Buck: Welcome back to the show everyone today my guest on Wealth Formula Podcast is Arlene Cogen. Arlene is an experienced philanthropic leadership consultant. She works closely with professional advisors, nonprofits and their clients to integrate philanthropy into personal financial and estate plans. Arlene welcome to the Wealth Formula Podcast.
Arlene: Buck, it is a pleasure to be with you on your awesome show.
Buck: Thank you. Well so tell us a little bit about yourself and you know how you got into this line of work with philanthropy.
Arlene: It’s a pleasure to do that, and you know being in financial services, people always think it’s kind of a linear progression, but for me it wasn’t that at all. I started out on Wall Street back in the 80s and I became a certified financial planner and work primarily with individuals to help them grow their wealth and maintain their wealth. Then I met my husband we got married and I had two daughters and while being on Wall Street was really exciting and interesting. It was in the 80s and I experienced sexual harassment, the glass ceiling and discrimination, just to name a few things. So when I had two girls I thought you know I want to lead by example and there has to be something else that I can do and still do well and make a decent amount of money. So we moved out to Portland or firkin I stayed home for a couple years and saw a career coach. And when I met with the career coach Buck, everything was about philanthropy.
Buck: You’re like I’m from Wall Street what are you talking about?
Arlene: Well, I was a bit more blunt. How can you make money at that?
Buck: There you go.
Arlene: So I immediately jumped back into the trust and investment world and it took me five years to find a position with the Oregon Community Foundation which is the sixth largest Community Foundation in the country. And my sole focus was working with professional advisors, wealth managers, estate planning attorneys and CPAs and helping their clients integrate philanthropy into their lives. And it was a dream job. But what I noticed with so many people and advisors lacked the basic knowledge of the personal, financial and ultimately the legacy benefits of philanthropy. And after nine years with the Community Foundation I decided to go out on my own. That’s when I wrote my book and really help people learn the positive benefits of giving and really how to give.
Buck: Right so obviously when we think of charitable giving you know most people think what God’s just nice nice to do it’s you know helps other people in need but obviously what you’re saying right now is there’s you know there’s more to it than just that. So tell us a little bit about you know the types of structures that people use, the way that they might find benefit you know now for themselves potentially as a legacy, you know give us some give us some texture to all of this you know and it’s sort of from your world, because it’s not just as simple okay we’re giving to you know this particular cause and we’re doing it because we care about it there’s more to it.
Arlene: Yeah you know like I said there are three benefits to our two clients or people. Personal, financial and legacy baskets. So let’s break each one of those down. The personal benefit is that there’s real hard science that giving money to others makes us happier. And we see this with Michael Norton, he’s an associate business professor at Harvard. He did a study and it was confirmed by Gallup who does the world polls that giving to money actually makes us happier. The study with Gallup was done in 136 countries with over 200,000 participants and Michael Norton came up with a great saying. If you think money can’t buy you happiness, stop spending it on yourself and instead spend it on others.
Buck: Right exactly.
Arlene: And then a little bit longer on that hard science, Dr. Jorge Moll is a neuroscientist with the Rio de Janeiro Institute did MRI scans, magnetic resonance imaging scans and talked to people about charitable giving. And what they found was the prefrontal cortex of your brain is stimulated when you give to others. And as a doctor you’ll know this yeah prefrontal cortex also is stimulated when you have good food and great sex. So giving money to others, the hard science is there. We’re gonna be happier, more fulfilled. Now let’s go to the second piece, the financial aspects. As we know, giving money to charity will reduce your taxes could be your income tax, could be your estate taxes, could be capital gains, there are many specific benefits when working with your advisor that they can instruct or something that will provide a tax reduction or elimination for you. And finally when we look at the legacy piece of giving it’s really about your purpose, your meaning. How do you want to be remembered? Do you want to engage your family? What does that look like? It’s the bigger picture we all head out of how we want to be remembered and who we are as an individual. And philanthropy allows you to explore that in a deep way where you’re identifying your core values and the causes you care about in a way that has bigger purpose and meaning. That’s where philanthropy helps our clients.
Buck: Got it. So let’s talk about let’s drill down on one of those for this audience in particular I think they would be curious about the financial part of this right now and how can I help myself. Can you be more specific on that? Obviously if you’re giving money you’re going to you know write off that money is that just as simple as that or is there more layers to it? Is there ways that people structure these things that they can benefit more than you know a simple tax deduction linearly with how much they’ve given? I don’t know if that’s something that you can talk about a little bit just to give us a flavor?
Arlene: Sure. So one of the things you could do when you structure philanthropy is a gift that helps you and your family now, gives you a tax deduction now and ultimately benefits your charity. So what I’m talking about in this instance are charitable gift annuities and charitable trusts. And these are vehicles where you would make, if it’s a gift annuity you make a gift to a 501C3 organization and they would pay you or a loved one perhaps it’s someone who’s ill and it’s to be taken care of, an income stream throughout their life, and ultimately when that person is no longer with us, the remainder would go to the charity. And with a charitable trust, what’s cool about that vehicle is that you can you create the trust vehicle yourself and you could work with your personal advisers with it, it accepts unique assets, it could be a business interest, could be real estate, and then that a loved one or even yourself can get an income stream throughout your lifetime, you get a charitable tax deduction upfront and ultimately the remainder would go to charity. So there’s lots of cool and flexible vehicles out there for people to use to both take care of themselves, their loved once personally. If that tax deduction and support a cost they care about.
Buck: So can we talk a little bit more about the charitable remainder trust. People hear about these things a fair amount but I don’t know that you know a lot of people know how they work. But so basically what you’re saying is that in a turtle remainder trust what you can do is if I understand correctly you’re you’re donating an asset, you know to the charitable remainder trust, and then you get to write the value of that asset off while you’re living and then maybe collect the you know the income stream from that asset while you’re living or well whoever it is that you’ve granted this income to and then when that person either you or whoever you’ve granted it to dies, the rest just goes to the the charity is that is that in a nutshell how it works I guess?
Arlene: Let me clean this up, so okay so with the charitable remainder trust you actually would go work with an attorney to set up the document. And in the document, you state who is going to be the trustee who oversees all the administration and the investments, then you would get a separate tax identification number for that vehicle as well and it has a separate tax return it is a separate entity. Within that entity you make a gift whether it be a personal property a business interest or stock and what happens is you get a partial deduction which is one of those fun IRS complicated formulas which basically comes down to the remainder interest. So they use projections of your whoever the beneficiary is, whether it’s your yourself or a loved one and they’ll project that so-and-so is going to die within 15 years. So the actuarial value of the remainder based on that 15 year life expectancy is what your tax deduction is. So it’s a partial tax deduction but when you put that asset into the charitable trust, the beauty is you defer all of your capital gains. You’re not paying those all at once. As the income stream comes out to you or your beneficiary, it is broken down into pieces. So you’ll be paying only a portion of that capital gain over time, and then like you said after you die or the person dies, then the remainder goes to the cause that you care about.
Buck: Got it got it yes yes so there are few more steps to it than I thought but what, so you know who’s doing this? I mean is this the kind of thing that really is just for the ultra high net worth individual or you know can you have you know a lot of a lot of our folks are they’re not ultra high net worth but they’re three four hundred thousand two hundred thousand dollar per year people, doctors, engineers, et cetera, I mean is this just for the ultra, ultra high-net-worth families or who’s who getting involved with this stuff?
Arlene: That’s a great question and you know the ultra high-net-worth have always had access to these types of vehicles. But when you’re looking at the mass affluent, the five hundred thousand to five million, we can create those kind of gifts also, because the minimum to create a charitable trust is 100 thousand dollars, because when you look at the cost you actually draft the trust agreement, to make the gift and the annual tax returns and administration doing it for less than a hundred thousand isn’t going to be cost-effective for you or your client. So it is available for our mass affluent folks and it’s a fabulous tool to use to make sure, unlike the gift annuity, that you have a lot more control on how it’s invested, what the payout rate is, there’s a lot more flexibility there for us.
Buck: Got it. So tell me a little bit about your you know your particular firm I know you mentioned that you work as a consultant now what does that mean in this context you’re working with it you’re not necessarily working with the people who are actually wanting to do this but you’re working with their advisors is that right?
Arlene: Yes so when I was at the Community Foundation, I noticed a lot of advisors would say to me, Arlene, if my client gives money to charity, I’m gonna lose the revenue stream. And I’m like what are you talking about? That’s not true. It’s a matter of how you set it up but the true advantage for advisors is that you know sixty to ninety percent of our clients heirs are going to fire us within the first year of the clients death because they have no relationship with generation two two or three. So what I do is I work with advisors to educate them. I call it the philanthropic profits pipeline, it benefits your clients as we discussed earlier through personal financial magazine goals it benefits the community because they are giving money to the community and it benefits your bottom line because you’re engaging the next generation. And with the philanthropic profit pipeline, the strategy I used is called time tools, intention, meaning and engagement. So when I say I consult with advisors I teach them the tools really deep we go to each charitable tool how it works, how they can help their clients. The intention of the firm to build deeper relationships and engage the next generation, meaning, where we’re bringing meaning to our clients where they’re finding a higher purpose. And last but not least engagement how are we actively engaging that next generation. And when I work with them they get to pick their top ten clients and we come up with customized programs for them to engage them well there I actually will work with the advisor and the client to build that deeper relationship help the client identify their core values and the right structures that will work for them. But I like to go through the advisor because you know I went but my ultimate goal is to change the world through leadership and philanthropy and to really get out there is to work primarily with advisors. You get a lot more access to people who make a difference by working with advisors.
Buck: Sure. I will say in this group we have a lot of people including myself we don’t have advisors would just renegade real estate investors.
Arlene: But you could give that real estate into a terrible trust.
Buck: There you go right. So if you’re a renegade real estate investor and you want to do something and you don’t have a certified financial planner, then what.
Arlene: Well people can always reach out to me to work directly with them because I do want to change the world through leadership and philanthropy and I can help them come up with their philanthropic plan and find a local attorney for them to work with to create the trust.
Buck: So you wrote a book on this right? Is that some of these concepts that we talked about today?
Arlene: Yeah the book is really simple and it’s made for the mass affluent, for everyday people like us. It breaks giving down into bite-size manageable pieces, what’s a bit quest, what’s a charitable trust, how does it work. And then it breaks into vignettes of stories of people who are single, dual income their children, multi-generational. And after each story there’s a personal reflection area so you can start to develop your philanthropic plan.
Buck: Got it and what is that book called?
Arlene: The book is called give to live make a charitable gift you never imagined.
Buck: Got it and that’s available on Amazon and the usual suspects there?
Arlene: It is.
Buck: How else can we get in touch if some of the things are sound interesting and we and and people want to reach out to you?
Arlene: You know they can always call me directly 503-957-8334 or reach out to me at [email protected].
Buck: Arlene is there anything else we need to know about charitable giving for right now or is this a good 101?
Arlene: This is a great 101 if people are interested and getting the personal reflections that are in each chapter of the book they can send me an email and I’ll just send you that piece.
Buck: Great what’s your email Arlene?
Arlene: [email protected].
Buck: And we will put that in the show notes as well. Arlene thanks so much for being on Wealth Formula Podcast today.
Arlene: It’s a pleasure to be here with you. I hope that everyone learned something.
Buck: We’ll be right back.