CGNA: Noncash Opportunities, Aggregate Market and Property Types, Part 1

CGNA: Noncash Opportunities, Aggregate Market and Property Types, Part 1

Article posted in Assets on 20 April 2017| comments
audience: National Publication, Bryan K. Clontz, CFP®, CLU, ChFC, CAP, AEP | last updated: 21 April 2017
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Summary

As we dig further in to Bryan Clontz's book, we explore the scope of the opportiunity of non cash assets. So much wealth is concentrated there it makes perfect sense to understand them and how to monetize them effectively.

This article is an excerpt from Charitable Gifts of Noncash Assets, a comprehensive guide to illiquid giving by Bryan Clontz, ed. Ryan Raffin. Published by the American College of Financial Services for the Chartered Advisor in Philanthropy Program (CAP), with generous funding from Leon L. Levy. For a free digital copy, click here, and to order a bound copy from Amazon, click here.

Noncash assets, for the purposes of this book, are all assets other than cash, publicly-traded stock, or mutual funds—said simply, illiquid assets.

The Opportunity: The larger the donor’s wealth, the greater the likelihood of noncash holdings and the greater the proportion of the holdings relative to other assets. Interestingly, the majority of millionaires created their wealth through real estate or privately-held business interests, and they are nearly always the most charitably-inclined donors. From a planning perspective, these same interests are likely to have a very low tax basis and are therefore ideal for charitable planning opportunities. Yet over 90 percent of all charitable donations are cash donations because that is what fundraisers ask for—the smallest percentage asset on the balance sheet, the one that hurts the donor’s lifestyle the most and the one that is nearly always the most tax inefficient. My charitable tax mantra has long been—“Cash Bad, Everything Else Good!” Everything else is simply long-term capital gain assets that have the greatest appreciation. To be sure, many donors / clients have publicly-traded stock or mutual funds that may meet this criteria, but these assets also represent liquidity. After the 2008 financial melt- down, we all likely have a different definition of liquidity and its importance.

Combining all these assets, the aggregated value is estimated to be 4 to 6 times that of the entire stock market, yet 80 percent of these types of gifts are initially declined by charities

The points above discuss one aspect of the noncash giving opportunity. Another important aspect is in the nature of the donor pool. The Baby Boomer generation is retiring in huge numbers; some 10,000 Americans in their 50s and 60s retire every day.2  And they are already predisposed to charitable giving. Over 40 percent of individual contributions come from Boomers, equating to about $62 billion.3 Better yet, they are projected to transfer some $10 trillion in closely held business assets by 2025.4 Further, a survey indicates that “pre-retirees” believe they will most miss the reliable income from work.5 This opens the door for a conversation about income streams from planned giving vehicles such as charitable gift annuities and remainder trusts. The opportunity is clear: A wealthy, charitably-inclined generation, which is in the midst of a generational transition out of active business roles and is sensitive to the value of reliable income.

What follows is an environmental scan of the market overall, followed by some specific noncash types and finally a brief discussion of the opportunities.

The Market

  • In nearly every survey, cash or cash equivalents represent the smallest portion of the overall balance sheet for high net worth individuals / major donors. The most current research suggests cash represents 7 percent of total high net worth assets in 2015.6
  • The aggregate stock market value as of January 2016 was approximately $25.3 trillion.7
  • The aggregate value of privately-owned US land (not government owned), as of the first quarter of 2016, is approximately $50 trillion.8

Most recently published IRS data has 2013 figures for individual noncash contributions. Total deductions for noncash contributions were $56 billion out of $179 billion in 2013, working out to 31 percent. Backing out the deduction amounts for cars, house- hold, electronics, clothing, food, and other assets—leaving closely held businesses, real estate and art / collectibles—then it drops to approximately $37 billion. Out of $329 billion of total charitable gifts from all sources, this $37 billion is about 11 percent.

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