Latest / Money to Give / Ep. 50 Part 3: The Power Of Balloon CLATs In Charitable Estate Planning with Randy Fox

Transcript

Ep. 50 Part 3: The Power Of Balloon CLATs In Charitable Estate Planning with Randy Fox · Money to Give

0:04
Speaker 1: What if the key to transforming a family's wealth and
0:07
Speaker 1: their legacy was hidden in a little known financial strategy
0:11
Speaker 1: that most advisors never talk about. Welcome to Money to
0:14
Speaker 1: Give with me Rick Peck, the philanthropy guy with over
0:18
Speaker 1: twenty years in the nonprofit sector. I have seen hundreds
0:21
Speaker 1: of millions of dollars transferred from donors to nonprofits. I
0:25
Speaker 1: have learned a lot along the way that I want
0:27
Speaker 1: to help convey to you, my loyal listeners. In this
0:30
Speaker 1: podcast series, we talk about one how nonprofits can most
0:33
Speaker 1: effectively showcase their mission and vision and raise as much
0:37
Speaker 1: money as possible. Two how donors and potential donors can
0:41
Speaker 1: make the greatest impact possible in the world, and three
0:44
Speaker 1: how professional advisors, including philanthropic advisors, can offer the most
0:49
Speaker 1: up to date information and services to their clients. So
0:52
Speaker 1: join us here each episode from more of that giving feeling.
0:55
Speaker 1: In today's episode, I'm joined once again by Randy Fox,
0:59
Speaker 1: founder of two Hawks Family Office Services and one of
1:02
Speaker 1: the most trusted voices in charitable estate planning. Today, Randy
1:07
Speaker 1: and I dive into a complex but incredibly powerful tool
1:11
Speaker 1: called the balloon Clat Charitable Lead Annuity Trust, also known
1:16
Speaker 1: as the sharp fin clat. If you've ever heard of
1:19
Speaker 1: a charitable lead trust but weren't quite sure how it
1:22
Speaker 1: could maximize both generosity and family wealth, this episode will
1:26
Speaker 1: bring clarity. Randy explains how balloon clats allowed donors to
1:30
Speaker 1: create lasting charitable income while still preserving assets for future generations,
1:36
Speaker 1: and why this underutilized strategy deserves a closer look. Let's begin, So, Randy,
1:47
Speaker 1: what is a clat?
1:48
Speaker 2: What a way to jump in?
1:50
Speaker 1: So?
1:51
Speaker 3: A clat is a special kind of charitable trust. It
1:54
Speaker 3: is in the split interest trust world we know, for instance,
1:59
Speaker 3: the charitable mainer trusts or trust where the donor receives
2:03
Speaker 3: an income or an income beneficiary receives an income, and
2:05
Speaker 3: then charity gets the balance. Clats are often referred to
2:09
Speaker 3: as sort of the reverse of a charitable remainder trust,
2:13
Speaker 3: whereby the charity gets income for a period of time
2:16
Speaker 3: and then the bulk of the assets or whatever is
2:19
Speaker 3: left goes somewhere else, either back to the family in
2:22
Speaker 3: one dashion or another. Okay, Now, clats, unlike charitable remainder trusts,
2:28
Speaker 3: are not tax exempt trusts. They don't shelter us from
2:31
Speaker 3: long term capital gains income, so they you know, they're
2:35
Speaker 3: the same, but they're different, right, and we have to
2:37
Speaker 3: acknowledge those differences. Now, once Rick we understand that a
2:42
Speaker 3: clap goes backwards from a charita remainder trust, we also
2:45
Speaker 3: have to acknowledge that there are different kinds of clap.
2:48
Speaker 3: The one that most people are familiar with. I think
2:51
Speaker 3: you've already done a show on with Brad Garnto called
2:54
Speaker 3: the grant or clap. He calls them I clats. Yes,
2:57
Speaker 3: it's his own particular moniker, but a grant or clad
3:02
Speaker 3: is sort of the vanilla clap. We put usually cash
3:06
Speaker 3: into a trust. The trust runs for either a period
3:10
Speaker 3: of years or the life of the donor. At the
3:13
Speaker 3: end of the period of years, the money, whatever's left
3:17
Speaker 3: in the clat comes back to that donor. Very simple structure.
3:22
Speaker 3: Pays money to charity, normally a fixed payment that goes
3:26
Speaker 3: out over a period of years or a slightly increasing
3:29
Speaker 3: payment that goes out to charity over a period of years,
3:31
Speaker 3: and that charity can be a donor advice fund or
3:34
Speaker 3: any public charity. And then at the end of the day,
3:37
Speaker 3: you know, we get our money back.
3:39
Speaker 1: Yeah, that's great. Thank you for making it so simple.
3:41
Speaker 1: That's what I love about talking with you, Randy. You
3:43
Speaker 1: just bring it right down to the elements of it.
3:46
Speaker 2: Now.
3:47
Speaker 3: The other kind of clad, which is the one we're
3:49
Speaker 3: here to talk about, is something called the balloon clap
3:52
Speaker 3: or the sharkfin clap, and by nature it's a little
3:55
Speaker 3: bit more complex. And the goal of this clap is
3:59
Speaker 3: to transfer for money to somebody other than back to myself,
4:04
Speaker 3: so either down to my children or to my spouse.
4:07
Speaker 3: And sharkfin or balloon indicates that there's something a little
4:11
Speaker 3: different about this. So what we do with this clat
4:14
Speaker 3: in its structure is that we set up a very
4:17
Speaker 3: low payment for the first number of years and essentially
4:22
Speaker 3: backload the clat so that the last payment is a
4:28
Speaker 3: big payment. The irs is essentially said, as long as
4:33
Speaker 3: the charity gets what it was supposed to get actuarily,
4:37
Speaker 3: the nature and structure of how they receive those payments
4:40
Speaker 3: doesn't really matter. So in so many words, we can
4:44
Speaker 3: shove all the benefit to charity to the very back
4:47
Speaker 3: end and let this clat grow, let the assets and
4:50
Speaker 3: the clat grow for a very long period of time,
4:54
Speaker 3: often our lifetimes, I see, and then whatever's left at
4:58
Speaker 3: the end it gets divided between charity and a trust
5:02
Speaker 3: for my kids, or a trust for my wife, or
5:03
Speaker 3: a trust for my wife and kids or spouser significant.
5:07
Speaker 1: Mount so versus a steady payout. As you're saying, there's
5:10
Speaker 1: an advantage to pushing it back, and pushing it back,
5:13
Speaker 1: the steady payout probably has its advantages. But the balloon
5:16
Speaker 1: clat is the idea of or a shark fin. It's
5:19
Speaker 1: just that you're pushing it later and later.
5:21
Speaker 3: Yeah, the balloon cloud allows us to either buy investment
5:25
Speaker 3: returns to let that principle grow over the payout rate,
5:29
Speaker 3: so we have the economy of time or And the
5:33
Speaker 3: way we structure many of the balloon or shark fin
5:35
Speaker 3: clats is we fund them with a life insurance policy,
5:39
Speaker 3: and that life insurance policy pays at the death of
5:42
Speaker 3: the grant or or the grant ors, and then that
5:45
Speaker 3: money gets divided up to charity. So we can make
5:48
Speaker 3: a minuscule payment to charity during our lives and then
5:52
Speaker 3: we have the big payday at our death. So how
5:55
Speaker 3: does that work exactly? The life insurance is inside of
5:58
Speaker 3: the trust. In life insurance is owned by the trust. Yes,
6:01
Speaker 3: and a number of years ago there was a ruling
6:05
Speaker 3: that came out called one seventy f ten, and it
6:08
Speaker 3: was in reaction to what was then called the Charitable
6:11
Speaker 3: split dollar rules, and the Charitable split dollar rules essentially
6:15
Speaker 3: said a charitable organization is prohibited from making a premium
6:19
Speaker 3: payment on the life or lives of any donor or
6:22
Speaker 3: any member of a donor's family. That's because there were
6:24
Speaker 3: some abuses going on. So they kind of throw out
6:28
Speaker 3: the baby with the bathwater from a belt and suspenders. Standpoint,
6:32
Speaker 3: what we prefer to do, even though I don't think
6:35
Speaker 3: under any stretch of the imagination you would call a
6:38
Speaker 3: charitable lead trust a charitable organization, because I don't think
6:42
Speaker 3: it is one. But just to be safe, we have
6:45
Speaker 3: the grant tours purchased the insurance. First make a payment,
6:51
Speaker 3: usually a single payment. So we have an event that
6:54
Speaker 3: drives this, and we'll get to that in a second.
6:56
Speaker 3: I suppose they make a single payment and then they
7:00
Speaker 3: hands for ownership of the policy to the CLAT and
7:04
Speaker 3: now that the trust owns the policy, okay, right, And
7:08
Speaker 3: that's kind of the mechanical aspect of doing this.
7:13
Speaker 2: Interesting.
7:14
Speaker 1: So now there's also the piece here which I guess
7:17
Speaker 1: we can go off on a side note, that the
7:19
Speaker 1: person has to be insurable, there has to be somebody
7:21
Speaker 1: who can get insurance or this doesn't quite work the
7:24
Speaker 1: way you're describing right.
7:25
Speaker 3: Correct, And that is one of the going in questions.
7:29
Speaker 3: You know, often we're faced with husband, wife, married couple.
7:34
Speaker 3: Do we do the policy on him, do we do
7:36
Speaker 3: it on her? Do we do it jointly? And again,
7:39
Speaker 3: all of those things need to be assessed in the
7:41
Speaker 3: scope of what you're trying to do and what your
7:45
Speaker 3: end goal is in the planning process. I will tell
7:49
Speaker 3: you that if you have poor health in one spouse
7:52
Speaker 3: and good health and the other, it still might make
7:56
Speaker 3: sense to look at insuring both lives at the same
7:58
Speaker 3: time joint policy. So again that's just the responsibility of
8:03
Speaker 3: the planner doing the work to see where you get
8:07
Speaker 3: the best results.
8:08
Speaker 1: Right, And how much money are we talking about? Usually
8:10
Speaker 1: when you're talking about the amount of money in these
8:12
Speaker 1: clats and how it's benefiting.
8:14
Speaker 2: So let's back up to why would you do this? Right? Okay,
8:18
Speaker 2: So the thing about.
8:19
Speaker 3: A balloon clap, the general parameters is someone's had a
8:24
Speaker 3: large income event. They've either had a business sale, liquidated
8:29
Speaker 3: a bunch of you know, stock, got to pay out
8:32
Speaker 3: from a qualified plan or a different complan. So they
8:35
Speaker 3: have big income and they're looking for a large charitable
8:39
Speaker 3: income tax deduction to offset some of the pain of
8:43
Speaker 3: the income tax. The way we structure balloon class you
8:47
Speaker 3: don't have to do it this way, but I've never
8:50
Speaker 3: seen one that was done otherwise is that we want
8:52
Speaker 3: to produce a one hundred charitable income tax deduction. So
8:56
Speaker 3: if we put a dollar in, we get a dollar
8:58
Speaker 3: charitable income tax deduction. Give this a subject to the
9:01
Speaker 3: limitations of you know, thirty percent of adjusted grows income.
9:05
Speaker 3: But still in all that's depending on the state you
9:08
Speaker 3: live in. If you're in California, you still might be
9:11
Speaker 3: deducting at fifty percent. So normally, just because of the
9:16
Speaker 3: cost of the structure and all of those other things,
9:19
Speaker 3: I haven't seen one done from much less than a
9:22
Speaker 3: single one hundred thousand dollars deposit. I will tell you
9:26
Speaker 3: that currently we're working with a couple that had this
9:28
Speaker 3: very nice income realization this year and failed to estimate
9:33
Speaker 3: that they were going to owe taxes on the several
9:36
Speaker 3: million dollars they received. So we're doing currently a two
9:40
Speaker 3: million dollar deposit that will save them seven or eight
9:43
Speaker 3: hundred thousand dollars of income tax currently, So you know,
9:46
Speaker 3: that's sort of the range. Rick I would say, okay,
9:50
Speaker 3: and again it depends on the appetite for how long,
9:53
Speaker 3: you know, can we afford to tie up this money
9:55
Speaker 3: for the rest of our lives? Essentially, right now, if
9:59
Speaker 3: you take fifty year old couple, just to give you
10:01
Speaker 3: an example of what this result might be, this fifty
10:06
Speaker 3: year old couple with two million dollars will purchase a
10:10
Speaker 3: survivorship life policy of twenty six million dollars. Now we
10:14
Speaker 3: have to go and to actually calculate how much charity
10:17
Speaker 3: will get and how much the family will get at
10:19
Speaker 3: any given point of death. And you know, with the
10:22
Speaker 3: current seventy five twenty rates as high as they are,
10:25
Speaker 3: you know, the split is a little bit more in
10:28
Speaker 3: favor of the charity than the family. But still they're
10:31
Speaker 3: able to transfer twelve to thirteen million dollars down to
10:36
Speaker 3: their children. Now, remember, if we have a one hundred
10:39
Speaker 3: percent charitable income tax deduction, what's the value of the
10:42
Speaker 3: gift to our family.
10:44
Speaker 1: If it's one hundred percent one hundred percent, right.
10:47
Speaker 3: We have a zero estate tax, yeah, right, so we're
10:51
Speaker 3: able to transfer thirteen million dollars and use none of
10:55
Speaker 3: our exemption and get an income tax deduction for doing this.
10:59
Speaker 2: So that's a pretty good deal.
11:01
Speaker 1: I think, yeah, very good deal. And then relative to
11:05
Speaker 1: you know something we haven't really talked about when you
11:07
Speaker 1: talked about eighty four to one hundred and twenty trillion
11:09
Speaker 1: dollars being transferred from one generation to another, this is
11:14
Speaker 1: a technique that sounds like it would fit squarely in
11:17
Speaker 1: that wealth transfer category.
11:19
Speaker 3: This is I have a couple of colleagues that call
11:21
Speaker 3: this a pre inheritance trust. I mean, if you think
11:24
Speaker 3: about it, if you are doing a state plan, you
11:27
Speaker 3: and you have this kind of event that comes along
11:30
Speaker 3: and you say, well, you know, with this alone, I've
11:33
Speaker 3: now kind of not guaranteed, but I've assured that my
11:37
Speaker 3: children are to get twelve or thirteen million dollars when
11:40
Speaker 3: I die. I can spend a lot of money while
11:42
Speaker 3: I'm alive and not feel too bad.
11:44
Speaker 1: Right, No, that's exactly right. It's the balancing act of
11:48
Speaker 1: how much are we giving to the government, how much
11:50
Speaker 1: are we giving to our family, and how much are
11:52
Speaker 1: we giving for charitable purposes?
11:53
Speaker 2: Right.
11:54
Speaker 3: I don't know how many business owners you've talked to
11:57
Speaker 3: in your life. But I've talked to hundreds of thousands.
12:01
Speaker 3: I have never met one who said I'm not paying
12:03
Speaker 3: enough in tax?
12:04
Speaker 2: Yeah, can I? Can I please pay more? Yeah?
12:07
Speaker 3: The fact of the matter is though they don't do
12:09
Speaker 3: the fundamental planning to eliminate the tax. So again, we
12:13
Speaker 3: often step in. You know, we get those calls, guess
12:17
Speaker 3: what I just did. My business just sold and I
12:19
Speaker 3: got fifteen million dollars or five million dollars or two
12:23
Speaker 3: million dollars sitting in the bank that I wasn't prepared
12:26
Speaker 3: for or hadn't thought about. Oh, by the way, you know,
12:29
Speaker 3: I owe a bunch of tax.
12:30
Speaker 2: What can I do now? Right?
12:32
Speaker 3: We'd much prefer to see those people before the sale,
12:35
Speaker 3: but if we get them after the sale, this is
12:37
Speaker 3: one of those amnus.
12:38
Speaker 2: Yeah, that's good.
12:39
Speaker 1: That's a very important point because that is something that's
12:42
Speaker 1: talked about. Is there's discussions long before the sale, there's
12:45
Speaker 1: discussions just before the sale, and then there's discussions just
12:48
Speaker 1: after the sale.
12:49
Speaker 3: We we get parachuted in fairly often when there's a
12:53
Speaker 3: letter of intent. Now, whether that letter of intent is
12:56
Speaker 3: binding or not binding, whether the you know what they're
12:58
Speaker 3: selling and how they're selling. It all plays into the
13:01
Speaker 3: equation of what tools are available to us.
13:04
Speaker 2: You know, we're talking to somebody.
13:06
Speaker 3: Right now where I can only see post sale tax
13:09
Speaker 3: mitigation as opposed to pre sale tax avoidance.
13:13
Speaker 2: Happens that way. Sometimes we don't always have control.
13:16
Speaker 1: No, that's right, and you're bringing up an important point
13:18
Speaker 1: about timing. But you're able to work with what you
13:22
Speaker 1: can work with when people present you with what they're
13:24
Speaker 1: presenting you, and you say, here are the solutions at hand.
13:27
Speaker 3: Accordingly, if the closer you get to the sale, the
13:30
Speaker 3: less you know, the less optionality you have in terms
13:32
Speaker 3: of what tools you can deploy. So you know, we
13:36
Speaker 3: we have to play the handword del as planner.
13:39
Speaker 2: That's right.
13:40
Speaker 3: The other thing we haven't discussed at all is how
13:43
Speaker 3: do we fund charity If all of our money is
13:46
Speaker 3: tied up in this life insurance policy, what do we
13:48
Speaker 3: do well, So, if we have somebody with two million dollars,
13:51
Speaker 3: we will probably carve off fifty thousand of that two
13:55
Speaker 3: million dollars and buy a municipal bond or something like that,
14:01
Speaker 3: and we'll make a couple thousand dollars year payment to
14:04
Speaker 3: donor advise fund or whatever charity is they want. They
14:07
Speaker 3: can spread around however they like, so for the rest
14:10
Speaker 3: of their lives that money will go to charity.
14:12
Speaker 2: And only when.
14:13
Speaker 3: The last of them passes away will the you know,
14:16
Speaker 3: the payday come for their the big charity.
14:18
Speaker 2: What go? Yes? Right? Wow?
14:21
Speaker 1: Well just around structuring. Is there anything else you can
14:24
Speaker 1: think about or anything that we haven't talked about as
14:27
Speaker 1: far as the structuring of this balloon clad or shark
14:30
Speaker 1: fin class.
14:30
Speaker 3: I would say, you know that you can't go to
14:32
Speaker 3: your corner lawyer and say draft me a balloon clad
14:35
Speaker 3: and there's an order that this has to take place
14:38
Speaker 3: in and there's you know, specific language and all those
14:42
Speaker 3: things that require expertise, you know, my marching orders or
14:47
Speaker 3: don't try this at home. You know, you can't just
14:50
Speaker 3: leave this the chance. It's a complex transaction. It's going
14:54
Speaker 3: to require ongoing administrative functions because you have to make
14:59
Speaker 3: sure that payment gets made to charity.
15:01
Speaker 2: You're going to have to.
15:02
Speaker 3: Have an appraisal because you made a larger gift to charity.
15:07
Speaker 3: So all of the formalities need to be followed on
15:10
Speaker 3: a regular basis. Otherwise you run a fall of our
15:14
Speaker 3: friends in Washington.
15:15
Speaker 1: Yeah, and who makes by the way, who would do
15:17
Speaker 1: those appraisals? How do people find out?
15:20
Speaker 3: Well, there are people that value life insurance policies. There's
15:24
Speaker 3: you know, that industry is fairly transparent, and there are
15:28
Speaker 3: some rules regarding the valuation of life insurance within the
15:31
Speaker 3: first ninety days of purchase.
15:32
Speaker 2: It's essentially how much premium.
15:33
Speaker 3: Did you put in so we can get that valuation.
15:36
Speaker 3: The point is you need the valuation and you need
15:39
Speaker 3: the Form eighty two eighty three for the non cash gift.
15:43
Speaker 1: Right that contribution. Yeah, that's very good. So I appreciate
15:47
Speaker 1: all that. So we were kind of dancing around a
15:50
Speaker 1: little bit, but who is this good for? What families
15:53
Speaker 1: or what individuals would be custom fit for a balloon clat.
15:57
Speaker 3: So I would I would say younger is better than
15:59
Speaker 3: a just because two million dollars at fifty years old
16:03
Speaker 3: is going to buy a lot bigger second to die
16:05
Speaker 3: policy than two million dollars and seventy years old. So
16:09
Speaker 3: there's there's more money to divide up because you've got
16:12
Speaker 3: that you know your life expectancies further out. But it's
16:15
Speaker 3: also someone who's had a major liquidity event or a
16:19
Speaker 3: major income event, and someone who has already decided that
16:23
Speaker 3: they don't need all this money. You know, often when
16:26
Speaker 3: we have that liquidity event, you've got the it's already spent.
16:32
Speaker 3: We've I've already promised that we're going to build the
16:35
Speaker 3: cabin on the lake, or take the world cruise, or
16:37
Speaker 3: we're going to do all the things I always said
16:38
Speaker 3: we were going to do. It's still a function of planning, Wrick.
16:41
Speaker 3: Everything always comes down to, you know, what can the
16:44
Speaker 3: client tolerate? What's the right amount? And then let's weigh
16:48
Speaker 3: this against how much of a charitable income tax deduction
16:51
Speaker 3: can we actually use In light of this, the reason
16:54
Speaker 3: we did two million dollars for the clients that we
16:57
Speaker 3: did is because they had a seven million dollar income event, right,
17:02
Speaker 3: so they could use two million, one hundred thousand dollars.
17:05
Speaker 3: That's pretty simple. You know, how are you willing to
17:07
Speaker 3: go this high? You can always back down, you don't
17:09
Speaker 3: have to do that much. But if you're looking for what,
17:13
Speaker 3: you know, we have to see what maximizes the result
17:17
Speaker 3: right in every aspect.
17:18
Speaker 1: And are you running this through a certain type of
17:21
Speaker 1: software illustration to show people how this all works or
17:24
Speaker 1: how does that?
17:25
Speaker 3: Yes, okay, we always illustrate everything we're you know, lifetime
17:28
Speaker 3: number crunches. We have to make sure number one that
17:31
Speaker 3: our math is right because the you know, at the
17:34
Speaker 3: end of the day, charity is going to get what
17:35
Speaker 3: charity is going to get no matter what. So what's
17:38
Speaker 3: left for the family is in that's left. Charity has
17:41
Speaker 3: the priority distribution. In this case, we got to make
17:44
Speaker 3: sure their money is always there, so we That means
17:47
Speaker 3: the math better be pretty good.
17:48
Speaker 1: Yeah, no, that's right. Big decisions are being made on this.
17:52
Speaker 1: And just to clarify too, just back to tax deductions.
17:55
Speaker 1: There's there's the idea of moving a clat outside of
17:58
Speaker 1: the estate, and then there's the charitable income tax deduction,
18:02
Speaker 1: and those are just to be clear for the audience,
18:04
Speaker 1: those are two different decisions people are making, yet.
18:07
Speaker 3: Two different things. When we achieve a one charitable income
18:11
Speaker 3: tax deduction, its second benefit is a zero inclusion for
18:16
Speaker 3: gift tax purposes. Right if I give that to somebody
18:18
Speaker 3: else like a trust, if I name a trust for
18:20
Speaker 3: my kids or a trust for my spouse, that automatically
18:23
Speaker 3: says there's no gift.
18:24
Speaker 1: Here, right exactly. Well, thank you, So, last question for you. You
18:28
Speaker 1: mentioned about don't run a foul of what the IRS
18:31
Speaker 1: wants to do, But are there any particular regulations that
18:34
Speaker 1: we want to be concerned about as we think about this.
18:37
Speaker 3: I won't promise anybody that the Service won't look at this.
18:41
Speaker 3: They have been constantly vague about what's real and what
18:45
Speaker 3: isn't and what they'll accept and what they won't. We
18:48
Speaker 3: tend to follow, you know, what's been done ahead of us,
18:51
Speaker 3: and there are some very very fine authorities who have
18:54
Speaker 3: written extensively about what a sharkfinclad is and how it
18:57
Speaker 3: should look and how it should be funded and should
19:00
Speaker 3: be structured. But the IRIS has never really specifically said
19:05
Speaker 3: this is okay. They just haven't said this isn't. So
19:09
Speaker 3: you just can't do these things any old way. You've
19:11
Speaker 3: got to be extremely cautious, and I would say, find
19:14
Speaker 3: somebody who's done it before that you can feel confident
19:17
Speaker 3: that they know what the heck they're talking about.
19:19
Speaker 1: Yeah, and obviously you've done these before and that's why
19:22
Speaker 1: we're talking right now. But it sounds like, in general,
19:25
Speaker 1: it's not necessarily intuitive for people to go out and
19:28
Speaker 1: find somebody who does this. You almost have to listen
19:31
Speaker 1: to podcasts like this and know who the experts are.
19:34
Speaker 3: Handful of people around that kind of feel comfortable in
19:36
Speaker 3: this world, and that handful, I think is getting smaller,
19:40
Speaker 3: not larger. Just for fun, Rick, I spent almost a
19:44
Speaker 3: full business day trying to train chat GBT to write
19:49
Speaker 3: me a bloon class spreadsheet. And I will tell you
19:52
Speaker 3: that if I didn't know what I was looking for,
19:56
Speaker 3: I would be presenting wrong information. It made mistakes for
19:59
Speaker 3: about seven or e wow, which just goes to show
20:04
Speaker 3: you know, we're just not there yet. Doesn't mean we
20:06
Speaker 3: won't be at some point. But if you sat there,
20:08
Speaker 3: or one of the listeners sat there and said, hey,
20:11
Speaker 3: I just want a balloon class spreadsheet, right it for me,
20:14
Speaker 3: and you didn't know life expectancy tables and what it's
20:17
Speaker 3: supposed to look like at the end, you wouldn't know
20:19
Speaker 3: if it.
20:20
Speaker 2: Was right or wrong, and it's likely to be wrong.
20:23
Speaker 2: It was so interesting.
20:24
Speaker 1: I mean, I think it's also a good warning sign that,
20:27
Speaker 1: as you said, at this.
20:28
Speaker 3: Point, there's a lesson and then there were some places no.
20:31
Speaker 1: Well, I think it's more like there are people who
20:33
Speaker 1: are seasoned experts who have seen these things in real time,
20:36
Speaker 1: and to go to the computer and ask AI to
20:38
Speaker 1: do it right now, it seems premature, so we're a
20:42
Speaker 1: little ahead of time. Yeah, and so back to maybe
20:46
Speaker 1: related why don't you think these are more common as
20:50
Speaker 1: far as And I say this because I know in
20:53
Speaker 1: my experience with lead trusts in general, I felt like
20:58
Speaker 1: they were probably some of the most underused tools. And
21:02
Speaker 1: I have to believe it's because the practitioners don't really
21:06
Speaker 1: understand them at the level that you're talking about, the
21:08
Speaker 1: level that you understand them. I mean, would you say
21:10
Speaker 1: that's a fair statement, yes.
21:13
Speaker 3: I and you and I I think have discussed this before.
21:16
Speaker 3: I think the common thread among the financial advising community
21:21
Speaker 3: is that, you know, it's really hard to talk about
21:23
Speaker 3: things that you're not really familiar with. And again, these
21:28
Speaker 3: the tools of philanthropy are just not well known or
21:31
Speaker 3: well understood. There's been a lot of training about charitable
21:34
Speaker 3: remainder trust A lot of that took place twenty five
21:37
Speaker 3: or thirty years ago, not a lot of training since then.
21:41
Speaker 3: So people you know, have a fundamental knowledge of those,
21:44
Speaker 3: but there's you know, where do you go to learn
21:46
Speaker 3: about class, who's teaching it? And so until you kind
21:50
Speaker 3: of understand what you can do with some of the
21:53
Speaker 3: charitable tools, as you and I have talked about in
21:55
Speaker 3: past podcasts. You know, you just kind of say, yeah,
21:58
Speaker 3: you know, my clients aren't charitable, which is not.
22:00
Speaker 1: True, by the way, but right, No, that's right. I
22:02
Speaker 1: think there's it's a lot of layers to what you're saying. Right,
22:05
Speaker 1: there's the do clients want to give money away or
22:08
Speaker 1: give their time away or be charitable in some way?
22:11
Speaker 1: And then if they are, then what are the issues
22:15
Speaker 1: and the values and things that they care about. And
22:17
Speaker 1: then we're getting into assets. What type of assets do
22:20
Speaker 1: they want to donate? And then what type of vehicles
22:22
Speaker 1: which is what we talked about today, What types of
22:24
Speaker 1: vehicles do we people want to you know consider.
22:27
Speaker 3: And again, unlike some of the other vehicles, clats are
22:30
Speaker 3: basically it's cash, you know, that's what you can use.
22:34
Speaker 3: And so it's a windfall kind of moment, you know,
22:37
Speaker 3: So you have to be looking for hunting windfalls for
22:41
Speaker 3: this to be really effective or or you know, big
22:44
Speaker 3: income w two employees, so that marketplaces it has its
22:49
Speaker 3: own kind of characteristics. And then you need the knowledgeable
22:52
Speaker 3: advisor who can say, hey, listen, I can cure this problem. No,
22:55
Speaker 3: it's easy to reach for an oil and gas deal,
22:58
Speaker 3: or there's even charitable things out there that I've seen
23:01
Speaker 3: that just scare the life out of me. There have
23:04
Speaker 3: been some solar deals where you can just invest your
23:07
Speaker 3: money and get a rite off. For most advisors, they
23:10
Speaker 3: think that's sort of the easy way out and they
23:13
Speaker 3: can earn a commission, and which isn't bad. I'm not
23:15
Speaker 3: against commissions, but you've got to look at who can
23:18
Speaker 3: be talking to clients about these things, and what are
23:20
Speaker 3: their motivations, and then what's their level of knowledge about
23:24
Speaker 3: all of the things that are available to them.
23:25
Speaker 2: Yeah, so you know, there's this whole.
23:27
Speaker 3: Cascade of events, Rick that just puts class maybe on
23:30
Speaker 3: a more backburner than some of the other tools.
23:33
Speaker 1: Yeah, which is obviously not fair because there's so much
23:35
Speaker 1: potential here. And I just think of the leverage and
23:38
Speaker 1: the impact that these class can make, right.
23:40
Speaker 3: Incredible merit for the right family and the right circumstances,
23:44
Speaker 3: you know, and it's not only this, but you know,
23:47
Speaker 3: why not look at this and see what the benefits
23:50
Speaker 3: of it are, and the benefits of this and the
23:52
Speaker 3: benefits of that, and make a fair comparison and say, oh,
23:56
Speaker 3: I like that one.
23:58
Speaker 1: That's right, But I think back to the level of
24:00
Speaker 1: sophistication experience. People have to be presented with things that
24:04
Speaker 1: are viable options for them versus garbage in the extreme,
24:07
Speaker 1: which is like, here's a clap but it's poorly illustrated
24:10
Speaker 1: and it's not at all what you need and it's confusing.
24:13
Speaker 1: In the worst case scenario, this is what you and
24:16
Speaker 1: I are talking about, is something that's very much custom
24:18
Speaker 1: fit to what the family is looking for.
24:20
Speaker 3: Yeah, and maybe the bread Gornto I claud is a
24:23
Speaker 3: better deal for the client, But how are they supposed
24:26
Speaker 3: to know if you they don't even know it exists.
24:28
Speaker 1: You know, Well, that's just it. I mean, I feel
24:30
Speaker 1: like you're out there, Brad's out there. There are very
24:33
Speaker 1: few people are out there. And I'm very fortunate to
24:35
Speaker 1: be having you on the money to give podcasts to
24:38
Speaker 1: be able to say these are true experts in their field.
24:41
Speaker 1: They really know this stuff inside and out. Just spend
24:44
Speaker 1: a little time with them, take a client situation, bring
24:46
Speaker 1: it to them, walk through some scenarios and see if
24:50
Speaker 1: it would truly benefit these charitably focused clients. And if so,
24:54
Speaker 1: great it's going to be a terrific outcome.
24:58
Speaker 3: And for those advisors who think their clients aren't durable.
25:01
Speaker 3: The client's favorite charity right now is the government. You know,
25:05
Speaker 3: if they're paying taxes and they have other options to
25:08
Speaker 3: not pay taxes, then they've opted for government, and you're
25:12
Speaker 3: just not pointing that out to them. Most clients don't
25:15
Speaker 3: want to take money away from their kids, and we
25:17
Speaker 3: totally understand that. But most clients would willingly take money
25:21
Speaker 3: away from the federal or state government. So that's who
25:24
Speaker 3: we're asking them to take money out of the pocket.
25:27
Speaker 2: Of right exactly.
25:28
Speaker 1: I mean, not that they're not getting enough of that,
25:30
Speaker 1: who are just reducing it, But with the kids, like
25:32
Speaker 1: you say, there's only so many people that are going
25:34
Speaker 1: to give money to the kids, and usually it's probably
25:36
Speaker 1: the parents or the grandparents. So yeah, Well, Randy as
25:41
Speaker 1: always incredibly insightful. Thank you for your deep knowledge on
25:45
Speaker 1: so many things and what you're doing out there every
25:47
Speaker 1: day to try to create clarity. I wish there weren't
25:51
Speaker 1: fewer people doing what you're doing. I wish there were
25:54
Speaker 1: more people doing what you're doing. And who knows, maybe
25:56
Speaker 1: as the result of listening to this type of podcast,
25:59
Speaker 1: people are in fired to maybe lean in more a
26:01
Speaker 1: little bit towards this, and maybe there'll be some people
26:04
Speaker 1: who decide to make it their life's work is to
26:07
Speaker 1: go out and really just flesh out what a CLAT
26:10
Speaker 1: is and bring this more to their client population to
26:14
Speaker 1: ensure that they are in fact doing the best they
26:16
Speaker 1: can do. If they are charitably inclined, they're doing the
26:19
Speaker 1: best they can do with their estate dollars.
26:21
Speaker 2: I would support that fully.
26:22
Speaker 1: I love there to be one hundred more of a
26:24
Speaker 1: thousand more. Yeah, I hope so too, but I don't.
26:28
Speaker 3: Part of the problem is when you bring it up
26:29
Speaker 3: as clients have never heard of this before. How come
26:32
Speaker 3: my lawyer didn't tell me? How come my CBA didn't
26:34
Speaker 3: tell me? How come I advise because.
26:36
Speaker 1: They don't know, right, they don't know, and they think
26:37
Speaker 1: it's so obscure that no one's doing it, when in fact,
26:40
Speaker 1: the reason no one's doing it is because not as
26:42
Speaker 1: many people are talking about it. So I like things
26:45
Speaker 1: that are in the code. Yeah, right, exactly right. We're
26:47
Speaker 1: not doing anything here that's unusual or tricky. It's just
26:50
Speaker 1: it's not as well known. And hopefully again discussions like
26:54
Speaker 1: this help make it a little bit more palatable, understandable,
26:58
Speaker 1: and people lean into it and actually create something like
27:00
Speaker 1: this for themselves.
27:01
Speaker 2: Why I love supporting the work you're doing.
27:03
Speaker 1: Rick, Yeah, well, thank you all right, Randy. Well again,
27:06
Speaker 1: how do people reach you if they're learning more about
27:09
Speaker 1: clats and they need an expert and they need to
27:11
Speaker 1: lean on somebody, how would they reach you?
27:13
Speaker 3: Randy at Two Hawks fos FOS's Family Office Services. That's
27:19
Speaker 3: the best place where you can go to the two
27:20
Speaker 3: Hawks Family Office Services website and find us there, happy
27:24
Speaker 3: to speak with anybody or find time to discuss a
27:27
Speaker 3: case or just get you more educated.
27:30
Speaker 1: That's terrific. Thank you, Randy, Thank you so much, and
27:34
Speaker 1: you're always welcome to come back. If you have any
27:36
Speaker 1: new ideas or things you also feel are obscure or
27:40
Speaker 1: should be more well publicized, please come back and we'll
27:43
Speaker 1: do another episode. Love to thanks all right, Thanks again, Randy.
27:48
Speaker 2: Appreciate it.
27:48
Speaker 1: Bye. That wraps up today's conversation with Randy Fox. His
27:57
Speaker 1: deep experience reminds us that some of the most meaningful
28:01
Speaker 1: acts of generosity are built not only on good intentions,
28:05
Speaker 1: but on careful, creative planning. Here are three key takeaways
28:09
Speaker 1: from our discussion. First, Clatt's charitable lead annuity trusts are
28:14
Speaker 1: the mirror language of charitable remainder trusts, paying income to
28:18
Speaker 1: charity first and then distributing what's left to family. Second,
28:23
Speaker 1: the balloon or SHARKFINNCLAT allows for smaller charitable payments early
28:28
Speaker 1: on and a larger one later, creating growth potential that
28:32
Speaker 1: can significantly benefit both family and charity. And third, with
28:36
Speaker 1: proper timing and expert guidance, a CLAT can turn a
28:39
Speaker 1: single liquidity event like a business sale, into a lifetime
28:43
Speaker 1: of impact and legacy thanks from listening to Money to Give.
28:48
Speaker 1: If this conversation resonated with you, please leave a review
28:51
Speaker 1: on your preferred streaming platform, share it with a friend
28:54
Speaker 1: or colleague, and most importantly, keep that giving feeling going.
28:59
Speaker 2: We are now brought.
29:00
Speaker 1: Casting in twenty two countries and growing with nearly ten
29:03
Speaker 1: thousand downloads to date. A reminder this podcast is meant
29:08
Speaker 1: to be for educational purposes only. For specific advice related
29:11
Speaker 1: to your own situation, please consult an attorney, financial advisor
29:16
Speaker 1: CPA or other type of trusted consultant, And if you're
29:20
Speaker 1: looking for fresh insights on how to give smarter, raise,
29:23
Speaker 1: more money and advise your clients in more informed way,
29:27
Speaker 1: please subscribe to my weekly newsletter, Charitable Giving News For you.
29:31
Speaker 1: Register by going to my website, The Philanthropy Guide dot com.
29:35
Speaker 1: In the newsletter, you'll also read about many of our
29:38
Speaker 1: podcast guests, while also getting helpful tips and advice for nonprofits,
29:43
Speaker 1: donors and professional advisors. Meaningful giving starts with meaningful connection,
29:49
Speaker 1: so please connect with me on LinkedIn as well. Until
29:53
Speaker 1: next time, let's keep making a difference together. Eight