Gifting

by Bruce Fenton

The Ultimate Gift by Jim Stovall is not a thick book … and its chapters are short … but it’s very much to the point. It is the story of a rich uncle who leaves a portion of his considerable fortune to a less than over achieving family, while leaving the Ultimate Gift to a spoiled, overindulged grand nephew in whom he places all of his hopes for the future.

Charitable activities are a natural outgrowth of civilization and affluence. Certainly, in our country we see stunning examples of charitable works, whether it is the outpouring of aid to disaster stricken areas, home or abroad, or the incredible amount of wealth donated by the likes of Microsoft® founder Bill Gates and many others like him.

The Gates Foundation, with assets approaching $30 billion, lists one of its main goals as improving health care in developing nations throughout the world. Matching that level of philanthropy is out of the question for most, yet there remain many avenues for charitable works for the rest of us.

The government has provided tax incentives to encourage charitable works. They understand that it is more efficient to allow private enterprise to provide for these needs, than rely on inefficient government resources to provide the similar services.

And that is why the tax laws are structured to support charitable giving … in lieu of profits for invested dollars, those willing to give are rewarded with tax breaks.

Choosing benefactor(s) for organized annual gifting can be difficult, if not downright confusing. A solution is to form a donor-advised fund through a public charity. Many local community organizations as well as a number of mutual funds offer donor-advised funds.

Charitable contributions are considered an irrevocable gift, but the donor may choose to whom and when gifts are made. This flexibility allows the donor the opportunity to give differing amounts each year without having to stipulate the exact recipient. It greatly simplifies record keeping … instead of keeping a drawer full of receipts and cancelled checks for your tax preparer, you have one receipt. This allows the donor the opportunity to give to many different charities, but not have to track each gift.

Technically, the fund is not required to follow donor directions for distributions, although this is rarely the case. In most cases the donor can continue to advise the fund as to investment policies and strategies.

Unlike a private foundation, where 5 percent of the foundation assets must be given away each year, the donor-advised fund is not bound by a strict dispersal formula. Donor-advised funds work well in situations where the donor has fluctuating income but would like to keep dispersal of charitable donations at the same level.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Conservation Easement

by Bruce Fenton

A few years ago, a sale of 7,000 acres of California coastal property to a Land Trust, coupled with a contentious ballot issue involving a public conservation agency focused attention on conservation of lands and public policy.

Public policy supports conservation of lands in its undeveloped state by providing both Federal and State income and estate tax breaks for owners who donate property or property rights to conservation organizations. Using the set tax breaks correctly in an estate plan can serve to keep land in a family that might otherwise have to be sold to pay taxes.

Land can be valuable to us in many ways. To an investor, the value of a parcel of land is in the profit to be made from its sale. To an owner of commercial property, the property's value is in the rents that can be collected for its use.

Due to the dramatic increase in property values in recent years, a family of otherwise modest means may own land of considerable appraised value. Upon the death of the last surviving parent, the heirs may face the obligation to pay state and federal estate taxes without having the financial resources to meet that obligation. Their only recourse may be to sell all or part of the land which was left to them, despite their own desires and the expressed wishes of their parents. In short, the failure to plan for the future of valuable family land after death may grant control over that land to the taxing agencies of government. Fortunately, there are alternatives.
By reducing the appraised value of land, the donation of a Conservation Easement to a Land Trust can reduce income and estate taxes. Since most of the appraised value of land is in its potential for development, the donation of development rights to a Land Trust leaves only the remaining value as taxable. This donation may also create a tax-deductible, charitable contribution in the year of the gift.

Thus, the donation of a conservation easement can protect land in two ways. First, it protects the conservation values of the land according to the specific restrictions contained in the conservation easement. And, second, it protects the integrity of the land from the threat of sale to satisfy estate taxes. Furthermore, this protection option can reduce income and property taxes for the parents while still living.

Since each conservation easement is individually written to address both the personal needs and the intentions of the donating landowner, land protected by a conservation easement can continue to be used by the donor’s heirs as the family has been accustomed. A family farm, for example, can be used, in perpetuity, for the production of crops and the pasturing of livestock. And, every bit as important, it can provide a home for the future generations of the family that has cared so deeply about its farmland.

Although Land Trusts have been protecting lands in the United States for over a century, most have been founded in the last 30 years. The earliest examples—such as the “Village Improvement Societies” of New England, the Maine Audubon Society (founded in 1843), and the Cincinnati Museum of Natural History (established in 1800)—were located in the eastern states. In 1965 there were 132 active Land Trusts all across the United States. By 1991 the number had increased to over 900, preserving nearly 3 million acres of valuable lands.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Special Olympics

by Bruce Fenton

No mega-million endorsement deals, no management entourages flocking around a victor in these Olympics. Instead, the rewards for victory are the cheers of fellow competitors. No “show-up” money for the top stars; every athlete is the star, there are too many to put on a Wheaties box, for these athletes are Special Olympians in every sense of the word.

At the Special Olympics' Annual Winter Games, very special developmentally disabled athletes competed in four winter sports for medals, cheers, and hugs from teammates, family, and coaches. They each qualify to compete based upon performances at qualifying events. They race on skis and snowboards down alpine racecourses, on cross-country skies and on snowshoes through the woods.

The Special Olympics, started in the 1960’s by the Kennedy family in Massachusetts, has grown into a worldwide movement with over 1,000,000 athletes from all over the globe competing. In the Northern California organization, more than 13,000 compete each year in 19 different sports and 7 program championships.

The athletes, ages eight and up, train for their sports under the direction of volunteer coaches. The Winter Games participants begin with weeks of dry land training followed by 6 to 10 days of on-snow preparation. They are divided into competitive categories by ability and then age.
All athlete expenses and equipment are provided by the Special Olympics organization. The Special Olympics organization relies on corporate sponsorship to pay the biggest share of the expenses, while individual donations from a variety of fund raising events help pick up the difference. Additionally, individual and corporate sponsors donate most of the food and hundreds volunteers and coaches supervise and assist with the activities.

It is very hard to capture with words the joy and the spirit of the events days. It is equally hard to comprehend that 30 years ago many of these athletes would have been institutionalized because these opportunities to grow as individuals did not exist.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Real Estate Values and Schools

by Wendell Cayton

Last year I met with a friend who was concerned about the state of the local economy and how it would impact his young family. We discussed a number of options including selling his expensive home and relocating to a less expensive environment. To my surprise, that is exactly what he and his family did…sold the home and moved to a community in Central California.

When I asked “Why there?” The answer was one word…“schools”. His wife, a former CIO in a large San Francisco firm, and now a stay-at-home mom, used the Internet to research California schools. She found, arguably, the best Northern California school system for her young boys.

When they visited the community, they were impressed by the level and quality of instruction, the clean, well-maintained schools, the willingness of the community to fund education, and the active involvement of the parents. They found teachers excited about their profession…who were paid enough to live above the poverty level.

This is but a small anecdotal commentary on the value good schools bring to a community. Any realtor with an ounce of experience will tell you that good schools enhance real estate values—they upgrade the quality of life for the entire community, making it a more desirable place to live. Crime rates are lower in communities with good schools. And good schools train their graduates to make a positive contribution to their community.

Most families have three financial goals: Educate their children, pay their taxes, and prepare for a comfortable retirement.

Education and retirement are inextricably linked. The archenemy of retirement is inflation. A well-educated and productive workforce keeps inflation down. Retirement dollars go further in a low inflationary environment.

Many retirement plans are built around extracting value from real estate, either by selling and downsizing, or through equity withdrawal such as reverse mortgages.

There was a survey conducted a few years ago by Runzheimer International (a management consulting firm based in Rochester, WI), and SchoolMatch (a school information and counseling service). Their research studied over 16,000 school districts nationwide and correlated property values to the quality of the school as measured by pupil performance on scholarship exams. Their findings conclusively supported assumptions that good schools add value to the property in the area.

Supporting good education requires tax dollars. Unfortunately, many misguided individuals take a shortsighted approach to this process by resisting all efforts to improve the schools. Their arguments are specious and self-serving, often grounded in rhetoric that has nothing to do with the educational process.

If these arguments are allowed to prevail, over the long run, the “best and brightest” will leave the community for better education and not return to contribute. The quality of life in the community will gradually lessen to the lowest common denominator.

“To resist is to drive down the value of property. To not support is to degrade your local community. In my mind that is like allowing your yard to go to seed, your plants to die, your house to go unpainted…in other words, an investment in local schools can the be the most important investment you make in your home!”