effective for estate planning professionals to have clients register online at lifebanc. org/estate. Registering online eliminates potential clerical errors and the need for living wills to be available when donation conversations are occurring. There is one last step. Talk to your family. Tell them about your decision to be a registered organ, eye and tissue donor. Planning for your estate relieves your loved ones from having to make stressful decisions during a difficult time. Make sure your decision about registering to be an organ, eye and tissue donor is also one less worry for them.

Let’s end this crisis Together, we can drastically reduce the number of people who die waiting for an organ transplant. The medicine and technology are here. Now it’s up to us as a society. About 90% of adults in Ohio have favorable views of organ, eye and tissue donation. Only 58% are registered on the Ohio Donor Registry. Let’s bridge that gap and give hope to all those waiting. Gordon Bowen is Ceo at Lifebanc.

For results that resonate, change the equation. Partner with Glenmede, an independent, privately owned trust company offering investment and wealth management services. Founded in 1956 by the Pew family to manage their charitable assets, we provide customized solutions for individuals, families, endowments and foundations. To learn how our culture of innovation and experienced thinking can help you make your unique imprint on the future, contact Linda M. Olejko at 216-514-7876 or linda.olejko@glenmede.com.

Glenmede’s services are best suited to those with $5 million or more to invest. @glenmede /company/glenmede glenmede.com

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How to incorporate your pets into your estate plan By MARy EILEEN VITALE

any pets end up in shelters when their owners become incapacitated or pass away. Did you know you can plan for the care of your pet in your estate planning? All 50 states have enacted laws authorizing the establishment of pet trusts, which allow an owner to designate an individual to care for a pet and provide funding for the pet’s ongoing care. A pet trust creates a legally enforceable obligation for your trustee to use funds to care for your pet as you wish. Advantages include: ● Validity during your lifetime, if you are incapacitated and after your death; ● Trust assets escape probate; ● Trust provisions set forth your pet’s caretaker and the provision of care; and ● Funds can be overseen by a separate trustee if needed. Consider the following when creating a pet trust: ● The trustee can be the same person as the pet guardian, or a differ-

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planning ent person named to help invest the assets and provide oversight on disbursements. ● It’s important to have a serious conversation with your pet guardian to assure there is mutual understanding of expectations involved and the ability to make the Vitale commitment. ● Name a successor guardian in case the originally named individual is unwilling or unable to comply. ● Consider a beneficiary for the remaining trust assets if your pet does not outlive the assets. Choose from family members, the guardian or a charitable pet organization. ● The amount of money or other assets reasonably necessary to fund the trust depends on the number of pets supported and their anticipated life expectancies. Consider the pets’

health concerns, special dietary needs veterinary expenses, etc. ● Consider any special circumstances, such as if you have more than one pet and whether the wish is to keep them together. Detailed instructions and contact information help with transition, but don’t restrict your trustee’s discretion too much, as unexpected or new circumstances may occur. Although a pet trust provides an enforceable obligation, you may not be able to set aside assets to establish one. Alternatively, you can name someone in your will who will care for your pets as you wish. Similar to using a trust, you should discuss this responsibility with the individual(s) to assure willingness and ability to provide the care. Whether establishing a pet trust or another estate planning solution, don’t leave your pets out of your long-term planning. Remember, they are also members of the family. Mary eileen Vitale, CpA, CFp, Aep, is principal at HW & Co. Contact her at 216-378-7210 or vitale@hwco.com.

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Selecting the perfect fiduciary By JOSEPH M. MENTREK

t cannot be stressed enough just how important the selection of an appropriate fiduciary is to the overall success of an estate plan. The best of plans easily may be foiled by an inexperienced, uninformed or disengaged fiduciary. Whether considering the actions of an agent or attorney-infact under the durable general power of attorney or health care directive, the executor of an estate or the trustee of a trust, it is paramount that careful consideration is given to both the skills of the person (or institution) tapped to act and the unique circumstances surrounding their service. Last year I highlighted some general considerations in selecting a fiduciary, including a discussion of fiduciary duties. The responsibilities involving service as a fiduciary are significant and should not be taken lightly. This year offers a good opportunity to Mentrek dig deeper into some other important aspects of fiduciary selection. All too often, the principal client’s fiduciary selection process is accomplished without much thought, starting with their spouse and ending with their children named in descending order as to age. In some cases, that is a perfectly logical and workable answer. In other cases, not so much. Only after the principal thoroughly understands the nature and extent of a fiduciary’s duty under the law, as well as the specific requirements defined in the operative documents, he or she should begin to identify possible persons to serve in the important role. Likewise, the intended fiduciary should be made aware of the principal’s intention to name them to serve, understand and accept the nature and scope of what such service might require. Service as a fiduciary should never come as a surprise. The “right” fiduciary will possess the requisite skillset to fulfill their fiduciary obligations, take necessary actions and make decisions based on the expressed provisions of the documents and relevant state statutes. They should also have the time and willingness to make themselves available and should not only be responsive to the needs of the beneficiaries but should also know the beneficiaries well enough to anticipate their needs. An appropriate work ethic and attitude toward the task at hand also are crucial. The fiduciary should be reliable, organized and scrupulously honest. Above all, the candidate should possess emotional intelligence and should have the ability to communicate in a manner by which they can assess the needs of the beneficiaries and act with resolve and empathy toward those

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planning needs while respecting the wishes and direction of the principal. If the fiduciary is not otherwise aware, they need to be prepared to ask probing questions in order to understand the family dynamic and the value system of the principal and the family. They must understand the financial situations of the beneficiaries and manage income and assets based on each individual’s unique circumstances. The fiduciary must understand that they are acting at the direction of the principal, and where that direction is lacking, they should understand that their duty is to exercise judgment in a manner that reflects what they believe to be the principal’s intent. When considering variables, the family dynamic may pose the fiduciary’s greatest challenge. The principal must honestly assess the impact of bestowing the proverbial “keys to the kingdom” to one child over another and the extent of the inherent conflict that may result among siblings when it comes to one making financial decisions that affect the others. In many instances, an immediate family member may not be the best choice as a fiduciary. In those cases, serious consideration should be given to extended family members, friends, business associates or others who may be well suited for the task when an individual fiduciary is preferred. And if there is no individual ready, willing and able to serve, an institutional fiduciary may be the best choice. An institutional fiduciary offers independence to mitigate family conflict. Other obvious advantages include specific expertise and continuity of existence. And while an institutional fiduciary may lack the “heart” of an individual when it comes to decision making on behalf of beneficiaries, this deficiency may be overcome by appointment of an individual trust advisor to provide special insight into the unique needs and circumstances of the beneficiaries. To conclude, the most well-thoughtout plan in the world will fail if it is not properly executed. The best way to ensure success is to carefully and thoughtfully consider the role and selection of the fiduciaries who will be in place to carry out your specific wishes when you are no longer able to provide such direction. Joseph M. Mentrek is a partner and chair of estate and succession planning and administration at Calfee, Halter & Griswold. Contact him at 216-622-8866 or jmentrek@ calfee.com.

10/29/19 3:33 PM

ESTATE PLANNING

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Changing environment may necessitate trust revisions

lthough death and taxes are certain, the timing of death and the tax environment in effect at one’s death are not certain at all. For example, simply within the past 20 years, the federal estate tax exemption has shifted from $650,000 in 1999 to $11.4 million in 2019, and will undoubtedly continue to change. The backdrop to this ever-changing estate tax environment has been the stock market rise to record highs and the omnipresent capital gains tax. Accordingly, trustees and beneficiaries of irrevocable trusts are increasingly seeing trusts with significant appreciation and capital gains tax Stark liability, while over 99% of estates do not pay estate tax. When estate tax exemptions were lower, avoiding estate tax by using irrevocable trusts was a valuable strategy; however, the current status of many old trusts requires trustees and beneficiaries to balance paying capital gains tax with diversifying trust investments and raising cash for distributions. Even after a beneficiary’s death, heirs receive assets with the same capital gains tax liabilities because the current beneficiary’s estate tax exemption is often “wasted.” Many families may save taxes by seeking estate tax inclusion, and the corresponding basis adjustment, rather than continuing to exclude property from estate tax. Fortunately, the current high estate tax exemption and flexibility of Ohio law regarding modifying irrevocable trusts permit families to strategically reduce the capital gains tax burden of managing the trust property. Under current law, an irrevocable trust may be modified to give the current beneficiary certain powers over the trust property that will cause appreciated assets to be included in the beneficiary’s estate. Including property in an individual’s estate causes the income tax basis of such property to be “stepped-up,” or adjusted to its fair market value at the individual’s date of death, whether or not estate tax is actually paid. Upon an asset’s basis step-up, the capital gains tax that would otherwise be due upon sale is effectively eliminated, and trustees and remainder beneficiaries then may diversify or raise cash with reduced or eliminated capital gains tax exposure. Ohio law provides multiple methods to modify irrevocable trusts to insert such powers, including decanting, requesting a judicial modification and agreeing privately to trust modifications. Each method has distinct advantages and disadvantages, but all may ultimately provide families with ability to leverage the current estate planning environment to

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planning optimize the basis of assets inherited or retained in trust. Modifying irrevocable trusts to cause estate tax inclusion is just one of the tax-savings opportunities that

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the current estate tax and trust law environment provide, but it can be an invaluable technique for beneficiaries of estate tax-exempt irrevocable trusts created and funded in prior years. Justin L. Stark, esq., is an associate at Schneider Smeltz Spieth Bell. Contact him at 216-696-4200 or JStark@sssb-law.com.

‘‘

the backdrop to this everchanging estate tax environment has been the stock market rise to record highs and the omnipresent capital gains tax.

‘‘

By JUSTIN L. STARK

Jewish values teach us to care for future generations. The Jewish Federation of Cleveland can help you leave a precious inheritance and lasting legacy for your children, grandchildren, and our community. Find out how you can become a member of the Jewish Federation of Cleveland’s Legacy Society by contacting Carol F. Wolf for a confidential conversation at 216-593-2805 or cwolf@jcfcleve.org.

L’dor V’dor. From Generation to Generation. Create Your Jewish Legacy

www.jewishclevelandgifts.org

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S10 November 4, 2019

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Maintaining a legacy Expert advice, education key to successful transfer of wealth or a business BY GREG ALTHANS AND GREG LONCZAK

e frequently are asked by our family clients how best to transition wealth or a business to the next generation. This may require complex technical estate, tax and investment factors be carefully studied and weighed. Equally important are the qualitative, relational aspects of wealth transfer among family members. Early education and ongoing communication are critical. Family members should gain an understanding of the values and principles that are at the center of the family’s wealth creation. These discussions can begin at a young age and are often best if they are brief, informal, and occur around “teachable moments” in a child’s life. For younger adults, it is important to talk in greater detail about what goes into ﬁnancial decisions. Strong communication must be matched with proper planning tools for effective wealth transfers. One such effective tool often utilized is a family entity such as a family limited liability company (“FLLC”). If used successfully, FLLCs can facilitate family education, transfer of business or ﬁnancial assets and

ESTATE

PLANNING

Althans

Lonczak

asset protection. Once formed, family assets can be transferred into the FLLC by family members or other family entities such as trusts. The FLLC is led by a manager who retains control over key decisions such as business interests, investments, distributions, voting rights and new member admission. The FLLC should hold regular meetings to discuss investments or management decisions, distributions, and tax ﬁlings, and any other relevant issues. Allowing younger family members to participate in FLLC meetings and perhaps, over time, join the management group will allow opportunities to learn and grow in ﬁnancial responsibility. LEGACY CONTINUED ON NEXT PAGE

Passing family values on for generations BY JULIE TAFT

dynasty trust is a long-term, irrevocable trust designed to hold assets for the benefit of multiple family generations. Gift, estate and generation-skipping transfer (“GST”) tax laws apply at the time assets are transferred to trust. So long as assets remain in a properly managed trust, no estate or GST taxes are imposed when trust benefits shift from one generation to the next. The 2019 gift, estate and GST tax exemption is $11.4 million per person. Many states, including Ohio, now allow a trust to Taft continue in perpetuity. A married couple could therefore gift up to $22.8 million to a perpetual dynasty trust in 2019 and, as long as those assets remain in the trust, those assets and all future growth would be exempt from gift, estate and GST transfer taxes in perpetuity. Allowing assets to transfer from one generation to the next without transfer tax reductions can provide significant benefits over time in addition to many other benefits.

1. 2019 Crains Estate Planning Section-10-23 Working.indd 10

ESTATE

PLANNING Keeping assets in trusts for your children can create added value and can: ● Provide a level of protection from a child’s creditors or a divorcing spouse; ● Provide asset management, encouraging or discouraging certain behaviors; ● Avoid dispositions to individuals outside of your bloodline; ● Avoid passing assets through a probate process for a child that does not plan for his or her own estate; and ● Avoid the transfer tax laws in effect at the time of your child’s death when transfer tax exemptions may not be as generous as allowed under current law. These same beneﬁts will likely be equally important when planning for grandchildren and each succeeding generation. It is important to state your intent in creating any long-term trust. Is education of paramount importance to you? Or making sure that a beneﬁciary is a productive member of society? VALUES CONTINUED ON NEXT PAGE

10/29/19 3:34 PM

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legacy Continued From previouS pAGe

Care must be taken to ensure the FLLC has legitimate and significant non-tax reasons to remain valid in the eyes of the state and IRS. Some specific purposes may include maintaining a single pool of assets for investment opportunities, management succession and protecting family assets from depletion in the event of a divorce. Additional tips include keeping good records, observing all legal formalities, hiring independent appraisers for transfer valuations and not commingling FLLC assets and personal assets. Clearstead recently held a multigenerational wealth transfer roundtable panel discussion with some of CleveValueS Continued From previouS pAGe

A long-term trust requires careful planning to allow enough flexibility for the trust to adapt to future events while continuing to carry out the purposes for which you created the trust. It is often best to provide a trustee with a wide degree of discretion in allowable distributions, but to make your intentions known in the document so that the trustee can consider your intentions

land’s leading experts. Discussed were the creation of a family transfer blueprint, family mission statements, family philanthropic plans and effective use of trusts. What resonated with all was that passing wealth from one generation to the next can be accomplished relatively easily if the family is surrounded by the right team of seasoned experts utilizing the right forward-thinking toolkit. Greg Althans, CpA/pFS, CFp, is senior managing director and chief wealth strategist at Clearstead. Contact him at 216-621-5684 or galthans@ clearstead.com. Greg Lonczak, CFp, is managing director at Clearstead. Contact him at 216-658-2857 or glonczak@clearstead.com.

when exercising that discretion. An experienced estate planning attorney can guide you through the process of determining whether a dynasty trust makes sense for you and will help you create a plan to achieve your individual goals and objectives. Julie taft is a partner at taft Stettinius & Hollister LLp. Contact her at 216-706-3879 or jtaft@ taftlaw.com.

november 4, 2019

S11

Planning for clients with minor children

By aBBIe R. PaPPaS

hile older clients might have estate planning on their radars, younger clients often believe that they don’t need to engage in estate planning because their assets are not significant enough to warrant it. However, estate planning is imperative for clients with young children, even if those clients Pappas do not otherwise have substantial wealth or estate tax concerns. Parents of minor children should have an estate plan in place for the following essential reasons: Appointing guardians: When a minor child is in need of a guardian, a probate court will appoint one. This may include appointing a guardian of the minor child’s “estate” to manage the child’s property, if that child has received more than $25,000 in assets. The probate court generally will appoint the guardian named by the

estate

planning child’s parents in their wills or their durable powers of attorney. In the absence of these documents, fights may arise between different family members vying for custody of the child and his or her assets. Managing transfer of wealth: Even when parents plan to leave their children only a modest inheritance, those parents might worry about the immaturity of a teenaged child handling newfound wealth. In the absence of a will, a minor beneficiary receiving inherited assets would receive those assets outright upon reaching age 18. However, under the Ohio Transfer to Minors Act, an Ohio testator can provide in his or her will that inherited assets be held for a minor beneficiary until age 25. Clients who desire more structured management of their children’s inherited assets and wish to avoid the pub-

licity, ongoing oversight and probate court costs should consider setting up a trust. The trust instrument may direct the trustee to pay out assets to the child at certain pre-determined ages or circumstances, or to retain assets in trust for the entirety of the child’s lifetime. Wealthier clients may choose to set up different types of trusts to make gifts to their children, grandchildren and future descendants in a tax-efficient manner. Of course, after the arrival a new baby, it is understandably quite difficult to get an estate plan in place amidst all the chaos. Therefore, it is often a good idea for expectant parents to add estate planning to their pre-baby “to-do” list. A good estate plan, when prepared correctly, will serve a growing family well for years to come. Abbie r. pappas, esq., is an associate at Singerman, mills, desberg & Kauntz Co., L.p.A. Contact her at 216-292-5807 or apappas@smdklaw.com.

The Power of Every

Legacy

Because of donors’ generosity, we are putting big ideas to work on discoveries and innovations, so the smallest, most treasured moments in life are possible. That’s the legacy that donors leave here. We look forward to working with you so that your clients can make the most of their giving and leave their own legacy for our patients and community. Learn more at powerofeveryone.org, call 216.444.1245 or email giftplanning@ccf.org

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1370 W 6th St, 3rd floor Cleveland, OH 44113 216.574.9100

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S12 November 4, 2019

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What to do when a prenuptial agreement is not part of ‘I do’ There are other ways to protect the family business BY BILL BESETH AND SUSAN RACEY

ESTATE

common question we hear from our business owner and high-net-worth clients is “what can I do to protect my family’s business and wealth when my child is planning to marry without signing a prenuptial agreement?” Clients recognize that the divorce rate hovers around 50% and that a new person entering into the family may acquire certain legal rights in the family’s property upon a child’s death. Under current Ohio law, a couple must enter into a marital agreement before marriage (“prenuptial”) for those rights to be validly waived — marital

PLANNING

Beseth

Racey

agreements signed after the marriage are unenforceable in Ohio. Frequently, the client’s child wants to avoid upsetting the ﬁancé, or the client is reluctant to broach the subject of a prenuptial agreement with the child despite the potential risks to their family’s business interests and wealth. In these situations, is there planning that the client can do to protect the family business and wealth? The simple

answer is yes. While not an exhaustive list, the following planning techniques are available to protect business interests and wealth for future generations when a child marries without entering into a prenuptial agreement. Of course, before implementing any of them, qualiﬁed counsel should be consulted. Update the business’s governing documents to keep the business “in the family.” Consider adding restrictive transfer provisions that ensure interests

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may be transferred only to lineal descendants in: ● Operating agreements; ●

Shareholder agreements; or

●

Partnership agreements.

Establish a trust. Consider establishing a trust to hold business interests and other assets for a child in order to limit: Distribution of assets to persons other than lineal descendants;

●

Who may beneﬁt from assets upon a child’s death; and

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Who may serve as trustee and thereby have the power to control the business interests or assets.

●

Create a family entity to manage family assets. Consider establishing an entity to hold and manage family assets, such as: ●

Family limited liability company;

Family limited partnership; Family dynastic trust; or ● Corporation. ● ●

Implementing one or more of these planning techniques may help accomplish a client’s goal of protecting family business interests and wealth when a child marries without signing a prenuptial agreement. Further, control over the family business and wealth may be kept exclusively “in the family” according to the client’s wishes. Certainly, these techniques must be considered in conjunction with transfer tax implications. Bill Beseth is counsel at Tucker Ellis. Contact him at 216-6965479 or bill.beseth@tuckerellis. com. Susan Racey is a partner at Tucker Ellis. Contact her at 216-696-3651 or susan.racey@ tuckerellis.com

The non-tax advantages of trusts BY DEANNA ALGER

state planners have been using trusts as a tool to help their clients pay less in estate tax for years. Because the current $11.4 million estate tax exemption is so high, there may be a misconception that including a trust as part of an estate plan is not necessary. Obviously, trusts can be useful at providing tax savings, but they can also provide significant non-tax benefits for all parties involved. Below is a list of four important non-tax benefits to consider when determining whether to Alger include a trust as part of your estate plan. 1. Probate avoidance. Probate is a state judicial process by which a decedent’s estate is properly distributed to creditors, beneficiaries and heirs. There are many steps involved, and the process can be time-consuming and expensive. Another disadvantage is that probate court records are open to the public. Anyone can see how much your estate was worth and how it was divided. Setting up a revocable living trust and transferring title of your assets into the trust will remove those assets from probate and allow you to bypass that burdensome process. 2. Asset protection. A properly designed trust can protect the trust’s assets from the claims of the beneficiary’s creditors, including an ex-spouse in the event of a divorce. In such situations in which a trust beneficiary does not own

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PLANNING the assets, creditors are not able to gain access to the trust funds. 3. Young beneficiaries. Without a trust in place, beneficiaries ages 18 and older potentially can have immediate access to an outright inheritance. When large sums of money are involved, this could be dangerous. Having a trust structured so that beneficiaries receive their inheritance at a specified age can provide protection until they are mature enough to manage the inheritance on their own. 4. Control. Having a trust allows you to have complete control of all aspects regarding how the assets within the trust are managed, used and distributed. You can spell out exactly who gets ownership of what, what the trust assets are used for, etc. Having this control may help to avoid unwanted family conflicts and to ensure that your wishes are carried out in the way you intended. Trusts can be used in many ways other than just as an instrument to save taxes. They are an important part of an estate plan that should be taken advantage of when appropriate. Be sure to include the topic in you estate plan discussion with your advisors. DeAnna Alger, CPA, MBA, is a tax and accounting services supervisor for Zinner & Co. Contact her at 216831-0733.

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Tanzie D. Adams Charles F. Adler, III Richard A. Ahrens DeAnna Alger Jennifer M. Allen Ronald S. Ambrogio William Ambrogio Graham T. Andrews Gary S. Archdeacon Heather A. Archdeacon Kemper D. Arnold James S. Aussem P. Thomas Austin Charles J. Avarello Andrew G. Bacharach, Jr. Michael Ryan Baker Peter Balunek Molly Balunek Mary Lynne Baranek Kimberly J. Baranovich Lawrence C. Barrett Ronald E. Bates Stephen Baumgarten Alexandra G. Beach Edward J. Bell Steven Berman William H. Beseth, III Michelle M. Bizily Alane Boffa Tami M. Bolder Daniel L. Bonder David J. Bosak Jill A. Branthoover Herbert L. Braverman Christopher Paul Bray James R. Bright Kenneth B. Brown Don P. Brown Richard C. Brubaker Robert M. Brucken Bethany J. Bryant Jeannine Brzezinski Martin J. Burke, Jr. Eileen M. Burkhart Samuel V. Butcher Donald J. Cairns Carl Camillo Leigh H. Carter Raymond J. Casey William G. Caster Jennifer Chess James R. Chriszt Trevor R. Chuna Gina M. Ciani Mark A. Ciulla Michael R. Cole Jeffrey P. Consolo James I. W. Corcoran Calla Hoyt Cornett Barbara J. Cottrell Greg S. Cowan Steve Cox Thomas H. Craft Deborah P. Cugel Patricia M. Culler Kenneth D. Cunningham Tia Marie M. D’Aveta Elizabeth F.M. De Nitto Dana Marie DeCapite Thomas A. DeWerth Carina S. Diamond David S. Dickenson, II 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 Christina D. Evans Susan M. Evans Todd M. Everson Frank Fantozzi Charles E. Federanich

Joseph M. Ferraro William C. Ferry J. Paul Fidler Julie E. Firestone Linda Fousek Susan L. Friedman Amy K. Friedmann Patricia L. Fries Frank F. Gagliardi Melissa Sue Gallop Robert R. Galloway Naomi D. Ganoe Stephen H. Gariepy Rao K. Garuda James E. Gaydosh Kyle B. Gee Christopher J. Geiss Thomas M. Genco Arthur E. Gibbs, III

Lindsay J. Keith Marta L. Kelleher Lisa M. Kerr Jonathan M. Kesselman Todd W. Kiick Paul S. Klug Victor G. Kmetich Daniel R. Kohler James R. Komos Beth M. Korth Roy A. Krall Frank C. Krasovec, Jr. Thomas W. Krause James B. Krost Craig A. Kukla Anthony C. Kure Kristen Kuzma Ann-Marie K. La Porta Louis D. LaJoe

Richard S. Milligan William M. Mills Wayne D. Minich Ginger F. Mlakar Elizabeth M. Monihan Katherine Collin Moore Kenneth R. Morgan Philip G. Moshier Michael J. Moss Joseph L. Motta Susan C. Murphy Hoyt C. Murray Christine A. Myers Raymond C. Nash Jodi Marie Nead Robert Nemeth Michael H. Novak Michael T. Novak Anthony J. Nuccio

THE ESTATE PLANNING COUNCIL OF C LEVE LAND PRESIDENT

SECRETARY

PROGRAM CHAIR

Peter Balunek

Elaine B. Eisner

Kimberly Stein

VICE PRESIDENT

TREASURER

IMMEDIATE PAST PRESIDENT

Dana Marie DeCapite

Laura B. Springer

Julie A. Taft

Thomas C. Gilchrist Caroline Gluek Ronald J. Gogul Scott A. Gohn Daniel M. Goldfarb James A. Goldsmith Susan S. Goldstein Laura Joyce Gorretta Lawrence I. Gould David A. Grano Karen L. Greco Christopher M. Greene Sally Gries Nancy Hancock Griffith Elizabeth C. Griffiths James P. Gruber Marie L. Gustavsson-Monago Amy M. Gyetko Ellen E. Halfon Patrick A. Hammer Sarah Hannibal Brian R. Hassett Lawrence H. Hatch Janet W. Havener Jean M. Hillman Joanne Hindel Mark L. Hoffman Harold L. Hom Brent R. Horvath Michael J. Horvitz Scott Huff Douglas Ingold Lauren Iwema Lynnette Jackson Paula Jagelewski Barbara Bellin Janovitz Theodore T. Jones James O. Judd Stephen L. Kadish Matthew F. Kadish Matthew A. Kaliff Joseph W. Kampman Karen J. Kannenberg Lori L. Kaplan Toby Kaye

Gary E. Lanzen Donald Laubacher Daniel J. Lauletta Paul J. Lehman Maureen Leneghan David M. Lenz Wendy S. Lewis Keith M. Lichtcsien David C. Ligan Dennis A. Linden Amanda Lisachenko Jennifer R. Loan Ted S. Lorenzen Amy R. Lorius Janet L. Lowder Lisa K. Lowy Sandra C. Lucas Robert M. Lustig Kathryn E. Madzsar David S. Maher Stanley J. Majkrzak Chad Makuch Timothy Patrick Malloy Laura J. Malone Michelle Mancini Karen T. Manning Monique W. Marinakos Wentworth J. Marshall, Jr. Adam L. Martinson Michael W. Matile Nancy McCann Karen M. McCarthy Daniel A. McGowan Erica E. McGregor Daniel J. McGuire Jamie E. McHenry Sarah E. McIntosh Ryan P. McKean Kevin R. McKinnis James C. McSherry Ervis Mellani Joseph M. Mentrek Margaret M. Metzinger Lisa H. Michel Christine Millen

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Eric A. Nye Michael J. O’Brien Lacie L. O’Daire Linda M. Olejko Matthew S. Olver Leslie A. O’Malley Robert J. O’Neil Richard M. Packer Abbie R. Pappas Sebastian C. Pascu William A. Payne James B. Perrine Dominic V. Perry Ivan Petrovic Marla K.Petti Jennifer N. Pinkerton Douglas A. Piper Douglas Price Rebecca Yingst Price Maria E. Quinn Susan L. Racey Joseph Radigan Uma M. Rajeshwar Chrisstina Ramnytz Timothy L. Ramsier Melissa Anne Register Linda M. Rich R. Andrew Richner Radd L. Riebe Elton H. Riemer Kathleen K. Riley Michael G. Riley Theodore J. Robbins Lisa Roberts-Mamone Julie K. Robie Kenneth L. Rogat Carrie A. Rosko Lisa J. Roth Debbie Rothschild Larry Rothstein David Rubis Alexander I. Rupert Patrick J. Saccogna Stephanie Sandle Jennifer A. Savage

Ronald S. Schickler Bradley Schlang Michele Schrock Dennis F. Schwartz Jennifer B. Schwarz June A. Seech John S. Seich Doris A. Seifert-Day Kyra Shank Stanley E. Shearer Douglas E. Shostek Jeffrey Shoykhet Roger L. Shumaker Michael A. Simmons Mary Jean Skutt Mark A. Skvoretz John M. Slivka Sondra L. Sofranko Laura F. Sonderman James Spallino, Jr. Richard T. Spotz, Jr. William L. Spring Laura B. Springer Justin L. Stark Stacey Staub Kimberly Stein Laurie G. Steiner Matthew Stepanek Saul Stephens Roger E. Stewart Beverly A. Stiegele Karin Maloney Stifler David J. Stokley Diane M. Strachan Thomas B. Strauchon Thomas E. Stuckart John E. Sullivan, III Linda Dela Court Summers Joseph T. Svete Scott E. Swartz David A. Szabo Julie A. Taft Yeshwant K. Tamaskar Richard Tanner Jessica Tepus Zachary J. Tharp Barbara Theofilos Kurt M. Thomas James K. Thompson Donna L. Thrane Floyd A. Trouten, III Mark A. Trubiano Stephenie Truong Thomas M. Turner Diann Vajskop Robert A. Valente Jaclyn L. M. Vary Amy Vegh Catherine Veres Carmen M. Verhosek Mary Eileen Vitale Robert W. Wasacz Neil R. Waxman Ronald F. Wayne Julie A. Weagraff Michael L. Wear Stephen D. Webster David G. Weibel Jeffry L. Weiler Richard Weinberg Miles P. Welo Heather L. Welsh Katherine E. Wensink Aileen P. Werklund Elizabeth Wettach-Ganocy Terrence B. Whalen Frederick N. Widen Geoffrey B.C. Williams Erica K. Williams Scott A. Williams Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz Carol F. Wolf Brenda L. Wolff James D. Yurman Michael J. Zeleznik David M. Zolt Gary A. Zwick Donald F. Zwilling

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S14 November 4, 2019

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The beneﬁts of privately ﬁnanced life insurance BY RICHARD T. HEFFERN

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ife insurance is a unique asset in that it provides cash liquidity at an unknown point in the future when it may be needed the most. This liquidity can be very useful in paying estate taxes, moving assets between family members or securing interests between business partners. Privately financed life insurance is the funding of life insurance premiums through personal loans between an insured or a family member and Heffern an irrevocable trust. The many advantages of privately funded life insurance often are overshadowed by perceived challenges. One such challenge is the decision of how to pay the hefty premiums that often are associated with funding life insurance. Funding may be accomplished by utilizing business interests, third-party lending, personal assets or split-dollar arrangements. Private split-dollar arrangements can help a family move significant assets or value from one generation to another, with tax and gifting efficiencies, while providing asset protection to both generations. As an example, a parent contributes cash, once or over a period of years, to an irrevocable trust established for a child. The trust buys

INSURANCE PLANNING

life insurance on the child and uses that cash to pay premiums, typically over a short period of time. The trust then establishes an interest-only 20-year loan agreement with the parent and makes non-taxable interest payments back to the parent with continuous renewals, ultimately to be repaid at the death of the child. The loan interest rate is tied to the applicable federal rate established by the IRS. Currently, the long-term rate is 2.21%, which remains historically low. The note created by this loan is an asset included in the parent’s estate with the potential for a discount due to the longterm nature of the repayment terms (the life expectancy of the child). The result is that the loan will freeze or potentially reduce the value of the contributions made in the parent’s estate. All growth of the assets in the trust and the life insurance remain outside of both the parent’s and the child’s estate. They are held in trust for asset protection and for the beneﬁt of future generations. Richard T. Heffern is director of insurance services at Ancora. Contact him at 216-825-4000 or rheffern@ ancora.net.

3 ways business owners can leverage life insurance BY CHRISTINE MILLEN AND RAYMOND NASH

Join the Girl Scout Network! It may have been years since you earned your first badge, but the skills you learn through Girl Scouts stay with you forever. Follow us on LinkedIn to connect with other Girl Scout alums. For more information visit gsneo.org or call 330-983-0399. Connect with us on LinkedIn: @GirlScoutsofNorthEastOhio and @GirlScoutNetwork

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ife insurance can be a powerful tool for business owners, especially when it comes to a growing, closely held business. Life insurance often can play an invaluable role in long-term planning. However, many business owners can get bogged down in near-term demands, making it difficult to find time to plan. To cut through the noise, here are three impactful ways business owners can leverage the benefits of life insurance. 1. Succession planning. One way business owners can tap into the benefits of life insurance is to use it as a tool to fund a buy-sell agreement. There are several ways business owners can structure a buy-sell agreement. However, the document itself means nothing without the financial funding to make it happen. There are multiple ways to fund a buy-sell that don’t involve life insurance, such as creating a cash sinking fund, borrowing adequate funds

INSURANCE PLANNING

Millen

Nash

and making installment payments. Life insurance is the only option that can provide immediate funding, for pennies on the dollar, precisely when needed. Because of the leverage life insurance can provide, it is often the most costeffective method to funding a buy-sell. 2. Key person insurance. In the event of an unexpected death, life insurance also can provide the necessary funds to overcome revenue loss or hiring expenses needed to replace a key team member vital to the success of the company. 3 WAYS CONTINUED ON PAGE S16

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Life insurance a viable option for significant charitable gifts BY CAROL F. WOLF

uch thought and consideration goes into charitable planning. By far, the most common legacy gift is a simple bequest, but this is far from the only choice, and it may not even be the best choice for many donors. Individuals most frequently purchase life insurance when they become parents. They continue to pay premiums, and may never think about the policy again, even after their children are grown and independent. It is not unusual to work with a donor who has never considered how they might use their paid-up life insurance policy for a different and maybe even more satisfying purpose as part of their charitable legacy. Often, they are surprised they have an asset they did not realize could be used as a charitable gift. Life insurance can be an effective and simple option for charitable giving, especially for those who wish to make signiﬁcant gifts without

depleting current assets. It often is used as a portion of a blended gift (current and deferred assets, often testamentary) to increase the total amount donated. Not only does the charity receive a much more substantial commitment, but the donor beneﬁts from a higher level of recognition. It is a delicate balance and sometimes a complicated decision between what is immediately needed and the increased value of a deferred commitment. Although there are many ways to use insurance as a Wolf vehicle for a charitable gift, the two most common are donating a policy that is no longer needed or purchasing a new policy and donating it to the charitable organization. Both are easy and may be cost effective for the donor by creating a current tax deduction as well as decreasing the size of an estate, if that is an issue. The charity is the owner of the policy,

INSURANCE PLANNING

which creates an irrevocable bequest. A third option, one which provides the donor with more flexibility but does not provide a tax deduction, is to simply name a charity as a beneficiary of a policy you own. This enables the donor to change the beneficiary at any time, but makes it a less desirable gift for a charity that may or may not realize the gift in the end. In one situation, an individual may have a $1 million life insurance policy with his or her children as beneficiaries. The children are independent adults who also may be inheriting other assets. The paid-up life insurance policy may be cashed in, but the cash is not really needed by the individual. If the owner has philanthropic interests, this is a simple and efficient way for him or her to be recognized for a major gift

and also decrease the value of his estate by $1 million. In another scenario, the donor wishes to make a major gift to a charity, but has limited assets currently. They purchase a new life insurance policy and donate it to the charity, designating the charity as the owner and beneﬁciary. If a donor can gift the amount of the premiums over a period of time to purchase life insurance, they may be able to double or triple the size of the cash gift they would have donated. Many donors can use appreciated securities to pay premiums. If the securities were owned for more than one year, they can deduct the full market value of the gift as well as avoid the capital gains tax they would owe if the securities were sold. The charitable organization’s leadership must decide (with a gift acceptance policy) if gifts of insurance are a good option, considering that they will not receive the gift until the donor passes away, which may be several decades in the

future. In the case of donors in their 40s, when premiums are low, gifts may not be realized for 50 years. Larger charities with endowment funds are more likely to accept life insurance gifts than small ones that struggle to meet the bottom line. In addition, monitoring payments and reminding individuals to donate the funds to cover the premiums may be too cumbersome for a small organization. They may, however, decide to accept only paid-up policies. There are many options based on the donor’s and the charity’s shortand long-term needs and goals. As with most substantial gifts, the donor, ﬁnancial advisor and development professionals must work together for the best outcome. Carol F. Wolf, MSW, CFRE, is assistant vice president of planned giving and endowments at the Jewish Federation of Cleveland. Contact her at 216593-2805 or cwolf@jcfcleve.org.

Your music. Your legacy. Many thoughtful music lovers have created an enduring legacy by remembering The Cleveland Orchestra in their will. Together, we can ensure a vibrant future for the arts in our community. We invite you to learn more about how you can leave a meaningful legacy through estate planning by contacting us or visiting our website.

Rachel Lappen 216-231-8011 rlappen@clevelandorchestra.com clevelandorchestra.com/legacy

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Planning opportunities for women BY CHRISTINE MILLEN

omen are controlling more wealth than ever before, yet most of their hard-earned capital remains unprotected. Women are the primary breadwinners in more than 40% of households, and nearly half of estates worth more than $5 million dollars are controlled by women. Yet, women with life insurance typically trail behind men who have life insurance by about 25%. Women face different financial risks and challenges than their male counter- Millen parts, which can significantly impact their ability to achieve long-term financial goals. In many sectors, women still earn less than men. Plus, women may have less saved for retirement, since they are the likely partner in a marriage to take time out of the workforce to raise children or care for aging parents. Amplifying these two challenges is longevity, because women statistically live longer than men. So, a woman’s nest egg may be smaller, yet it needs to last longer. In the face of these challenges, it is important to plan early to ensure longterm financial success. A great foundation to mitigate risk is to start with family income protection. As a rule of thumb, the amount of life insurance for family income protection should be about 10 times income. Term insurance can be a low-cost method for funding this protection. However, a properly designed permanent insurance policy can enhance a nest egg through policy cash values and minimize the effects of longevity through an added long-term care benefit.

Get more with Ancora. With proprietary investment strategies, wealth planning and retirement plan solutions - we help you get more out of life. 216-825-4000 / www.ancora.net

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3 WAYS BUSINESS OWNERS CAN LEVERAGE LIFE INSURANCE CONTINUED FROM PAGE S14

Generally, the simplest way to determine the amount to insure is a multiple of the key person’s salary, such as 10 times salary. Additionally, term insurance can be a low-cost solution to cover this risk. 3. Executive benefits funding. In today’s tight labor market, many employers are looking for different ways to incent and retain key team members. Through proper planning, businesses can reward key personnel and recruit top talent, without breaking the corporate bank account. An executive bonus plan is a simple employer-provided program designed to enhance beneﬁts for key executives utilizing life insurance. In an executive bonus plan, the life insurance policy is owned by an employee, who designates the policy beneﬁciary, and the company pays premiums via bonuses to the employee. The company generally can take

INSURANCE PLANNING

When thinking about income protection, disability insurance should be a part of the conversation as well. Men and women alike often assume their employer group disability coverage is enough. This usually isn’t the case for successful professionals and business owners. To start, a group disability plan should be evaluated to determine benefit limits, and to identify coverage gaps that may be filled with individually underwritten disability insurance, or a supplemental disability plan that may be designed for a group of key employees, paid by the employer. Because women typically live longer than men, life insurance costs less for women. This makes life insurance a particularly compelling tool for women to use when it comes to legacy planning. Life insurance can help transfer wealth down to future generations and equalize an estate for a female business owner when some children may be involved in the business and others are not. Plus, life insurance can enhance a gift to charity, since the death benefit the charity receives is usually much greater than premium gifts. Women should look for an insurance advisor to collaborate with who understands how to leverage insurance tools to help overcome challenges and capitalize on opportunities that are unique to women. Christine Millen is vice president at Heirmark. Contact her at 440-6309400 or cmillen@heirmark.com.

a tax deduction for bonused premiums, while the employee pays taxes on bonuses received. To further enhance the plan for the employee, the company may “double bonus” premiums and taxes, removing out-of-pocket costs for the employee. The life insurance policy can be designed to check-off multiple boxes for the executive, including (1) death beneﬁt protection, (2) potential income tax-free access to policy cash values for supplemental retirement income and (3) long-term care protection to preserve assets. Business owners can break through the noise of the day-to-day and implement any of these tactics by engaging an insurance advisor with expertise in mitigating risk and retaining talent for businesses. Christine Millen is vice president at Heirmark. Contact her at 440-6309400 or cmillen@heirmark.com. Raymond Nash is principal and CEO at Heirmark. Contact him at 440630-9400 or nash@heirmark.com.

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Gifting retirement assets offers income tax savings BY TARA MITCHELL

or philanthropically minded individuals, assets that can be among the most tax-advantaged items to contribute to charity are those that will be heavily taxed upon distribution. Today, more people participate in tax-favored retirement plans than ever before. While individuals are committed to accumulating and growing these assets, few have planned for the harsh tax consequences associated with retirement plan Mitchell distributions — with tax rates of as much as 37%. Did you know that a direct contribution of retirement assets as part of an estate planning strategy can mean more funds for charities and heirs alike? For many people, a qualiﬁed retirement plan or an IRA may be the most signiﬁcant source of assets accumulated in their lifetime and one that receives favorable income tax treatment. Participants are

RETIREMENT PLANNING

not taxed on the contributions they make to the plan and any tax on the income or growth of the assets within the plan is deferred. Income tax is due when funds are withdrawn or eventually distributed to heirs. If the assets within a retirement plan are given directly to a qualified charitable organization, they are received in full, with no tax due, resulting in a more significant gift to charity A planned gift of retirement assets to a qualified charitable organization can reduce or eliminate taxes, while providing more for family members by allowing other assets, such as real estate and stock that receive a step up in basis, to transfer free of tax. Consider: A planned gift of retirement assets to a qualified charitable organization can result in a larger gift than leaving a donation through a will or trust. Let’s say, for example, that an estate is worth $1 million. It holds two

accounts: an IRA worth $500,000 and a taxable account (trust or other) worth $500,000. The decedent would like to donate $100,000 to a charity upon her death, with the remaining assets to go to a single beneﬁciary at a 25% tax rate. Allocating the donation from the IRA results in $800,000 going to the beneﬁciary ($500,000 plus 75% of $400,000) after income taxes. Giving the donation from the taxable account results in $775,000 ($400,000 plus 75% of $500,000) going to the

beneﬁciary after income taxes. Giving from the IRA enables the charity to receive the intended amount, while the beneﬁciary receives $25,000 more. Another option is to gift retirement assets during lifetime. Consider the tax savings of an IRA charitable rollover. Taxpayers age 70½ or older who transfer directly to charity up to $100,000 annually from their IRA accounts will not have to recognize the distribution as income. If you are thinking about making

such gifts, be sure to check with your tax professional. Your tax professional should help you determine the most tax-efﬁcient way to gift your assets to a charity. Tara Mitchell is a specialist in gift planning and strategic collaborations, institutional relations and development, at University Hospitals. Contact her at 216-844-5913 or Tara. Mitchell3@UHhospitals.org.

Forever. Legacy Donors to the Cleveland Museum of Art promise a future that will give people opportunities to imagine and learn for generations to come. Consider adding the Cleveland Museum of Art to your estate plan either by bequest, trust, or other planned gift. Contact Diane M. Strachan, CFRE, at 216-707-2585 or dstrachan@clevelandart.org, to create your lasting legacy for our community.

cma.org

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Photo by Julie Hahn, Sugarbush Design

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Charitable gift annuities: 5 reasons why they rock By AMANDA M. STEyER

uch like the glorious city in which we live, work and play, charitable gift annuities often are underappreciated and overlooked. To right this wrong, let’s take a look at why charitable gift annuities do indeed rock. A charitable gift annuity is a creative planned giving vehicle. In exchange for a transfer of cash, appreciated securities or, in some circumstances, real estate, the charity contractually guarantees to provide an annual income stream to one or two named beneficiaries, or “annuitants,” for life. At the end of the annuity, any remaining amount is used by the charity to provide support for the areas or programs chosen by the donors.

Here are five reasons to remind you of why charitable gift annuities are so effective:

1. They are simple and secure. The gift annuity is among the oldest, simplest and most popular of the charitable life income gift options. A gift annuity agreement often is a one-page contract that outlines the terms of the arrangement, such as the amount and timing Steyer of the payments. These payments are fixed at that time and will not fluctuate or adjust for inflation. More important, a gift annuity is considered a general obligation of the issuing charitable organization.

charitable planning

Meaning, the income stream is backed by the charity’s entire assets, not just the gift itself, and will continue for the lives of the donors no matter how the overall market is performing.

2. They are new and improved. The payment amount generated by the charitable gift annuity is determined at the time the gift is established. Payment amounts will depend on a number of factors, including the amount of the gift, as well as the donor’s age at the time of the gift. Most charities will use the payout rates suggested by the American Council

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on Gift Annuities. On May 15, 2018, the ACGA announced new suggested maximum gift annuity rates to replace the rates that became effective on January 1, 2012. The new rates apply to gift annuities established on or after July 1, 2018. In many scenarios, the new rates will be .4% to .5% percent higher than the rates they replace. These increases in annuity rates should make gift annuities a more attractive option for those who wish to support an organization’s mission and also are interested in receiving fixed payments for life.

3. They leave a legacy. In addition to making a gift that can, in turn, fulfill financial objectives, we mustn’t forget that a charitable gift annuity supports a charity in a meaningful and impactful way. When establishing a charitable gift annuity, donors have the ability to choose an organization that reflects their charitable wishes and values. Since the proceeds of the gift annuity won’t be available for use by the charity until after the annuitants’ lifetime, a unique legacy is created, ensuring that what matters most to an individual continues well into the future.

4. They can be attractive for younger donors. The gift annuity is not just for the individual looking for safe and stable income right now to supplement retirement years; it also can provide the younger donor with flexibility and long-term planning. As an alternative to having annuity payments begin immediately, gift annuities can be deferred to begin at a future date — a younger donor

planning for retirement, for example. The longer the payment is deferred, the higher the payment will be when it begins. A flexible annuity planning option is available if the annuitant wants flexibility in planning for the future. Payments are deferred for at least one year and then can be “turned on” at some point. Although deferring the beginning date of payments will not generate any additional tax savings, it will increase the amount of the payments once they do begin.

5. They provide peace of mind. A charitable gift annuity also can be established to provide a fixed payment stream to a loved one after the donor’s lifetime. A testamentary gift annuity may be funded through a will or trust, and can provide immediate or deferred payments. Those payments can be used to provide additional resources for an individual such as a surviving spouse, by offering a life income structure rather than a large outright bequest. Either way, donors can take comfort in knowing that their loved ones always will be supported financially. With a charitable gift annuity, individuals do not have to choose between personal financial security and providing for others. A gift annuity enables them to make a substantial gift to support an organization they are passionate about and to fulfill financial objectives. It is truly the gift that gives back. And that rocks. Amanda M. Steyer, esq., is senior director of gift planning at Cleveland Clinic. Contact her at 216-444-5021 or steyera@ccf.org

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Are your donor-named gifts properly funded? Increasing endowed gifts through planned giving BY JANE HARGRAFT

s Bob Dylan famously wrote and sang in 1964, “The Times They Are A-Changing.” While Dylan was writing about the social, economic and political upheaval that was gripping our country at that time, it’s a universally true statement. We are in a constant state of flux in almost every arena. Ignoring change is often short-sighted and can damage your institution. This situation is true in the case of donornamed gifts to your endowment that, say in 1990, were considered large enough to fund a program, professorship or scholarship in perpetuity. But, times, changes and different factors beyond your control, such as market fluctuations, the 2008 recession and increased costs – particularly labor, pension and health insurance – can diminish a gift’s impact. Suddenly, costs have outstripped returns, and the annual draw the originally invested funds were meant to cover is insufficient.

This leaves both parties feeling aggrieved. To the fundraising professional, the named funds are frustratingly underfunded, and new gifts to the endowment to name similar positions or programs can be as much as 10 times an investment made in 1990. To the donor, what was at the time a major investment, in a structure set by you, the institution, appears diminished and “lesser than” when presented with the menu of options for naming Hargraft funds in your latest major campaign. What to do? Honesty and transparency is always the best policy. Have an open discussion with your donor to explain that – through no one’s fault – their investment (or their family’s) in 1990 cannot do what it was intended to do today. And, rather than go down the easy road of subsuming the gift into the general endowment (assuming

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CHARITABLE PLANNING

you’ve written that flexibility into your gift agreement), a move guaranteed to offend many and please very few, it may be best to try a different approach. Instead, offer the donor an opportunity to add to the named fund with an additional cash gift to the endowment, and if that’s not possible, an irrevocable planned gift to the endowment. This approach will solve both of your potential problems, providing sufficient funds without alienating your donor. A gift of life insurance is one type of irrevocable planned gift to consider, especially if you have sufficient annual operating fundraising and do not immediately need cash for your endowment. This planned gift may also be attractive to a donor who has already committed their extant estate to other causes or programs.

There are two distinct options for this type of gift. The ﬁrst option is for your donor to make your institution the beneﬁciary of a new or pre-existing life insurance policy that will bring the named program into compliance with current naming level policies. The other option is that your donor may consider a new life insurance policy that is owned by the institution. Under this second option, the donor makes annual gifts to the institution, which then uses the funds to pay the insurance premium. The donor receives a tax deduction during the payment period. Occasionally, other circumstances intervene and can prevent the donor from making the premium payments. Be sure that when you are planning to accept this gift of insurance, your endowment can take over the payments in this case. Often, your endowment will treat this investment as part of their asset mix. Make sure you weigh and understand these issues before accepting such a gift, and both institutions and donors should receive professional counsel before entering such an agreement. Fundraisers

should especially discuss this with their chief financial officer and leadership before initiating a conversation about such a gift — nothing poisons a relationship faster than soliciting a gift that the institution then decides is it does not want to accept. And what do you do with these reinvested chairs or programs? I would recommend a small but meaningful event for the donor. Like renewing one’s marriage vows, this reinvestment in your institution is an occasion for special recognition for the donor and the beneficiary (who had likely evolved from when they made the gift). Instead, it is an opportunity to bring your donor closer to your institution and to truly thank them for the impact their past gift made and their future gift will make. This approach allow you to turn a potentially negative situation into a positive for both you and the donor. Jane Hargraft is chief development officer at The Cleveland Orchestra. Contact her at 216-231-7520 or jhargraft@clevelandorchestra.com.

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Pairing a charitable remainder trust with a donor-advised fund has multiple benefits By SANDRA C. LUCAS

onor-advised funds are increasingly popular charitable giving vehicles. When appropriate, the marriage of a charitable remainder trust to a DAF can allow a donor to receive income, minimize taxes and diversify assets, while ultimately making a significant charitable impact. A donor funds a CRT by making an irrevocable gift of assets. The donor receives a charitable deduction, equal to the trust’s remainder value, for the year in which this gift is made. The donor, or other individual(s), receives income from Lucas the CRT for a term of years (no more than 20) or life, subject to tax. The income payout is based on the value of trust assets when the CRT is funded (an annuity trust, or CRAT) or as revalued annually (a unitrust, or CRUT). When the CRT ends, a qualified charity, such as a DAF, receives remaining trust assets. There are limits to a donor’s ability to change charitable beneficiaries after the CRT is created. If a DAF is the remainder beneficiary, the DAF advisors (such as the donor, if living, or the donor’s children) can, however, recommend distributions to a variety of charities. This may appeal to a donor who desires his or her children to be involved in philanthropy after the donor is gone. This also builds in flexibility regarding charitable distributions from the CRT. Who might consider this approach? A

charitable planning

good candidate is a charitably-inclined person who owns highly appreciated stock and wants to diversify that portfolio in a tax-wise manner, while receiving an income stream. Here’s an example: The donor transfers low-basis stock to a CRT. She is the income beneficiary and designates a DAF as the charitable beneficiary. Because CRTs are taxexempt, the trust pays no capital gains tax when the trustee sells the stock to diversify the trust portfolio. The donor receives income for a term of years or life, subject to tax on the distributions. If the CRT is a unitrust (CRUT), the income payout is a fixed percentage of the trust assets, revalued annually. In that case, if the trust investments perform well, the payout to the donor may increase over time. When the trust ends, the DAF advisors (here, the donor’s children) may recommend charitable distributions that honor the donor’s philosophy of giving or perhaps meet charitable needs the donor could not foresee. Is this strategy right for you? Consult your professional advisors and a DAF sponsor, such as a community foundation. Sandra C. Lucas, esq., is the director of planned giving at the Catholic Community Foundation. Contact her at 216696-6525, ext. 1640 or slucas@ catholiccommunity.org.

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Tips on maximizing beneﬁts of a donor-advised fund BY BRIAN M. O’NEILL

t is no secret that donor-advised funds have exploded in popularity. Charitably motivated individuals and families have discovered the many benefits of donor-advised funds, which allow them to meet their philanthropic and financial goals. A donor-advised fund acts as “charitable investment account” administered by a sponsor organization (typically a community foundation or charitable arm of a financial institution), which handles the administrative and regulatory burdens. A donor can receive an income tax deduction when assets are contributed to a fund, and then make recommendations for distributions (called “grants”) over time to charitable organizations. Following are five ways a donor can maximize the benefits of a donor-advised fund. Contributing appreciated assets: In addition to the potential income tax deduction for property contributed to a donor-advised fund, a donor can contribute appreciated as-

sets, such as “low basis” stock, to avoid incurring capital gains tax. Controlling the timing of tax deductions and grants: With the increase in the standard deduction, fewer taxpayers are itemizing deductions (which includes the charitable deduction). Instead of making multiple year-end gifts directly to one or more charities, a donor can make one contribution to a donor-advised fund and still receive a tax deduction for the year of the contribution. This one contribution to O’Neill a donor-advised fund will typically be larger (the amount of two years of gifts) while allowing the donor to stagger distributions to charities with periodic grant recommendations. By “bunching” two years of charitable gifts into a single year, a donor is able to itemize deductions in alternating years and beneﬁt from the charitable deduction. Making “bunched” gifts to a donor-advised fund allows donors to

CHARITABLE PLANNING

maximize their charitable income tax deductions while spreading out over time the distributions to charities of their choice. Designating a donor-advised fund as a beneficiary: A donor can include a donor-advised fund in the donor’s estate plan and benefit from an estate tax charitable deduction upon the donor’s death. This can be done by designating a donor-advised fund as a beneficiary in a will or trust, or as the beneficiary of an IRA or life insurance policy. Involving family and creating a legacy of giving: A donor is able to name “co-advisors” or “successor advisors” to make grant recommendations, enabling a donor to involve others in philanthropy and create a family legacy of giving. Using sponsor organization resources: Sponsor organizations, es-

pecially community foundations, offer many resources to assist donors, such as educating donors on different organizations and initiatives in the community and helping create a charitable mission statement. With so many beneﬁts and ﬂexible strategies offered by donor-advised funds, expect this charitable planning

vehicle to continue to rise in popularity. Brian M. O’Neill is a partner at Tucker Ellis LLP and chair of The MetroHealth Foundation board of directors. Contact him at the foundation at 216-778-5665. Joseph Ferraro, an associate at Tucker Ellis LLP, contributed to the article.

Usually, 1+1=2 . In this case, it equals 817. That’s the combined years of legal experience in real estate, business law, and estate planning of Frantz Ward now that Kadish, Hinkel & Weibel has joined us. FrantzWard.com

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Donor stewardship requires authentic gratitude BY SARA THOMAS

encouraging faithful philanthropy WE ENRICH DONORS’ LIVES BY CONNECTING THEIR SUPPORT WITH THE MINISTRIES AND SERVICES OF THE DIOCESE OF CLEVELAND TO CONTINUE JESUS’ MISSION ON EARTH.

Catholic Legacy Planning • Donor Advised Funds • Charitable Gift Annuities • Philanthropic Funds Since its inception in 2000, the Catholic Community Foundation has raised more than $465 million to provide for the spiritual, educational and charitable needs of people throughout Northeast Ohio.

sh i

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To create your Catholic legacy, contact Sandy Lucas, Esq., Director of Planned Giving, 216-696-6525 x1640, slucas@catholiccommunity.org. Please join us at our Continuing Education Seminar for Estate Planning Professionals 11/20/19: www.catholiccommunity.org/2019Seminar

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t io - e duc a

www.catholiccommunity.org/create-your-legacy

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he word “gratitude” means more than a simple “thank you.” At the heart of strong donor stewardship is authentic gratitude for every donation no matter the gift amount. In order to express heartfelt gratitude to donors, organizations must prioritize the donor experience, which can be akin to the customer experience. Customers buy goods and services from a Thomas company, while donors are purchasing the power to do good for a cause about which they are passionate. A timely response is the first essential way to steward donors. Just as a business would offer a receipt of payment, our organization strives to acknowledge gifts of support within the week in which they are received. Second, a personalized response supports the connection a donor has to the organization’s mission. While volume may be a challenge for some larger organizations, personally signing letters, writing thank-you notes or making phone calls makes a big difference. With the rise of online giving and overly cluttered inboxes, it is also important to diversify the way in which you thank donors. For example, for peer-to-peer campaigns, an email may suffice for tax purposes. But sending a post card announcing the final goal raised to donors reminds

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them of the bigger picture and makes them feel a part of the effort. Or consider a video thank-you on your nonprofit’s social media channels as another friendly touchpoint. Don’t forget to incorporate the unexpected. Just as in a good customer relationship in which a company strives to offer exciting new products or services, a nonprofit can reach out to donors with human stories that are the fruits of their financial support. These stories can be told in third person, or can come from grateful clients, program staff or volunteers when appropriate. Story-driven stewardship might simply thank the donor without asking for the next gift. Good donor stewardship doesn’t have to cost much, but it does require time and attention to detail. Leverage staff, board members or your organization’s ambassadors to help. Any stakeholder can be a part of thanking donors in a meaningful way. The most important thing is letting the donor know they have made an impact through giving – and hopefully through donor stewardship you can retain them. Sara Thomas is director of development at Cleveland Hearing & Speech Center. Contact her at 216-325-7578 or sara@chsc.org.

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Creating and implementing charitable giving plans BY JULIE WEAGRAFF

haritable giving is a meaningful way to give back to organizations that have special significance in your life. Purposeful giving must start with a plan. Think about what you want your legacy to be. You can start planning at any age, and as your life circumstances change, you can adapt your charitable giving to reflect those changes. This could take place at any time during your life or at the onset of major life events such as marriage, the birth or adoption of a child, or Weagraff when you retire. Working with a professional advisor or group of advisors will help you establish and execute your future charitable plans. To create and implement the charitable giving plan that’s right for you, you first need to choose the right advisor. Make sure the person is someone you trust and who understands your philanthropic goals. Over the course of your lifetime, you may work with only one advisor or several advisors, but the key is to make sure your intentions for charitable giving clearly are outlined in your estate plans. As your life circumstances change, you can adapt your plans to meet your goals at that particular point in your life.

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As you grow older, you may want to consider expanding your circle of giving or focusing on a smaller number of organizations with larger commitments. Organizations that were significant to you as a young person may not have as much meaning for you as you age. That is why it is important to continually re-evaluate and update your charitable giving priorities. You can make it an annual review or you can review your plans every few years, but doing so will help you to stay current with your charitable intentions. Annual or periodic reviews also present an opportunity to involve your family members in your charitable planning. Your spouse, partner, children, and other key family members can give you important feedback that can help you determine how you want to make an impact with your charitable giving. Investing time and resources into your charitable giving plan will give you peace of mind in ensuring your legacy will be fulfilled in a way that reflects what you treasured most. Julie Weagraff, MNO, CFRE, is vice president of fund development at Girl Scouts of North East Ohio. Contact her at 330-983-0399 or jweagraff@gsneo.org.

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The art of giving: tips for making a bequest BY LEIGH CARTER

or many people, a meaningful part of their legacy is the art they’ve collected during their lifetime. When considering what becomes of their collection after they’re gone, there is a natural desire to place it where it will be most appreciated, and often that means donating it to an institution such as an art museum. A charitable bequest of art written into one’s will or trust may provide a valuable tax deduction and allow future generations to enjoy the artworks in a public space. However, these purposes can be frustrated if this intention is not discussed in Carter advance with the recipient organization. All too often, the first notice an institution receives of an estate gift is a call from a benefactor’s family, attorney or financial advisor with news that the deceased donor has provided a bequest of all or a part of his or her collection. While appreciative of the donor’s beneficence, the institution may be unable to accept the gift because the works are outside the institution’s mission or curatorial departments, or the works could be too duplicative of objects they already have. Donations of large collections may simply involve a greater number of works than the

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institution can display or effectively store. When the designated recipient organization cannot accept such a gift, the natural consequences can include disappointment for the decedent’s family and heirs, regret for the institution and complications in settling the estate. To avoid these problems, a donor should let the organization know of the intention to include it in the estate plan. Any organization would be ready and willing to consult conﬁdentially in advance on the proposed gift and to assist with the arrangements and documents to best achieve the donor’s desires. If the art or collectibles are not a good ﬁt with that particular organization, they can help guide the donor toward other solutions and possibly another recipient better suited to the gift. As is true with so many endeavors, communication and collaboration yield the best results for all involved. Leigh Carter is relationship manager, wealth advisory vice president at Glenmede, and a trustee at the Cleveland Museum of Art. Contact him at 216-514-7873.

Helping Clients Solve Complex Estate and Succession Planning Needs The attorneys in Calfee, Halter & Griswold LLP’s Estate and Succession Planning group can help you make some of the most important decisions of your life. With deep knowledge and experience in finance and the law, our professionals provide exceptional value to clients seeking: • • • • •

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