Case Studies
The following case studies are representative examples of projects we have completed.
NON-CASH DONATIONS
1. Farm Land
- Facts: A couple purchased a large tract of Arizona farm land only a decade or so ago. In the past six
months, they have been receiving unsolicited offers from developers at nearly 10 times the original cost.
The couple wanted to sell the property, however they wanted to mitigate the capital gains tax exposure,
reduce their estate tax exposure, create a charitable fund for themselves as well as future generations
and needed some retirement income as well.
Charitable Solution: Their attorney and financial advisor crafted a plan that involved a 50% donation to a
donor advised fund, 25% to a Charitable Remainder Trust and 25% to be retained by the couple. The
charity was not comfortable receiving an outright contribution of real estate so they referred the gift to the
Dechomai Foundation. Once the property is sold, it will be transferred to the donor advised fund to be
professionally managed by the financial advisor. The Charitable Remainder Trust will also be managed
by the financial advisor, and upon termination, the remainder will be transferred to the family's donor
advised fund. The couple was very enthusiastic about the “legacy” component of a multiple generation
advised fund all while accomplishing both their retirement income needs and their tax reduction goals.
- 2. Real Estate Limited Partnership
- Facts: A donor owned an apartment building within a limited partnership. He called a charity the day
before he was to sign a binding agreement to sell. He wished to give a 10% interest to the charity toward
a capital campaign.
Charitable Solution: The charity immediately referred the gift to the Dechomai Foundation and we
completed due diligence on the partnership the same afternoon, Dechomai’s Board approved receipt of
the gift and the gift was irrevocable transferred that evening. Dechomai’s fee was 2.3% of the gift and the
remainder was granted as a gift to the capital campaign.
- 3. Professional Sports Franchise LLC
- Facts: A professional advisor was representing a client who owned a partial interest in a professional
sports franchise. He had a very low cost basis in the property and wanted to give a small interest to
charity.
Charitable Solution: The charity contacted Charitable Solutions to help design and complete the gift. As
the donor wanted to make the gift very quickly, within five business days, the charity referred the gift to the
Dechomai Foundation. The gift was liquidated for a total fee of 3% and 97 cents on the dollar was granted
to the referring charity 30 days after the closing (note this is a donor advised fund grant so the donor had
the right of recommending the grant to any public charity he wished).
- 4. Closely-Held C Corp
- Facts: A CPA called a charity to determine if they would be willing to accept a contribution of closely held
C-corporation stock. The company had an interest in redeeming the stock back, but because of cash flow
fluctuations, did not know if or when an offer might be made.
Charitable Solution: The charity referred the gift to the Dechomai Foundation for receipt. The company
purchased the shares for the appraised value six months after the transfer using a three-year installment
note. The note’s rate was 1 + the prime rate and was reset annually. Dechomai’s fee was 2.8 percent
and granted the remaining net payments to the charity annually.
- 5. Art Work
- Facts: A donor had amassed a substantial art collection. Two pieces in particular were paintings the
donor wished to sell. He was aware that the federal capital gains taxes were 28%, and as he was a New
York resident, he would also have additional state/local taxes as well. He wanted to fund his donor
advised fund with the paintings, however the charity’s gift acceptance policies did not allow them to
receive tangible personal property/art or collectibles.
Charitable Solution: The charity referred the donor to the Dechomai Foundation. We engaged Larry Zale,
our art expert, to help design the gift and to answer the donor’s art-specific tax questions. The donor had
a relationship with Sotheby’s so we arranged to sell the two paintings at auction. Interestingly, the New
York sales tax did not apply to charities so we were able to advertise that fact prior to the auction.
Dechomai’s fee was 2.4 percent and the net proceeds were granted to his donor advised fund.
Related-Use Note: The Dechomai Foundation does not qualify as a related-use charity so the donor’s
income tax deduction was limited to cost basis. He had planned to bequeath the gifts to charity but
realized that all the estate tax benefits would still be enjoyed by making the contribution today, and at least
he would receive some additional current income tax benefit. Also, he appreciated the fact that he could
time the sale when the market was right.
- CHARITABLE GIFT ANNUITY RISK MANAGEMENT
1. Start-Up Program Policies
- Facts: A Midwestern community foundation had delayed starting a CGA program because of the
perceived and real risks. A number of local charities, however, recently asked them to reconsider
launching a program as their donors had begun requesting gift annuities. The community foundation’s
CFO and Investment Committee had a number of concerns, but the Development staff was eager to get a
program underway.
Charitable Solution: We drafted a comprehensive set of risk management policies and procedures to
mitigate the CFO and Investment Committee concerns. The policies included minimum gift sizes, a
recommended asset allocation, a monitoring plan and schedule, marketing recommendations and
specific risk management thresholds for risk retention, reduction, transfer and avoidance. We presented
the overall plan via conference call to a combined audience of the Development and Finance departments
and answered any remaining questions. The Investment Committee then recommended Board approval
for the program we recommended.
2. Concentration Risk with Two CGAs Representing 40% of the Pool
- Facts: A national charity had recently received one CGA of $1.1 million and one CGA of $3.7 million into a
$7 million pool. The CFO was concerned about the size of the gifts relative to the pool. He wanted to see
an in-depth financial analysis to determine the best way to manage the concentrated risks.
Charitable Solution: We used our proprietary modeling system to show probable and potential ending
values under various scenarios. Further, we solved for the optimal asset allocation mix of equities, fixed
income and reinsurance for both annuities. For the smaller of the two, we recommended a 60 percent
equity, 30 percent reinsurance and 10 percent fixed income allocation and for the second larger gift, we
recommended a 40 percent equity and 60 percent reinsurance allocation. Both allocations solved for the
highest ending balance with the lowest standard deviation (risk) using the downside loss maximum the
charity provided.
3. National Charity with Large Pool
- Facts: A charity called us because they were worried that their asset-to-liability ratio was becoming pretty
thin. They had 120 gift annuities and $10 million in their pool, however they calculated a liability of $9.6
million. They wanted a detailed analysis of their entire pool, an audit of their current policies, and specific
recommendations for any current problematic annuities as well as recommendations for policy changes
going forward.
Charitable Solution: We analyzed their entire pool and provided a 20 page report with 15 graphs to clarify
their situation. As part of the liability analysis, we used our proprietary CGA mortality table and found that
they were under-stating liabilities by almost 40 percent. The actual liability was $10.3 million which meant
the pool was “under-water” by $300,000. We recommended six specific recommendations for the
troubled annuities, three recommendations for the current pool and five recommendations for CGAs going
forward. We had three separate conference calls with the charity’s investment manager, President, CFO
and development director.
4. Charity with Reinsurance Brokerage Request
- Facts: A national charity had determined it was prudent to reinsure a single large annuity. They wanted a
broker that had experience in the gift annuity market, could walk the financial department through the
accounting entries and FASB implications, understood state reserve requirement implications, donor
relations and disclosure requirements, annuity product design and placement.
Charitable Solution: We shopped the case with 18 different national carriers and two non-commission
carriers and created a one-page Excel spreadsheet with the company, premium, ratings and comments.
We then created a graph for donor and internal staff communication analyzing reinsurance implications
on the specific gift and what probable ending balances were at various ages. We further worked with the
charity to determine the appropriate asset allocation of the “side-fund”, the amount remaining after
reinsurance. We had a conference call with the accounting department prior to the purchase to make
sure they understood the transaction and FASB implications. We then recommended the specific product
and custom designed the contract to comply with not only the specific state of the donor, but also as a
group contract, to comply with other states as well to the extent any additional annuities were ever added.
- Note: Charitable Solutions receives no commissions, fees or other payments from reinsurance placement.
5. CGA Investment Manager Wanted to Customize Asset Allocation Based on the Pool's Liabilities
Characteristics
- Facts: An investment manager wanted to have a deeper analysis of one of their client’s pools. The pool
was $73 million dollars and included 2,100 CGAs. They were most interested in a report that assessed
the pool across 10 dimensions of risk management with a special emphasis on asset-liability matching
recommendations.
Charitable Solution: We used our patent-pending process, Life Income Risk Management Analytic Suite
(LIRMAS), to deliver a 50 page report on the pool. Within the report, we made specific recommendations
to optimizing asset-liability matching and asset allocation based on the pool’s existing health and
statistical/longevity characteristics, the charity’s risk tolerance, preponderance of restricted funds, maturity
of the pool and proprietary life expectancy calculations. We were hired to perform a similar analysis on an
annual basis.
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