CPS Resource Center

Bailout?

Randy Dickinson — Tue, 06 Jan 2009 21:54:19 +0000

A comic strip 5 years ago! (Click to enlarge)

Happy New Year

Randy Dickinson — Fri, 02 Jan 2009 02:56:32 +0000

I saw this and couldn’t resist!

mistakes

The Emergence of the Digital Elite

Randy Dickinson — Fri, 26 Dec 2008 17:33:44 +0000

In a way, the pressure of real-time information is polarizing - the hard-working people are becoming harder to replace, while slackers and perhaps less knowledgeable people are just not needed. We have seen this trend in software engineering for a while - a handful of smart people can accomplish much more than an army of mediocre workers. A skilled, quick professional stands out these days. The people who shine are the people who get the new world - a no-nonsense approach, courtesy, and most importantly, speed.

Recently, my insurance broker switched companies. He quickly contacted me, offered an attractive new package, and then drove 1.5 hours from his office to my home to sign the papers. His commission would not want warrant the trip, but he was smart to make the investment of his time because he won me as a client. On the other hand, the cost of losing a talented employee for his old company just increased - they also lost a client, and I am sure I was not the only one.

Although my insurance agent lives in the technical world, he is part of new breed of folks that I call the digital elite. He uses Facebook to keep in touch with his friends, he was savvy enough to look up my company on the web, and he knows all the cool financial websites. In other words, he is on top of what’s going on. He knows all about the speed of information in our world. And this makes him a serious and important player, of the type that is really hard to replace.

Wealthy donors say they don’t make a difference?

Randy Dickinson — Thu, 18 Dec 2008 00:44:05 +0000

By Jeff Brooks
Something’s wrong with fundraising. At least, that’s one conclusion you could draw from a study reported in the Wall Street Journal Wealth Report blog at Why the Rich Give to Charity.
The survey, by the Center on Philanthropy and Bank of America, asked people with incomes of $200,000 or more or a net worth of $1 million-plus, about their motivations for giving to charity. Here’s the key finding:… 46% of respondents said their charitable donations have a “greater impact on their own personal fulfillment” than on those who receive their gifts.
Less than 20% believed their giving has a major impact on the organizations they support, and only 6% feel that they’re making significant impact on society.
If you pay a lot of attention to donors, the fact that giving creates a lot of personal fulfillment will be no real surprise. What’s distressing is the low level of belief in their impact on the organizations they support and on society in general.
Why are these donors so unimpressed with the impact they’re making through their giving?
It’s (at least in part) a failure of communication.
Are you doing your part to persuade your donors (major donors especially) that their giving does have a major impact on your organization and that they do significantly impact society?
Maybe more important, do the facts support those two assertions? (If they don’t, what is your organization doing wrong, and how are you going to fix it?)
You know how I feel about surveys: They don’t necessarily uncover truth; they only reveal what people said in the survey. But really, a strong, smart, donor-centered nonprofit should make it so abundantly clear to its donors that they matter that it would be impossible for them to say they don’t.

Comprehensive Estate Plans

Randy Dickinson — Mon, 15 Dec 2008 16:29:08 +0000

By Hannah Shaw
Developing a comprehensive estate plan with an experienced legal professional can cost tens of thousands of dollars. Not having an estate plan in place and operational at the time of death can cost both time and money in the form of unnecessary complications and taxes for the estate’s heirs. This is the reason many wealthy individuals decide to create estate plans in the first place; there is general agreement that having an estate plan can help ensure that the greatest amount of an estate’s assets make it to the designated people and organizations. Unfortunately, many plans never become real, getting derailed before documents are drafted and executed and the trusts, partnerships and other legal structures are created. We spoke separately to trust and estate attorneys and affluent individuals to compare their views on the situation and understand why.

Nonchalant Professionals
In 2003, and again in 2006, we conducted separate surveys with trust and estate attorneys who had designed and prepared estate plans for wealthy clients that were not implemented. Given the amount of effort and expertise it takes to develop an estate plan, we were surprised to find almost no concern among these attorneys for their clients’ lack of follow-through. In 2003, just 17% of them expressed concern, and the number dropped sharply to about 7% three years later (Exhibit 1).

Next, we asked about the type of follow-up initiated by the attorneys to encourage plan implementation. Roughly 80% of the attorneys that expressed concern about their clients’ inaction sent letters or e-mails suggesting they come in to sign their documents. Very few—only 13% of them—initiated personal contact either by calling or arranging a meeting (Exhibit 2). While those figures may seem grim, the lack of follow-up by unconcerned attorneys was startling. More than 80% of them met the clients’ lack of action with their own inaction and did nothing to promote further activity. Just 17% sent letters and e-mails, and only 1% placed phone calls.

The reasons behind the attorneys’ apathy lie in the very nature of the trust and estate business. It is largely transactional, meaning that lawyers are retained to work on a specific project or plan. Estate plans are long-term initiatives—designed to work over a period of many years—so once a project or a plan has been completed, the lawyers must find new clients. In effect, they close the books and move on without dwelling on whether their plan ever makes it to fruition. Furthermore, once a client has paid his bill, making sure the documents are signed becomes less important.

While this seems to be the status quo, it is an unsustainable situation for both trust and estate attorneys and for the wealthy individuals who need estate planning expertise.

Dissatisfied Customers
To understand why many wealthy individuals choose not to follow through on their estate planning efforts, we constructed survey samples in 2003 and 2006 of families that had net worths in excess of $10 million and that had not implemented their plans.

The overriding reason cited in both studies was that the plan did not satisfy the families’ goals, wants and objectives (Exhibit 3). Many clients begin the process not knowing exactly what they want or are unable to express it clearly, hoping that the attorney will be able to guide them through the process and help them crystallize their priorities and values. In the case of abandoned estate plans, the attorneys had been clearly unsuccessful in identifying their clients’ core issues but proceeded with plan development anyway.

Furthermore, most families felt uncomfortable with the attorney they had retained, which had a direct impact on their interest in pursuing the process. Unease is a typical reaction when service professionals are perceived as poor listeners, are not appropriately empathetic, function clinically or are not consultative in their approach. An interesting and perhaps related finding is that dissatisfaction among clients escalated in the three years between studies while concern among attorneys diminished.

It’s worth noting that roughly half of the families surveyed in both studies felt their estate plans were too complicated to implement. Oddly, though, most affluent families expect sophisticated and intricate strategies from their attorneys to protect their wealth. Nevertheless, it’s clear that many trust and estate lawyers fail to assess their clients’ level of knowledge about estate planning and their comfort with complexity, and do a feeble job explaining abstract legal concepts to laypeople.

Confusing And Condescending
Adding insult to injury, it seems that many trust and estate attorneys have other weaknesses when it comes to client interaction. Most of the families surveyed said they were unable to determine if the final plan presented by their attorney was, in fact, going to help them accomplish their objectives (Exhibit 4). Their attorneys did not, or could not, explain how the plan would work and their role in the process. Clients felt further alienated by the lawyers’ overuse of legal jargon and condescending behavior. Further analysis revealed that the perception of arrogance was derived from the consistent use of legal terminology, a “presumptuous air of authority,” and the unwillingness to devote extra time to helping clients understand the details and nuances of their plan.

Across the board, trust and estate attorneys were rated much lower by their clients in 2006 than they were just three years earlier, underscoring their inability to communicate the value of their work. This also shows the financial pressure facing attorneys with a largely transactional business model.

An Exercise In Futility
As noted previously, affluent clients have a lot at risk when they choose not to implement an estate plan. However, our research shows that trust and estate attorneys have much at stake as well when they leave their clients unsatisfied.

We all recognize that one bad experience can have an insidious and lasting effect and, in this case, can cast a pall over both the attorney and the law firm. Very few of the wealthy clients surveyed expect to work with the lawyer or the firm again, and a similarly small number would refer a family member, friend or business associate to the firm (Exhibit 5).

What’s worse is that instead of simply choosing to work with another attorney or directing their colleagues and confidants elsewhere, these unhappy and dissatisfied clients will advise other people to avoid the professional or the firm altogether.

These simple actions, while imperceptible to the trust and estate attorney, can have a compounded effect and cause business to flatline or suffer. As they were on the other questions, proportionately more clients are critical of their experience and their professionals in 2006 than they were in 2003. In that period of time, the structure of the trust and estate business has become less client-oriented and, therefore, less client-friendly while the superwealthy have become more astute and demanding purchasers of professional services.

High Net Worth Giving

Randy Dickinson — Mon, 15 Dec 2008 16:16:42 +0000

By Hannah Shaw Grow, Russ Alan Prince

Despite the wide appeal of philanthropy, most of the wealthy don’t capture the benefits of planned charitable gifts.

… In an effort to understand how actively the wealthy are involved in the stages of the giving process, we surveyed 446 individuals with a net worth of $5 million or more and a history of giving at least $50,000 a year to non-profit organizations.One of the first issues that surfaced in our study was how much authority and control affluent givers want in the selection of the charities they support and, then, how the contributions are used. Almost three-quarters of survey respondents characterized themselves as wanting a high degree of both—we refer to them as high-influence givers. By contrast, the remaining quarter were less interested in participating in the process—low-influence givers (Exhibit 1).
Typically, most charitable gifts—regardless of the total wealth of the donor—can be considered “checkbook philanthropy,” meaning monetary gifts made in response to fundraising requests or one-off situations such as benefit events and auctions. While this form of giving is no less important, it often occurs without much advance thinking or planning and may not allow either the donor or the charitable organization to benefit as much as possible.
To ensure maximum effect, many wealthy individuals have begun planned giving to structure their philanthropic activities. More than half of our survey participants had already established a planned gift, but there was a greater disparity when viewed by segment. About two-thirds, or 62%, of the high-influence individuals had established a planned gift, while just 39% of low-influence givers had done so (Exhibit 2). …
The opportunity to proactively reduce taxes was of material importance for 87% of high-influence givers, but far less significant to low-influence givers. Just 35% of that group cited tax implications as one of the major drivers in their decision to establish a planned gift (Exhibit 3).
A large portion of both segments, however, cited a broader planning effort as playing a principal role in their decision to create a planned gift. Of high-influence givers, 97% said the planned giving process was part of a broader effort that focused on financial planning, estate planning or both, as did 90% of low-influence givers (Exhibit 4). …
… The most popular vehicle for high-influence givers was the charitable remainder trust, with 60% having established one. The second most frequently used structures were private foundations and supporting organizations, used by 34% of high-influence respondents. By contrast, almost three-quarters of low-influence givers used a simple will bequest as the way to structure their charitable gifts.
Donor-advised funds were the second most frequently used vehicle, established by 29% of the low-influence segment (Exhibit 5). …
About half of the 247 wealthy individuals that have established planned gifts have additional planned giving needs. A much larger percentage of high-influence givers, 58 percent, expect to enhance their existing gifts or established additional gifts as compared to just 19% of the low-influence givers (Exhibit 6).
While high-influence givers cited the same gifting vehicles—private foundations, charitable remainder trusts and charitable lead trusts … The vehicle of greatest interest to the low-influence group was a private foundation, as cited by 52% of the segment. After that, interest in other giving structures dropped off considerably with just 13% identifying the donor advised fund as a product of interest (Exhibit 7).
… The planned giving process can help all types of donors get the maximum benefit from their gifts as it provides a forum to have a dialogue with selected charities, creates opportunities to involve family members, and can ensure tax codes are interpreted and leveraged to the greatest degree possible. Still, many affluent givers continue to make contributions without any advance planning and, as a result, may be sacrificing some substantial benefits.

The Future is in Charitable Planning

Randy Dickinson — Thu, 04 Dec 2008 05:06:23 +0000

Here is a “must” read article about how working with charities and creating lasting situations of wealth is a “huge” opportunity. Here is the article “Donors Turning to Wealth Advisors”

Here is the closing comment: …My message to them will be that wealth advisors do not represent the enemy, but most of them need a lot of help to climb the philanthropy learning curve. It may not be the obligation of the nonprofit community to educate wealth advisors, but I think there is a huge opportunity available to those nonprofits that see the shift that is occurring and get out in front of the curve by working hard to educate the financial crowd.

The IRS vs. Edwin Lichtig III

Randy Dickinson — Tue, 02 Dec 2008 18:48:48 +0000

November 24, 2008
San Francisco Federal Court Halts Sales of Tax Schemes
FOR IMMEDIATE RELEASE
Monday, November 24, 2008
WWW.USDOJ.GOV

Walnut Creek, Calif., Firm Allegedly Helped Customers Avoid Tax on More Than $25 Million Through Insurance and IRA Scheme Download the IRS lawsuit

WASHINGTON - A San Francisco federal judge has ordered Edwin Lichtig III and his Walnut Creek, Calif.-based firm, GSL Advisory Solutions, to stop promoting unlawful tax schemes, the Justice Department announced today. The defendants agreed to the permanent injunction order without admitting the government’s allegations against them. The United States sued Lichtig and GSL alleging that they promoted tax fraud schemes involving Individual Retirement Accounts (IRAs) that helped customers improperly avoid federal income tax on more than $25 million. According to the federal suit, Lichtig, a Lafayette, Calif., insurance salesman, promoted a scheme called PAT (Pension Asset Transfer). It allegedly helped customers improperly avoid income tax on untaxed assets held in their IRAs through the use of a series of transactions with sham businesses, self-employed retirement accounts and understatements of the value of life insurance policies. The government complaint said a second scheme called FROCO (Financed Roth Conversion Strategy) allegedly helped customers use annuities to transfer funds from their traditional IRAs to Roth IRAs without paying the proper amount of tax that is imposed on such transfers.

“Stopping tax fraud schemes involving misuse of retirement accounts is a high priority for the Justice Department’s Tax Division,” said Nathan J. Hochman, Assistant Attorney General for the Tax Division. “Since 2001, the Division has obtained injunctions against more than 360 tax return preparers and tax-fraud promoters.”

Hochman thanked Justice Department trial attorney Grayson Hoffman and Bill Maier of the Internal Revenue Service’s Small Business/Self Employed Division for their work on the case.

Information about the Justice Department’s Tax Division and its enforcement efforts is available on the Justice Department.

Tax Free IRA Rollovers Update

Randy Dickinson — Mon, 01 Dec 2008 18:07:25 +0000

Jeanie Wyatt

The government’s massive economic package (the Emergency Economic Stabilization Act) passed by Congress and signed by President Bush in October, contained many provisions designed to help or to stimulate the economy in one way or another. The jury will be out for quite a while on how effective a number of those “fixes” will be in the long run.There was one good provision worth mentioning, which hopefully no one will complain about. (Right now there are so many acronyms being bantered around that you don’t want this one to be lost in the shuffle.)Two years ago, a provision in the Pension Protection Act of 2006 allowed certain individuals to make contributions directly to charity from their individual retirement rollover accounts. At the time, this “Charitable IRA Rollover” provision was only good for transfers made in 2006 and 2007.

During that two-year period, more than $140.5 million was given to charity out of IRA accounts under the PPA. This is based on a survey conducted by the National Committee on Planned Giving (www.ncpg.org) for the period of Jan. 1, 2006, through Dec. 31, 2007. More than 40 percent of that total dollar amount was given in gifts of the maximum of $100,000, though the most common distribution amount was $5,000 (13 percent of the total number of gifts made). This opportunity expired at the end of 2007.

As part of the recent legislation, however, the provision for a charitable gift from an IRA has been extended. The extension is retroactive and applies to qualifying distributions made in 2008 and 2009.

In case you have not heard about this from your favorite charity, here are some of the particulars I described in a previous article last year:

People age 701/2 and older are required every year to withdraw a certain amount from their IRAs. This is called their Minimum Required Distribution. Some people do not want or need this income, and this income can have a negative impact on their overall tax rate. Charitable IRA Rollovers can help certain IRA owners meet their MRD without increasing their taxes. Rather than take out money that will be taxed as ordinary income, a tax-free rollover to a charity can substitute as the MRD.

Under this provision, the owner of an IRA (who is 701/2 on the date of the transfer) may direct up to $100,000 in 2008 and up to $100,000 in 2009 to the qualified charity or charities of their choice. Most public charities qualify. Not eligible to receive funds through a Charitable IRA Rollover are donor-advised funds, supporting organizations, private foundations, charitable gift annuities or any type of charitable remainder trust.

While no income tax deduction is allowed for these types of gifts (since the funds are coming from tax-deferred accounts), this strategy can have income tax benefits to certain people by keeping their taxable income at lower levels. It takes what amounts to a required income tax liability and transforms it into an opportunity to benefit your community and to enjoy the personal satisfaction that can come from helping others.

The good news is that this opportunity now has been revived by Congress. This is very good news for qualified charitable organizations.

Unfortunately, for those who already have taken their MRD this year who might otherwise qualify to take advantage of this, they are out of luck unless they have taken their distribution recently. If they have taken it within the past 60 days, they still may be able put the money back into their rollover and not have it taxed as income in 2008, so long as they complete the loop by being sure the gift to charity in satisfaction of their MRD is completed by Dec. 31, 2008.

For 2009, everyone at least has plenty of time to make a decision.

As always, consult with your accountant or other tax planning professional to see if you qualify to take advantage of Charitable IRA Rollover and if it makes sense for your particular situation.

With all the talk about “giveaways” in the recent legislation, it is good to see that something helping charitable organizations was included, especially in a recessionary environment when giving to many nonprofits may be down, while their services are needed now more than ever. America always has been the most generous nation on Earth. It is great that this venue for giving is available, even if only for a short while.

‘Tis the season to give assets to loved ones … and dodge estate taxes

Randy Dickinson — Mon, 17 Nov 2008 06:43:52 +0000

November 16, 2008

The economy is in a temporary mess with home prices diminishing and the stock and bond market falling. Yet, for anyone with a federal estate tax issue potentially at his or her death, this is a good time to give as many assets as one can. This is one of the best opportunities to transfer wealth to younger generations, without incurring the federal estate tax in the process.

The federal system for estates and gifts is a combined system. A person is able to give an annual gift of $12,000 per donee (or $24,000 if that person’s spouse shares the gift). If the value of the gift exceeds the $12,000 amount, the portion above that amount uses up part of the lifetime exemption amount.

In 2001, Congress had changed the law in this area, which increased the amount that an individual could leave to someone other than their spouse without incurring the federal estate taxes. This amount is $2 million today, which is scheduled to increase to $3.5 million in 2009. The federal estate tax, according to the 2001 law, is scheduled to disappear in 2010 (estates will not receive the stepped-up basis of fair market value as of date of death, and thus pay capital gains taxes instead), and will reappear in 2011 with a $1 million amount. There is also one additional rule in which you cannot give more than $1 million during your lifetime without incurring a tax on the gift.

This is the current state of the law, which will be changed by the new Congress when they are sworn in next year. During the political campaign, both candidates stated they wished to leave this lifetime exemption at a higher amount than $1 million. President-elect Barack Obama said he wished to make the lifetime exemption at $3.5 million and leave the tax rate at the current rate of 45 percent.

As no tax professionals believe the federal estate tax system will be abolished anytime soon, most planning involves the transfer or gift of property from one generation to the next with the least tax cost. Because of the temporary diminished prices on stocks, bonds and real estate, this is a great time to consider making gifts of those assets, which will allow the recipient of the gift to enjoy the rebound in price when it occurs.

Another thing you can do is to pay the tuition and medical bills for your children or grandchildren with no tax consequences to federal gift or estate taxes.

In addition, as the interest rates are down now, this makes many other techniques in giving more to your heirs much more attractive. It is more appealing now to use family loans, grantor retained annuity trusts, an intentionally defective grantor trust or a charitable lead trust, which will allow you to give more to your heirs than you would have been able to when rates were higher. These tax techniques rely on an interest rate that the government sets monthly, called the applicable federal rate, which is set lower than the rates that you might see for a 30-year mortgage.

Because of the above, there are great opportunities to transfer your wealth to the next generation.

Denice Gierach is a lawyer and owner of The Gierach Law Firm in Naperville. She is a certified public accountant and has a master’s degree in management.