Strategic Philanthropy

Philanthropy is defined as “goodwill to fellow members of the human race; especially an active effort to promote human welfare”. In today’s world the concept has become broader and is significantly influenced by personalities, passions, taxes and the desire to make an impact.

In 2013, individuals represented 72% of all gifts, the largest single source of charitable giving. Foundations, bequests, and corporations accounted for the balance of all charitable giving. With charitable gifting topping more than $330 billion in 2013 (more than a 4% increase from 2011), it’s no surprise that philanthropy in the United States represents nearly 2% of GDP and therefore should not be considered lightly.

The “Foundation Source” identifies five key forms of giving:

  • Checkbook philanthropists who provide critical unrestricted support
  • Responsive Funders who actively solicit proposals if they are of interest
  • Venture philanthropists who strengthen nonprofits for sustainability
  • Result based philanthropists who narrow their focus to address root causes
  • Collaborative funders who partner with other philanthropists to enhance the process.

Whether it is wealth planning or philanthropic planning, approaching both strategically ensures you will achieve your goals long-term. Strategic wealth planning is a goal based process that needs to consider financial, tax, social, generational, and legacy desires. Philanthropic planning plays a key role in a person’s legacy and in the societal impact one wants to leave on the world. While often tax discussions become the catalyst for charitable planning, we typically find that as one ages, the “footprint” one leaves becomes a more important part of their legacy planning and goals. For clients who have the resources and desire to make an impact and leave a “footprint,” the best way to do so is to convert their annual charitable giving into a strategic philanthropic process.

Strategic philanthropy takes the giving process and converts it into a disciplined approach that combines defined goals with the resources and the desire to have an effective purpose so that a specified outcome can be achieved.

The process includes the following:

  • Determine why you want to give and the criteria you use when giving.
  • Come to a consensus with key stakeholders including family and beneficiaries to understand what you really care about and what you want to accomplish by giving.
  • Based on what you want to accomplish, establish goals and processes to make your giving more effective.
  • Do not rush the process; strategic giving is a different process than just writing checks. Strategic giving is really about making the allocated resources more effective and impactful with one’s passions and legacy as the driver.

There are many paths to giving, and the steps outlined above are really focused achieving specific goals. However you choose to give, you should always give strategically based on your goals and aspirations. The key to strategically giving is to think about your actions and how you can improve the desired outcome

Contact Telemus Capital to learn more about how you can improve the effectiveness of your giving.


This commentary is a matter of opinion and is for informational purposes only. It is not intended as investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on the client’s specific financial needs and objectives, goals, time horizon and risk tolerance. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. The statements contained herein are based solely upon the opinions of Telemus Capital, LLC. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.

Tax Extender Bill Passed by House and Senate

The Senate has finally acted on the Bill that the House passed earlier in the month to extend many taxpayer friendly income tax provisions which previously expired at the end of 2013. Unfortunately, the extension will only have a two week shelf life and therefore will expire again on December 31, 2014. The President is expected to sign the bill into law before the end of this week.
Due to how long it took for Congress to act on these extensions, it is most likely that the start of the tax season and the date in which tax returns can start to be filed with the IRS will be extended to late January or early February (similar to last year when Congress also allowed politics to delay implementation of needed tax legislation).
Many of the favorable business related provisions can be applied without the need for transitional application rules. However, individual provisions including the ability for those over 70 to take tax free distributions from individual retirement accounts for charitable purposes will need special rules given that most taxpayers have already taken their annual required minimum distributions (RMDs) for 2014.
Below is a summary of the provisions applicable to individuals that are part of the Senate Bill. In addition to the provisions listed below, there are also over 30 provisions related specifically to businesses.
• Tax credit for purchasing health care insurance
• Tax deduction for expenses of elementary and secondary school teachers
• Exclusion from gross income of imputed income from the discharge of indebtedness for a principal residence
• Equalization of the exclusion from gross income for employer-provided commuter transit and parking benefits
• Tax deduction for mortgage insurance premiums
• Tax deduction for state and local general sales taxes in lieu of state and local income taxes
• Tax deduction for contributions of capital gain real property made for conservation purposes
• Deduction from gross income for qualified tuition and related expenses
• Tax-free distributions from individual retirement accounts (IRAs) for charitable purposes
• Tax credit for residential energy efficiency improvements
• Tax credit for energy efficient new homes
• Tax credit for energy efficient appliances
• Increased expensing allowance for business property including computer software and depreciation of qualified real property
• Additional (bonus) depreciation of business assets and the election to accelerate the alternative minimum tax (AMT) credit in lieu of bonus depreciation

Please contact your advisor or tax professional to discuss how these provisions may apply to your particular situation or circumstances.

11 Things to Consider When Examining Your Estate Plan

With the current estate tax exemption at $5,340,000 per person and a married couple’s tax exemptions at $10,680,000 due to spousal portability, many clients will not be subject to Federal estate tax obligations. However that does not mean proper estate planning can be ignored. Here are 11 tips to consider as you examine your own estate plan:

State estate taxes differ from state to state. 18 states have some form  of a “death or transfer tax” including New York, New Jersey, Connecticut and Massachusetts. Some states have exemptions significantly less than the Federal exemption, and most are not portable. Have you taken into consideration your state’s estate tax laws?

Probate can be costly and can add complications depending on one’s state of residence. However, if planned properly, probate can be eliminated. Have you properly considered probate?

• Have inherited assets been properly protected from unintentional use? Have beneficiary designations and trusts been properly worded to protect against creditors and unintended consequences?

• Is your family’s inherited asset tax basis step up plan maximized? While even non-taxable estates receive the “at death stepped up value of assets” benefit, planning is necessary to make sure the right assets get stepped up and who gets them.

Life insurance previously owned for estate tax reasons can be refocused towards other risk protection needs or to fund other life goals in the most tax efficient manner possible. Have you considered refocusing?

IRA and other retirement plans can have significant implications beyond the life of the client. With the recent rulings regarding the lack of bankruptcy protection for inherited IRA’s, have you considered naming specially designed trusts as beneficiaries to provide both stretch and protection benefits?

• For non-taxable estates, the key issues are how your legacy will impact the lives of future generations and how to protect and insure that the estate’s financial legacy will not adversely impact others. What are your key issues?

• When designing plans for non-taxable estates, it is important to balance charitable desires with family legacy issues. Do you feel your plan is balanced?

• Are beneficiary designations coordinated and consistent with your desires?

• Have you taken into consideration disability and health care needs? Are they a part of your total estate plan?

• Are you below the threshold of estate taxes? You still need to be sure you have planned how your financial legacy will impact others for years to come.

Are you planning to revise your estate plan in 2015? Call Andy Bass at 248.827.1800 or e-mail Andy at to design the best strategy for you!

Large Capital Gains and Tax Shock

Whenever you are dealing with a large sales transaction (sale of a business, large stock sale, etc.) taxes are a key driver. This is more true today than ever, due to changes in the tax laws. The impact of higher income on the limitation of tax deductions, the surtax, higher capital gain taxes all resulting in gains being taxed at an effective tax rate of nearly 25% versus 15% not that long ago.

Advance planning can potentially reduce the tax impact by considering tax strategies including: 

         Use of charitable trusts to reduce the overall tax impact and timing of recognition

         Consideration of installment sales to defer taxes

         Family trust sales

         1031 (like-kind exchanges) to defer taxability

         Finally do “deferred sales trusts” make sense and are they viable?

Overarching Takeaways

It is important to understand that these tax deferral strategies are complex and could have significant tax risk if not properly structured. One of today’s hot topics is the “Deferred Sales Trust” transaction which is gaining interest due to the current higher effective tax rates. These trusts need to be considered in light of numerous risks including validity of the trust, the transaction, changing future tax rates, and transaction costs. Essentially these transactions are structured in a way that allows a complete sale with all sales proceeds being realized but allowing the seller to use the installment method to spread out the tax while still knowing that the proceeds are secure.

What Surprise Is Lurking in the File Cabinet?

Assess Your Insurance Policies Before It’s Too Late

Here Today, Gone Tomorrow

Back in the eighty’s and nineties many insurance products were sold as lifetime products that once funded would be there to satisfy the desired original policy purpose. Too often the premiums were paid and the policies were “fully funded” and then filed away assuming that the required funding was satisfied. Now 20-30 years later when the intended need is getting close, insureds are finding out that years of underperforming and volatile equities as well as a low interest rate environment are causing havoc with the value of such policies. Typically sold as “universal life”, these policies were sold and backed by illustrations that showed 8-10% annual returns. However after years of underperformance, the cash values in these policies are being decimated by the conflict of increasing annual insurance cost and lower market returns, resulting in insufficient cash value to keep the policies afloat for the life expectancy of the owner.

What’s Really Going On

In many cases these policies were bought to fund a specific goal such as a specific charitable contribution or legacy need. As an example it has been reported that a small Midwestern college received 25 life insurance policies as part of a capital campaign in the 1990’s and that currently 17 of them will need significant cash infusions to stay afloat due to the underperformance experienced. The problem was so endemic that there was a class action suit that was settled due to the misleading way these policies were sold. The issue is not the polices themselves but rather the unanticipated and lack of communicated risk associated with the unrealistic performance expectations illustrated.

Be Proactive: How Telemus Can Help

If you have older life policies it is critical that you pull them out of the back of the file cabinet and have them assessed and reviewed before it is too late to do anything. The sooner one understands the economic backbone of the policy in question, the easier it is to find a funding solution to the inevitable collapse of the policy. As an independent advisor, Telemus can help you determine a course of action with respect to such policies so as to maximize the ability to still fund your goals and maintain the viability of the policy or its replacement.

Call Andrew Bass or your Telemus advisor to discuss your specific situation.
Contact us at 248.827.1800


Telemus Wealth Advisors Year-End Reminder

The clock is ticking, but like Alice we cannot see what lies at the end of the rabbit hole. With pending elections, expiring tax provisions, exploding debt and a weak economy, the only certainty is that no one knows what the final tax structure will look like in 2013. Despite this lack of clarity about future tax laws, employing a wait-and-see approach to tax planning will likely lead to payment of excess income taxes, a diminished financial legacy, and other lost opportunities that could have been prevented or mitigated with advance tax planning.

The Playing Field

Without Congressional action in 2012, existing tax laws will revert to the tax structure that existed in 2001, resulting in higher gift, estate and income taxes. These tax increases are compounded by two new taxes created under the Patient Protection and Affordable Care Act, which will take effect in 2013. These new taxes are (i) a tax of .09% on certain wages and self-employment income, and (ii) depending on an individual’s income level, a tax of 3.8% on investment income. A brief summary of the potential reversion to 2001 tax laws include:

• Individual tax rates will increase, with the highest individual tax bracket climbing from 35% to 39.6%. In conjunction with the new 3.8% tax on investment income, the maximum rate will climb to 43.4% for certain individuals. The lowest tax bracket will increase from 10% to 15%.

• Federal estate and gift taxes rates will rise from 35% to 55% and the exemption will drop from $5.12 million to $1 million.

• Preferential tax rates on long term capital gains, currently at 15%, will increase to 20%. Dividends will lose their preferential treatment and will instead be taxed as ordinary income.

• Itemized deductions will be limited and many new taxpayers will be subject to the Alternative Minimum Tax.

Whether the government allows the country to revert to this 2001 tax structure is likely dependent on the November elections. Each Presidential candidate has his own vision for the future and widely differing views on who should bear the tax burden. Barack Obama has stated that under his tax plan the “wealthy” would feel much of the impact from the changes in the tax structure. Mitt Romney has stated that he wants a 20% reduction in tax rates across-the-board, but given his goal of making the tax reduction revenue neutral, it will be a challenge to actually obtain such a reduction. The candidates’ views also differ on estate taxes, with Romney stating that he wants to eliminate the estate tax and Obama stating that he would like to keep the estate tax, but lower the exemption to $3.5 million and institute a higher tax rate. The Congressional elections could be even more determinative of future tax laws than the Presidential election. With such uncertainty, it is impossible to predict with any accuracy what the final tax structure will look like in 2013 and beyond.

The takeaway is that given the uncertain tax future, it is imperative to take advantage of beneficial provisions in the existing tax structure as soon possible, while they are still available.

Meet With Your Tax Professional

It is important to meet not only with your tax preparer, but also your financial team including your financial advisor, attorney and tax professionals. A coordinated, multifaceted strategy is needed especially if you have a net worth over $5 million or if you are the owner of a closely held business. Some strategies to consider include:

• Many of the income tax provisions have thresholds such that if you can manage to stay below them you can avoid some of the new taxes, including the 3.8% investment income tax created under the Patient Protection and Affordable Care Act, or potential increased tax rates under Barack Obama’s tax proposal for being deemed “wealthy”. Transferring asset ownership among family members may be a way to avoid these increased taxes, thanks to current friendly gift tax provisions. Family limited partnerships may also be a way to avoid future estate tax increases while simultaneously tempering the impact of income tax increases.

• It may be beneficial to sell assets with built-in long term gains prior to the end of 2012, especially if such assets were to be sold in the next 1-3 years, given the potential tax increase on capital gains expected in 2013 and beyond.

• Due to the complexities of the Alternative Minimum Tax it is important to calculate taxes under various scenarios especially when considering strategies such as accelerating bonuses or other income into 2012 versus 2013. For cash basis taxpayers, the timing of billings and related revenue recognition strategies should be considered together with overall income planning. For all of the aforementioned reasons and many others, it is crucial to begin your tax planning as soon as possible.

• Conversions of 401(k)s and regular IRAs into Roth accounts , under which qualified distributions are tax-exempt, deserve a serious consideration in 2012.

• Make sure you have maximized your annual gift tax exclusions, which for 2012 are $13,000 per recipient. With spousal gift splitting this means you can give $26,000 per recipient. Note that under the current tax laws, direct payments of medical and tuition are not treated as gifts for these limitations. Proper tax planning also includes a charitable giving strategy. Gifting of certain appreciated assets to qualified charities or organizations will make even more sense if tax rates increase, and as a method to avoid the new Medicare investment tax.


Opportunities exist but time is running out. Please consult with your advisor and plan for the future whatever it may be.

“I wanted a perfect ending. Now I’ve learned, the hard way, that some poems don’t rhyme, and some stories don’t have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what’s going to happen next. Delicious Ambiguity.” Gilda Radner

Andrew Bass, CPA, PFS, CWM Chief Wealth Officer/Managing Director


Telemus Investment Management, LLC, Telemus Wealth Advisors, LLC, and Beacon Investment Company, LLC, registered investment advisors, are wholly-owned affiliates of Telemus Capital Partners, LLC. Telemus Investment Brokers, LLC, member FINRA and SIPC, is a wholly-owned affiliate of Telemus Capital Partners, LLC