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HomeMy WebLinkAbout1997/09/08 - Agenda Packet - Library Board of Trustees - AdjournedDECLARATION OF POSTING OF AGENDA ¥I¥IAN GARCIA states and declares as follows: I presently am, and at all times mentioned herein have been, the Administrative Secretary of the Library of Rancho at ~5~OO~, I posted a true and correct copy of the meeting Center Drive, Rancho Cucamonga. I declare under penalty of perjury that the foregoing true and correct and that this declaration was executed on ~// ~/~'-//~ , at Rancho Cucamonga. is DEBORAH KAYE CLARK, LIBRARY MANAGER City of Rancho Cucamonga BY: Vivian Gar¢ia, Administrative Secretary City of Rancho Cucamonga LIBRARY BOARD OF TRUSTEES AGENDA CITY OF RANCHO CUCAMONGA ADJOURNED MEETING September 8, 1997 6:30 p.m. Civic Center Council Chambers 10500 Civic Center Drive Rancho Cucamonga, California 91730 City Councilmembers William J. Alexander, Mayor Rex Gutierrez, Mayor Pro Tem Paul Biane, Councilmember James V. Curatalo, Councilmember Diane Williams, Councilmember  PAGE Board of Library Trustees Agenda Adjourned Meeting~ September 8~ 1997 1 A. CALL TO-ORDER 1. Roll Call: B. COMMUNICATIONS FROM THE PUBLIC This is the time and place for the general public to address the Board of Library TrusteeL State law prohibits the Board from addressing any issue not previously included on the Agenda. 1. Emma A_costa will address the Board regarding the current policy of 1 holding the card holder responsible for materials checked out on a library card stolen but not yet reported as "lost". Correspondence attached. C. CONSENT CALENDAR The following Consent Calendar items are expected to be routine and non-controversial. They will be acted upon by the Board at one time without discussion. Any item may be removed by a Boardmember or member of the audience for discussion. 1. Approval of Minutes: August 7, 1997 5 2. Increase proposed fee for color copies in the Technology Center from 9 $. 15 to $.30, as per contract negotiated with service provider, APS. D. LIBRARY DIRECTOR'S STAFF REPORTS The following items do not legally require any public testimony, although the President may open the meeting for public comment. 1. Ratify the action of the Library Board Subcommittee for Foundation Board recruitment by amending the Foundation Bylaws to replace the position ora Library board member as Director with an at-large community member. Under that action, the current make-up of the Library Foundation Board of Directors is as listed below. Oral report by Boardmember Swistock. 8 at large community members appointed by Council 1 member of the Friends of the Library, appointed by the Friends' President.  PAGE Board of Library Trustees Agenda 2 Adjourned Meeting, September 8, 1997 E. ADJOURNMENT Adjourn to Joint Meeting of the Librar-) Board of Trustees and the Library Foundation Board. I, Vivian Garcia, Library Administrative Secretary of the City of Rancho Cucamonga, hereby certify that a true, accurate copy of the foregoing agenda was posted on Friday, September 5, 6:00 p.m., 1997, seventy-two (72) hours prior to the meeting per Government Code 54953 at 10500 Civic Center Drive. I? A N C H O C U C A M O N G A PUB L I C L I BRARY August 19, 1997 Emma Acosta 6770 Inyo Place Rancho Cucamonga, CA 91701 Dear Mrs. Acosta, Thank you for meeting with me last week to explain your position regarding the materials checked out on your daughters card. Time is valuable, and I appreciate your spending some of yours with me as we work through the issues involved in the missing books listed on the attachment. To recap your situation: Your daughter's library card was stolen from her at school. The first time you heard of this was when you received a notice of the overdue books. You immediately called the library to report that you had never borrowed the items. You have been charged for 10 items borrowed on the card. These items were borrowed after the card was stolen, but before the loss was reported to the library. You believe that the patron (in this case, your daughter) should not be held responsible for something she did not do and for books she did not borrow. The cost for these items, including all fees, is $101.68. To recap the library's policy and position: The library card application, signed by the card owner, states the following: "I agree to be responsible for all materials borrowed on my car& to report a lost card immediately." In the event of a stolen card, the card holder is held responsible for items borrowed until such time as the card is reported to library staff as stolen or lost. After that action by the card holder, the library is responsible for any items checked out on that card. 7368 Archibald Avenue · Rancho Cucamonga, CA 91730 · (909) 948-9900 · (909) 989-89(x5 1 17 A N C H O C U C A M O N G A PUB L I C L I BRARY Staff does not dispute that your daughter's card was stolen, however, it was not reported to us as stolen until some time after the event. While we understand that you were not aware of its theft until you received notice of the items due to us and we sympathize with your situation, according to our policy, the borrower is responsible for all items checked out on the card. In this situation and after some discussion with you, Karen Schneiderwent, Circulation Supervisor and ! offered to eliminate overdue fees, eliminate processing fees and to split the costs of the materials so that 50% of the burden of replacement cost is born by both the borrower and the library. The total requested from you on this account under those terms is: $22.96. This offer was unacceptable to you due to the fact that you disagree with a library policy that holds you responsible for materials borrowed on a stolen card. Since this is a policy issue, I invited you to discuss your situation with the Library Board of Trustees. They have the authority to dismiss your charges or to uphold the current policy. Attached, you will find the agenda listing you as the first item that evening. We regret the imposition on your time, but your request that we overturn the current policy requiring patrons be responsible for stolen items requires a Board decision. I also want to reiterate that staff will be recommending that we retain the current policy and continue our offer to you that we split the losses in this matter. The Library Board will be receiving a copy of this correspondence after you have had a chance to review it. Please call me at (909) 948-9900, ext. 5020 if you wish to add anything to this explanation of events or if you feel anything stated above is unclear or mis-stated. You may also send me a statement in writing for the Board if you wish or simply state your case in person on the meeting of September 8th. As promised at our meeting, no further action will be taken on this account until it is heard by the Board, except that we will continue to search for the books in the hopes that whoever checked them out might have returned them, however unlikely that may be. Deborah K~ Library Director 7368 Archibold Avenue · Rancho Cucamonga, CA 91730 · (909) 948-9900 · (909) 98%8966 Rancho Cucamonga Public Library Juvenile Borrower Application Please Print Clearly: Last Name First ~ Male [~ Female Date of Birth: Middle School (if attending) Information of Parent/Guardian for above applicant: Last Name First Middle Address Apt. # City, State Zipcode E-Mail Address l~Iailing Address (if different from above) ( ) ( ) Business Telephone Number Home Telephone Number Drivers License/ID Number Social Security # (Optional) Date of Birth ~e to b~ re;onsible for all materials borrowed on my card; to report a lost card ~ ~,~ bnmediately; to observe library rules; to pay all charges and to report any change of address. Applicant's Signature I agree to be responsible for all materials checked out to the above minor; to promptly pay all charges and report any change of address. Parent/Guardian's Signature Library Use Only: New Library Card #: Initial Date Rancho Cucamonga Public Library Adult Borrower Application Please Print Clearly: Last Name First Middle Address Apt. # City, State Zipcode E-Mail Address Mailing Address (if different from above) ( ) ( ) Home Telephone Number Business Telephone Number Drivers License/ID Number Social Security # (Optional) Date of Birth Male ~1 Female [/~a~ree to be responstble for all materials b. orrowed on my card; to ~ [ card immediately; to observe library rules, to pay all charges and to report any ~) ~ge of address. ~ Applicant's Signature Library Use Only: New Library Card # Initial Date 4 CITY OF RANCHO CUCAMONGA STAFF REPORT DATE: TO: FROM: SUBJECT: September 8, 1997 President and Members of the Rancho Cucamonga Public Library Foundation Board Jack Lam, AICP, City Manager Deborah Kaye Clark, Library Manager APPROVAL OF MINUTES RECOMMENDATION Approval of the Minutes for August 7, 1997. BACKGROUND Minutes for the Regular Meeting of the Library Board on August 7, 1997 taken by Library Clerk, Rosie Manella and compiled by Library Secretary, Vivian Garcia. pectfully submitted, ~ ,~ / CITY OF RANCHO CUCAMONGA LIBRARY BOARD OF TRUSTEES Regular Meeting A. CALL TO ORDER The regular meeting of the Library Board of Trustees was held on Thursday, August 7, 1997, in the Council Chambers of the Civic Center, located at 10500 Civic Center Drive, Rancho Cucamonga, California. The meeting was called to order at 7:01 p.m. and the pledge of allegiance was led by President Howdyshell. Present were Boardmembers Davies and Swistock. Also present were: Deborah Clark, Library Manager, Robert Karatsu, Principal Librarian, Renee Tobin, Children's Services Supervisor and Vivian Garcia, Administrative Secretary. B. CONSENT CALENDAR B1. Approval of minutes: June 5, 1997 July 3, 1997 B2. Approval of proposed holiday closures for 1997/98. B3. Approval of grant application requesting $3,500 from the Federal Adult Education Act to support the Adult Literacy program in Rancho Cucamonga. MOTION: Moved by Boardmember Swistock to accept the consent calendar, seconded by Boardmember Davies. Motion carried 3-0-1 (with Gregory absent). C. LIBRARY DIRECTOR'S STAFF REPORTS C 1. Library status report: oral report presented by staff. Deborah Clark, Library Manager gave an oral update to the Library Board on the status of the Library. Robert Karatsu, Principal Librarian, presented an oral report on the Library during the month of July. Renee Tobin, Children's Services Librarian, updated the Library Board on the Summer Reading Program and children's services. Library Board Minutes August 7, 1997 Page 2 C2. Budget report: presented by Deborah Clark, Library Manager. Deborah Clark, Library Manager, reviewed the budget sheets with the Board. C3. Approval to contract with Unique Management Services, Inc. for collection services. Report presented by Karen Schneiderwent, Circulation Supervisor. Karen Schneiderwent, Circulation Supervisor, went over the contract with the Library Board. Staff recommends approval of Unique Management Services for collection services. MOTION: Moved by President Howdyshell to approve the contract with Unique Management Services, seconded by Boardmember Swistock. Motion carried 3-0-1 (with Gregory absent). C4. Technology Center Update: oral report presented by staff. Proposal to adopt Internet Access policy for the Technology Center presented for approval by Robert Karatsu, Principal Librarian. Robert Karatsu, Principal Librarian, went over the Intemet Access policy with the Library Board. Staff reviewed the handouts for the Technology Center and the Consent Form for Internet Access by Minors. Staff did a demonstration of the privacy screens for the computers in the Technology Center. MOTION: Moved by President Howdyshell to approve the Internet Access policy as an interim policy for six (6) months. Staffwill evaluate the useage and any problems that might arise during that time to accommodate concerns in a final policy. However if nothing materilizes that requires changes to the policy, it will automatically be a permanent policy in six (6) months. Seconded by Boardmember Davies. Motion carried 3-0-1 (with Gregory absent). D. BOARD BUSINESS D1. Library Telethon Update: oral report by staff. Selection of a project for the 1998 Telethon. Recommendation from the Library Foundation Board. Report available at the meeting and presented by Deborah Clark, Library Manager. Deborah Clark, Library Manager, gave an oral report on the recommendation from the Library Foundation Board to the Library Board, citing the selection of various small projects throughout the library as the focus of fimdraising this year. 7 Library Board Minutes August 7, 1997 Page 3 MOTION: Moved by Boardmember Swistock to accept the selection for the 1998 Telethon as fundraising for increasing and enhancing current services available and to consider the homework center as a new project, seconded by President Howdyshell. Motion carried 3-0-1 (with Gregory absent). D2. Donor Wall Update: oral report presented by Deborah Clark, Library Manager. Deborah Clark, Library Manager, updated the Library Board on the status of the Donor Wall project. El. E. IDENTIFICATION OF ITEMS FOR NEXT MEETING Telethon E2. Donor Wall None F. COMMUNICATIONS FROM THE PUBLIC G. ADJOURNMENT MOTION: Moved by President Howdyshell to adjourn to Monday, September 8, 1997 at 7:00 p.m. for a training session with the Library Foundation Board at a room to be designated at the City of Rancho Cucamonga, seconded by Boardmember Davies. Motion carried, 3-0-1 (with Gregory absent). The meeting adjourned at 7:57 p.m. Respectfully submitted, Vivian Garcia Administrative Secretary Approved: 8 CITY OF RANCHO CUCAMONGA STAFF REPORT DATE: September 8, 1997 TO: President and Members of the Library Board Jack Lam, AICP, City Manager FROM: Deborah Kaye Clark, Library Manager SUBJECT: INCREASE PROPOSED FEE FOR COLOR COPIES IN THE TECHNOLOGY CENTER RECOMMENDATION: That the Board approve increasing the cost of color copies in the Technology Center from the originally approved $. 15 per page to the negotiated fee of $.30. BACKGROUND: Principal Librarian Rober~ Karatsu negotiated a contract with vendor APS to supply all equipment, supplies and repair services for the Technology Center. The fee negotiated for color copies was slightly higher than originally anticipated, to cover cartridge costs for color copies. FISCAL IMPACT: Slight positive impact due to the fact that the library receives a percentage of all funds received through the fee-based center. illy submitted, 9 R A N C H O C U C A M O N G A PUB L I C L I BRARY August19,1997 Emma Acosta 6770 Inyo Place Rancho Cucamonga, CA91701 Dear Mrs. Acosta, Thank you for meeting with me last week to explain your position regarding the materials checked out on your daughters card. Time is valuable, and I appreciate your spending some of yours with me as we work through the issues involved in the missing books listed on the attachment. To recap your situation: Your daughter's library card was stolen from her at school. The first time you heard of this was when you received a notice of the overdue books. You immediately called the library to report that you had never borrowed the items. You have been charged for 10 items borrowed on the card. These items were borrowed after the card was stolen, but before the loss was reported to the library. You believe that the patron (in this case, your daughter) should not be held responsible for something she did not do and for books she did not borrow. The cost for these items, including all fees, is $101.68. To recap the library's policy and position: The library card application, signed by the card owner, states the following: "I agree to be responsible for all materials borrowed on my card; to report a lost card immediately." In the event of a stolen card, the card holder is held responsible for items borrowed until such time as the card is reported to library staff as stolen or lost. After that action by the card holder, the library is responsible for any items checked out on that card. 7368 Archibald Avenue · Rancho Cucamonga, CA 91730 · (909) 948-9900 · (909) 989-8966 Staff does not dispute that your daughter's card was stolen, however, it was not reported to us as stolen until some time after the event. While we understand that you were not aware of its theft until you received notice of the items due to us and we sympathize with your situation, according to our policy, the borrower is responsible for all items checked out on the card. In this situation and after some discussion with you, Karen Schneiderwent, Circulation Supervisor and I offered to eliminate overdue fees, eliminate processing fees and to split the costs of the materials so that 50% of the burden of replacement cost is born by both the borrower and the library. The total requested from you on this account under those terms is: $22.96. This offer was unacceptable to you due to the fact that you disagree with a library policy that holds you responsible for materials borrowed on a stolen card. Since this is a policy issue, ! invited you to discuss your situation with the Library Board of Trustees. They have the authority _to dismiss your charges or to uphold the current policy. Attached, you will find the agenda listing you as the first item that evening. We regret the imposition on your time, but your request that we overturn the current policy requiring patrons be responsible for stolen items requires a Board decision. I also want to reiterate that staff will be recommending that we retain the current policy and continue our offer to you that we split the losses in this matter. The Library Board will be receiving a copy of this correspondence after you have had a chance to review it. Please call me at (909) 948-9900, ext. 5020 if you wish to add anything to this explanation of events or if you feel anything stated above is unclear or mis_stated. You may also send me a statement in writing for the Board if you wish or simply state your case in person on the meeting of September 8th. As promised at our meeting, no further action will be taken on this account until it is heard by the Board, except that we will continue to search for the books in the hopes that whoever checked them out might have returned them, however unlikely that may be. Sincerely, Deborah Kaye Clark Library Director Materials checked out on the card of Replacement Desiree Acosta Cost Titles First Wives Club The Exorcist Thinner Dracula The Babysitter What Holly Heard House of Whispers Goodnight Kiss 2 Sunburn Halloween Party $6.99 $5.99 $4.50 $5.00 $3.50 $3.99 $3.99 $3.99 $3.99 $3.99 Total Replacement Costs: $45.93 Rancho Cucamonga Public Library Juvenile Borrower Application Please Print Clearly: Last Name First [~ Male ~ Female Date of Birth: Middle School (if attending) Information of Parent/Guardian for above applicant: Last Name First Middle Address Apt. # City, State Zipcode E-Mail Address Mailing Address (if different from above) ( ) ( ) Business Telephone Number Home Telephone Number Drivers License/ID Number Social Security # (Optional) Date of Birth I agree to be responsible for all materials borrowed on my card; to report a lost card immediately; to observe library rules; to pay all charges and to report any change of address. Applicant's Signature I agree to be responsible for all materials checked out to the above minor; to promptly pay all charges and report any change of address. Parent/Guardian's Signature Library Use Only: New Library Card #: Initial Date DEFERRED GIVING PROGRAMS: A METHOD TO INCREASE CURRENT INCOME AND THE INHERITANCE OF YOUR CHILDREN WHILE SUPPORTING A CHARITY Important Caveat: Within this document we are not attempting to give tax advice. Please consult your Certified Public Accountant or tax attorney as to the appropriateness of the ideas contained herein to your persona/ situation. We are available to respond to questions. A TAX-TERRIFIC OPPORTUNITY You may donate an appreciated asset to a charity and .... 1. Increase the lifetime income received by you and your spouse as much as 60%. 2. Increase the ultimate inheritance provided for your children as much as 300%. 3. Save a considerable sum of money through reductions in and elimination of income, gift, estate, and capital gain taxes. 4. Provide a charity with a substantial endowment at no ultimate cost to your family. Enclosed are some case examples, reviewing the multitude of benefits derived from the use of charitable remainder trusts to achieve tax- terrific benefits. DO YOU OWN ANY OF THE FOLLOWING ASSETS? 1. Real Estate 2. Securities 3. Art 4. Residence 5. Jewelry 6. Religious Objects 7. Collections 8. Antiques If so, we may be able to help you save money through the reduction of gift, estate, capital gain taxes, and by providing, subject to alternative minimum tax, a current income tax deduction. This brochure provides some case examples employing charitable remainder trusts to provide for you the benefits listed above, increase the ultimate inheritance of your children, while providing for a charity. INTRODUCTION TO CHARITABLE GIVING INTRODUCTION TO CHARITABLE GIVING: WHAT IS IT? A gift may be del'reed as a voluntary transfer of property made without any compensation received in return. Charitable gifts are those made to charitable, religious, scientific, educational, and other specified organizations. When the gift is made to a charity, a deduction may be available for income, gift, and/or estate tax purposes. The reasons for donating to a charity are as varied as the givers. However, thc motivation for giving generally falls into one of three categories. These categories are: 1. The donor wishes, for non-tax reasons, to benefit a charity. The donor wishes to take advantage of the tax deductions allowed for such gifts and thereby reduce his income and/or estate taxes. 3. The donor wishes to do both 1 and 2. Who are the best prospects for charitable giving programs? While the donor should be a giver by nature, using charitable remainder trusts may encourage giving because both the charity and the donor may benefit financially. Affordabifity is also a factor. However, it is a common misconception that only the very wealthy are in a position to give meaningful gifts. Using life insurance allows the program to be tailored to fit many middle income individuals and families. These families may fall into one or more of the following situations: * Make regular and recurring donations to a charity: * Intend to leave money or other property to a charity upon death; * Can donate life insurance policies which are no longer needed for family protection; Have special relationships to a charity, such as alumni, benefactors, patrons, and parents/grandparents of students of a school soliciting donations. Have appreciated property they wish to sell without paying estate and capital gain taxes. * Are interested in increasing the income provided by a particular investment. * Are interested in increasing their children's eventual inheritance. Charitable giving plans are one of the simplest estate planing techniques. Lifetime gifts may be made in cash or by check, by assignin$ stock, transferring life insurance policies, conveying title to real property, or outright gifts of personal property. At death, gifts may be made by will or by trust, by life insurance contract, or by naming a charity as beneficiary of employee benefit plans. The following sections of this guide will look at the basic tax consequences of charitable giving, and the role of fife insurance both in charitable remainder trusts and alternative giving programs. BASIC TAX INFORMATION HOW TO ACHIEVE TAX BENEFITS THROUGH CHARITABLE GIVING Many people who are motivated to make donations to charitable organizations do so for nontax reasons. However, tax consequences are often an important component of the decision making process for a charitable giving program. When properly structured, charitable giving programs provide the opportunity for income, gift, and/or estate tax deductions, as well as the elimination of capital gains tax. WHAT TYPES OF GIFTS WILL RESULT IN FAVORABLE TAX CONSEQUENCES? Gifts of Appreciated Property (Real Property, Securities, Works of Art and Religious Objects). The elimination of the capital gain tax provides as much as 40% more principal available to provide income for the life of the donor and his/her spouse. Transfer of a business interest to children through trust, avoiding capital gain and estate tax. Gifts of cash, which reduce estate tax, provide a currant income tax deduction, and at the same time establish a lifetime income for the donor and his/her spouse. Gifts of life insurance, offering the opportunity for a current income tax deduction and estate tax benefit. Gifts of property with an expectation of future increases in value, locking in current value for gift and estate tax purposes, ultimately passing the asset to one's children or grandchildren. WHAT ARE THE INCOME TAX BENEFITS OF CHARITABLE GIVING? A donation to a qualified charity will produce a deduction which will reduce the donor's current income taxes. As a general rule, the value of lifetime gifts is fully deductible under Internal Revenue Code Section 170 for taxpayers who itemize their donations. ARE THERE LIMITS ON THE DEDUCTIBLE AMOUNTS FOR INCOME TAX PURPOSES? There are annual limits on available income tax deductions for individuals. In most cases, an individual's deduction may not exceed 50% of that taxpayer's contribution base. For most people this is the same as Adjusted Gross Income (AGI) for gifts to public charities. Gifts to private foundations, non-public charities, and gifts "for the use ot" a charity are generally deductible up to 30% of the taxpayer's AGI. The limits for various types of property donated by individuals are shown below. The percentage limitations are those for a charity, which qualifies as a public charity. TYPE OF CONTRIBUTION VALUE OF CONTRIBUTION FOR PURPOSE OF TAX DEDUCTION ANNUAL LIMITATION: PUBLIC CHARITY UNUSED CONTRIBUTION CARRY OVER PERIOD:PUBLIC CHARITY Cash Full Amount 50% AGI 5 years Ordinary income and Donor's basis (or 50% AGI 5 years short-term capital gain current value if less - property including life insurance) Long Term Capital Fair Market Value* 30% AGI** 5 years Gain Property: OR, if special election is Securities, Real Estate made... Fair Market Value less inherent long-term capital gain Life Insurance Existing Policy: 50% AGI 5 years All future premiums paid plus the lesser of premiums paid less dividends or cash value. New Policy: All premiums paid. Tangible personal property that is unrelated to the charitable donee's tax exempt purpose (e.g. artwork which a charity will sell, donated to the school must be valued at the fair market value less the inherent long-term capital gain). If the special election is made, the annual limitation is 50%. Type of Asset CHARITABLE DEDUCTION LIMITATIONS Charitable Deductions & Limitations CASH The full market value of a cash gift is deductible up to 50% of the donor's adjusted gross income in the year the gift is made, if the donor itemizes deductions. Any excess contributions can be carried over for the next live years. SHORT-TERM CAPITAL GAIN AND ORDINARY INCOME o Stocks, bonds o Capital assets held less than 6 months o Inventories o Agricultural products o Oil and gas properties In these instances the amount deductible is generally limited to the cost basis. The percentage limitation is 50% of the donor's adjusted gross income in the year the gift is made. Any excess contributions can be carried over for the next five years. LONG-TERM CAPITAL GAIN PROPERTY such as: o Stocks and bonds held for more than 6 months In general the charitable deduction is equal to the fair-market value at the time of gift, and is limited to 30% of the donor's adjusted gross income (50% if taken at cost basis). Any excess contributions can be carried over for the next five years. TANGIBLE PERSONAL PROPERTY such as: o Religious Objects o Artwork o Antiques o Jewelry o Coin Collections o Yachts, etc... Deductions for girls of tangible personal property are generally limited to the cost basis of the gift and are deductible up to 50% of the donor's adjusted gross income. Any excess contributions can be carried over for the next five years. REAL ESTATE If raw land without any clement of depreciable property is donated, the amount deductible will be equal to the fair m~ket value of the land and the 30% limitation will apply. If the property contains depreclable assets, a separate calculation will be required. CLOSELY HELD STOCK Charitable gifts may be made of stock in a closely held corporation, with the same deduction rules as apply to publicly traded securities. Because of the difficulties inherent in valuing such stock, however, the donor should be mindful of the IRS-sanctioned approaches, methods and factors to be considered in such valuations. These include the nature of the business, book value of the stock, earning capacity and intangible value of the business, sales of the stock and market price of stocks of similar-type corporations. Gifts of closely held stock cannot be accompanied by any explicit or implicit agreement to sell the stock back to the donor. A charity is free to act based on its ownership of the property. TYPES OF CHARITABLE TRUSTS TYPES OF CHARITABLE TRUSTS WHAT IS A CHARITABLE REMAINDER TRUST?. A charitable remainder trust is a trust under which non-charitable beneficiaries receive trust income for a specified period of time, following which a charity receives the assets of the trust. Deductions are available if the trust provides for: a fixed annual mount to be paid to the non-charitable income beneficiary (known as an annuity trust), or the mount the income beneficiary will receive is in terms of a fixed percentage of the value of trust assets determined each year (known as a unitrust). Let's take a closer look at these charitable remainder trusts. THE CHARITABLE REMAINDER ANNUITY TRUST A charitable remainder annuity trust is one drafted to allow payment of a f'Lxed amount annually to a non- charitable beneficiary, with the remainder going to a charity at the end of the period during which payments are made to the non-charitable beneficiary, usually the donor and donor's spouse. The arrangement may qualify for income, estate and gift tax deductions. To qualify for the deductions, certain requirements must be met. These are: A fixed amount of income must be paid to the noncharitable beneficiary. The annuity paid must be an amount at least equal to 5% of the initial fair market value of the trust corpus. The specified amount must be paid to the beneficiary annually. Payments may be made from income and/or principal. The charitable remainder trust must be an irrevocable trust. It may not be subject to a power by the donor, the trustee or the beneficiary to invade, alter or amend the trust. The trust must bc for the benefit of a named individual or individuals. The income beneficiaries must be living when the trust is created, and their interests must be for a life or a term not exceeding 20 years. The entire remainder must go to a qualified charity. THE CHARITABLE REMAINDER UNITRUST Like a remainder annuity trust, the charitable remainder unitrust is designed to provide payment of a periodic snm to income beneficiaries, with the remainder paid to a qualified charity. Thc difference between these Iwo types of charitable remainder trusts lies in the manner in which the payments are calculated. With a uaitrust the income beneficiary or beneficiaries receive payments based on a fixed percentage of the fair market value of the trust assets. For this purpose, the assets arc revalued each year. The amount paid will vary from year to year in accordance with the fair market value of the trust's assets. Like a charitable remainder annuity trust, the charitable remainder unitrust must meet certain requirements to qualify for income, estate and gift tax deductions. These are: A fixed percentage of the fair market value of the assets must be paid to the income beneficiaries. The fair market value of trust assets must be recalculated each year. The percentage of the value to be paid must be at least 5% of the annual fair market value. There is no maximum percentage. The unitrust may provide that the income beneficiary may receive the lesser of the specified fixed percentage or the trust income for the year plus any excess trust income to the extent of any deficiency in previous years. The noncharitable beneficiaries must be living when the trust is created, and their interests must be for life or a term of no more than 20 years. The entire remainder must be paid to a qualified charity. WHAT IS LEAD TRUST? A charitable lead trust is one under which a qualified charity receives a defined percentage or sum annually or more often from the trust for a specified period, then the income and/or trust assets passes to the donor's family or some other non-charitable beneficiary. This type of trust is also known as income trust or a "front-end annuity" trust. A charitable lead trust enables a taxpayer to reduce his/her tax burden in a year of unusually high income. The taxpayer is permitted a current income tax deduction equal to the present value of the interest income paid to the charitable beneficiary but, as noted below, will have to report and pay tax in the future on income which goes to the charity and not to the donor. In order to receive the tax deduction, the charitable lead trust must meet certain requirements. It must be a "grantor trust" under the provisions of the Internal Revenue Code. The grantor will be treated as owner of the trust under Code section 671, and will be taxed on the trust income. The trust must specify the amount of income that will be paid to the charitable beneficiary. This is generally done by providing a guaranteed annuity or a fixed percentage of the annual net fair market value of the trust assets. It is interesting to note that the biggest estate planning advantage of a lead trust is thc ability to transfer property to heirs with gift taxes, after the charitable income tax deduction is factored in, based on only a fraction of current value, rather than on 100% at the date of the donor's death. HOW DOES A CHARITABLE LEAD TRUST WORK? A charitable lead trust works like this: The Donor transfers property to a trust. The terms of the trust provide tfie charity with a guaranteed annuily or anntml (or more frcquenl) paymcnls which equal a fixed percentage of the trust property's fair market value. At the end of the period specified in thc trust, thc trust property is returned to the donor, or paid to members of the donor's family or other noncharitable beneficiary. The donor may take a deduction for the present value of the charitable income right at the time of the creation of the trust provided he/she has a reversionary interest in the income or principal of the trust which exceeds 5%, or is otherwise considered to be the owner or principal under the grantor trust rules of the Internal Revenue Code (see Section 170 (f)(2(B)). The present value of the charity's future income rights determines the amount of the deduction. The charitable lead trust is required to be a grantor trust to ensure that income from the trust, although payable to the charity, is included in the donor's income. The donor receives contribution deduction for the year the trust is created, but does not therefore receive an income tax deduction for the income paid to the charity. As stated above, the deduction is for an amount equal to the present value of the payments the charity is to receive over the period specified in the trust. If the taxpayer ceases to be taxed on the yearly income of the trust, then a portion of the initial deduction must be recaptured. His/her income that year would have to include a recaptured portion of the excess deduction taken when the trust was established. CAN A CHARITABLE LEAD TRUST BE USED FOR ESTATE TAX SAVINGS? A charitable lead trust may result in estate tax savings. When property is placed in a charitable lead trust, a f'Lxed amount of the income earned is paid annually for a specdied number of years to the charity. This is the "front- end" or "lead" period. An estate tax deduction is allowed for the actuarial value of the front-end annuity interest if property is placed in the trust by bequest. HOW DO CHARITABLE REMAINDER TRUSTS PROVIDE ESTATE TAX SAVINGS? The value of the remainder interest which will pass to the charitable beneficiary creates an estate tax deduction. The value is derived using the same tables applied to trusts established at time of death. HOW DOES ONE DECIDE '*~rltlCH TYPE OF CHARITABLE REMAINDER TRUST IS BEST?. The decision to use one typo of charitable remainder trust instead of another depends on several factors. An annuity trust may be the best choice if simplicity of administration is desired. An annuity trust does not require annual revaluation of the assets' fair market value. This is of considerable importance if the trust is funded with assets that are hard or expensive to value, such as real estate or interests in closely held businesses. An annuity trust may yield a larger charitable deduction, depending on the age of the annuitant and the payout rate elected. A charitable remainder unitrust will be the better choice if future additions to the trust may be desired. Additional contributions may not be made to annuity trusts. Additional contributions are permitted to unitrusts if the terms of the trust contain provisions regarding the effect of such additions upon the valuation and the amount payable to the benefidaries. Unitrusts are better than annuity trusts for the income beneficiaries in inflationary times, even into fairly low inflation. With an anmdty trust, the specified annuity must be paid annually, without regard to the amount of income earned by the trust. With a unitrust, the trust may provide that payout be llmited to the actual amount of trust income earned in a given year, or be set at a fixed percentage (not less than 5%) of the fair market value of the trust's assets, valued annually. EXAMPLES OF CHARITABLE REMAINDER TRUSTS BASIC CONCEPT Thc donor transfers property to a trust, rctaialng an income intcrast fi)r life or lives, with Ibc remainder passing to a qualified charity at the death of the last income beneficiary. There may be an immediate income tax deduction (subject to Alternative Minimum Tax). Additionally, there will be the elimination of capital gain tax upon the sale of an appreciated asset within the trust in a sale arranged by the trustee of the trust. No estate tax would be paid on the value of the asset when the last beneficiary dies. The tax savings and increased income can be used to purchase life insurance (preferably survivorship life), within a wealth replacement trust, to transfer to the donor's beneficiaries, estate tax free, the cash equivalent of the value of thc property transferred to the charity. In illustration 1, we have the example of husband and wife, each age 55, owning an asset worth $1 million with no cost basis. Under Plan A, the asset is sold and a capital gains tax of $350,000 is paid, leaving a balance of $650,000 to invest. Assuming an 8% yield, both husband and wife would receive an income of $52,000 for as long as they live. When they both pass away, after the estate tax and probate expense are paid, the children would inherit approximately $292,500 (assuming maximum Federal estate tax). Under Plan B, the $1 million asset is transferred to Remainder Unitrust, providing for an income of 8% to both husband and wife for as long as they llve. The asset is then sold by the trustee of the trust. As the trust is charitable in nature, no capital gain tax would be paid, leaving a net of $1 million. Consequently, the donor and spouse will receive an income of $80,000 per year as long as either one lives. Additionally, there would be an income tax deduction of $166,350 which can be taken over the first six years of the plan. This tax deduction would help fund a $1 million Survivorship Life ("Second To Die") life policy held by an irrevocable life insurance trust. Upon the death of the donor and the donor's spouse, one million dollars would flow, income and estate tax free, from thc insurance trust to the children, and one million dollars would flow from the Charitable Remainder Trust to a charity or a group of charities. Using this example, we see that through the vehicle of the Charitable Remainder Trust, the donor receives an income of $80,000 instead of $52,000, the children receive $1 million instead of $292,500 and a charity receives $1 million instead of nothing. Everybody wins (with the exception of the Internal Revenue Service). A popular use of such a trust is in connection with the sale of a home. Very often, when children are grown, people sell their homes and move to smaller residences or retirement communities. It is possible to donate a partial interest in the residence to Remainder Trust, sufficient in size to totally eliminate the capital gain tax. The new owner of the residence would purchase the home from both the donor and the trust. Consequently, no capital gain tax would be paid, and a portion of the value of the residence is removed from your taxable estate. ILLUSTRATION 1 Husband, Age 55 Wife, Age, 55 Two Children Plan A Without CRUT* Plan B With CRUT* $1,000,000 350.000 Asset Value Capital Gain Tax $1,000,000 -0= 650,000 52,000 357,000 $292,500 Net to Investment Initial Income Deduction** Joint Life Income @ 8% Estate Tax and Expenses*** Provided by Life Insurance Trust Assets to a charity Balance to Children 1,000,000 166,350 80,000 1,000,000 1,000,000 $1,000,000 *Charitable Remainder Unitrust **Subject to alternative minimum tax. Five year carry forward available. ***Assumes that the donor and donor's spouse have a combined estate sufficiently in excess of the $1.2 million unified credit to cause them to pay the maximum Federal estate tax. Another use of the Charitable Remainder Trust is a transfer of a business interest to such a trust. If a parent has developed a business which has grown substantially and wishes to pass this business on to a child, he/she could use the Charitable Remainder Trust to avoid taxes. If the parent transfers stock of the business during his/her lifetime there would be a gift tax. If the stock is transferred, by will, at the death of the parent there would be an estate tax. The Charitable Trust presents us with an opportunity to avoid both of these taxes. Some or all of the donor's stock in the business is transferred to a Charitable Remainder Trust. The donor may act as co-trustee in order that he/she may continue to vote the stock. The insurance policy, in this instance, would be on the life of the donor with the child as owner and beneficiary. As was the case in Example 1, the income tax deduction would be employed to pay the premium. Upon the death of the donor, the child would use the insurance proceeds to purchase the stock from the charity. There is, however, one potential problem: there may be no agreement, oral or in writing, compelling the charity to sell the stock to the child at a specific price or date or, for that matter, at ail. This problem is solved by having the donor retain 10% of his stock and have the balance of the stock held in the trust ultimately donated to each of two unrelated charities, i.e. a religiuos organization and The Philharmonic Orchestra. In this instance, should one of the charities give the child a hard time, it could simply be told that if it does not sell, so long as the other charity does sell the child will be in control and the non- selling charity will be holding non-dividend paying stock as a minority shareholder of a family business. Consequently, their cooperation should be assured. Illustration 2 presents an example of this application of the Charitable Remainder Trust. ILLUSTRATION 2 USE OF REMAINDER TRUST TO PASS A BUSINESS INTEREST TO CHILDREN FREE OF GIFT AND ESTATE TAX Without CRUT* With CRUT * $1,000,000 Bus[ness Value $1,000,000 550.000 Gift or Estate Tax** -0- 450,000 Net Value to Children $1,000,000'** -0- Benefit to a charity $1,000,000 *Charitable Remainder Unitrust **Assumes sufficient family assets in excess of the $1.2 million combined unified credit for husband and wife and the annual gift tax exemptions to cause the payment of maximum Federal gift and estate taxes. ***Provided by life insurance held in an irrevocable trust. TAX FREE TRANSFER OF CORPORATE STOCK AND REMOVING CORPORATE CASH FROM "HARM'S WAY~ Mr. and Mrs. Cohen own 100% of the stock of a corporation. The corporation currently owns $1,000,000 of cash or cash equivalents. This cash, and the outstanding stock owned by the Cohen family, not only increases their estate tax liability, but may leave the cash "in harm's way'' relative to creditors or an unfriendly takeover. Solution: First, use the annual exclusion and undied credit to gift some of the stock to the children. Then create a charitable remainder unitrust with an 8% payout, donating the balance of the stock to the trust. Mr. Cohen would be a co-trustee and continue to vote the stock in that capacity. Assuming Mr. and Mrs. Cohen are both age 65, an income tax deduction of approximately $220,000 would be generated. The Cohens would employ the tax benefit they receive to purchase a one million dollar "Second To Die" insurance contract, held within an irrevocable insurance trust, with their children as beneficiaries. Soon after the gift to the unitrust, the corporation will tender an offer to buy back all of its outstanding stock. The children will decline but the charitable remainder trust accepts. The Corporation will use its cash ($1,000,000) to make the purchase. This procedure can be done in increments. This purchase of stock by the corporation will be at the fair market value at the time of purchase --- $1,000,000. The corporation must make the same offer to all of its shareholders. Result: 1. The Cohens' taxable estate is reduced by $1,000,000. 2. No capital gain tax at donation to the trust and ultimate purchase of stock by the corporation. 3. Significant cash infusion to the trust to fund a life income for Mr. and Mrs. Cohen. 4. Tax benefits are used to ultimately replace the $1,000,000 of cash to the Cohen children through the purchase of insurance. Control of the business is transferred to the children without gift or estate tax, as the gift to the trust and subsequent sale to the corporation of the stock will reduce the issued and outstanding stock of the corporation, thereby increasing the percentage of corporate stock ownership of the Cohen children. Combining the gift of stock to the children, taking advantage of the $10,000/$20,000 annual exclusion and the $600,000 unified credit equivalent, and the donation of the balance of the stock to the trust results in a totally gift and estate tax-free transfer of corporate ownership to the Cohen children. All this without loss of family control over the business. 6. A charity would receive a $1,000,000 cash gift at the death of Mr. and Mrs. Cohen, at no ultimate expense to the Cohen family. USING A CHARITABLE REMAINDER UNITRUST TO CREATE RETIREMENT INCOME Mr. Franco is 50 years of age, his wife 48, with two children in their mid 20's. Mr. Franco established a charitable remainder "Net Income" unitrust to which he contributes $20,000 per year. The trust will pay to him, and then his wife, an annual income equal to 8% of the then current value of the trust principal or the actual unitrust net income for the year, if less. Current underpayment is to be accrued for the future "make-up" which will be made in any year where the trust income exceeds 8%. Upon the death of Mr. Franco and his wife, the trust assets will be transferred to the a charity. Mr. Franco is entitled each year in which a contribution is made to a charitable deduction equal to the then present value of the charitable remainder interest. The trustee adopts an investment philosophy with an emphasis on long term growth rather than on current income. The investment averages about 4% per annum in net income, which is distributed to Mr. Franco. The 4% short fall is accumulated in the "make-up" account. The investment portfolio is actuaLly growing at a rate of 8% per year. If this pattern of contribution, earnings, appreciation and distribution is followed for the 15 year period, from inception of the trust until Mr. Franco's 65th birthday, the trust will be worth approximately $586,490. The "make-up" account will total $107,434. At that point, the trustees would alter the trusts' portfolio by selling off the growth assets and reinvesting in high yield fixed income securities, yielding 9% per annum. Mr. and Mrs. Franco would receive the 9% income for 9 years, when he would be 74 years of age and his wife 72. At that point the "make-up" account would be reduced to zero, and the trust will then pay 8%. -~ To~'give'~ '-" money is an easy-~m ~-' : aWay- atter ~ ' man's power. But -~' - ~n any to decide-- whom' to:**~g!:.ve.'lt,, find. how large and,~hen, and-for ;4, ~w..hat, purpOse .~_ and how, is neither,.;in-every m~h'S powe~nor an easy matter' ...... " '" ~-- ;:~?" '. *. ). ARISTOTLE- "Mh..ki'ng of 'significant. charitable :'~ontnbu~tlOflS? ' ' "- ' ' 7- :~ .:- an.:aft~ i:t is a~livingcreative' ~' '" prOcess~ that thd ~hang~ng needs and~is~es of t~e ~-~.~ adopts~to-- ~"~,~ ~? -::';_-o'~'~-~'~~a nor' ' ~-' ~' ' ~ " - - ':~ : -~-' ''" ~. ~ Gov¢~ments,.back~.to the days: of~:roy~al~y; ha~ .- ~ :: ~I~aYS,~_ _ ~. recognized: the:;oles:~_ ~°f charitabl;:~." ,, s needs :thht · : :. are '~":':',.' t~'~ ~?'.~bf~ b~nefit t6 sOciety As a result ~ncent~ves are ~} '~' ~;~r°v~d~d't° encofira}e " ~ ~.' :':~ .' . : . charitable gmS:~' Ta~.laws haw~ created s~tuanons thfit ~a '~ke thei' OSe Of Charitable Planning'attraCtive conjunction with other persOnal ~'~' -~ i ~--~ 'mUltiple ~'"'? ob ect ves to attmn ~goals; ~-IiiCOme tax savings ~':~:'A%itlah~' 'ce of ~i~al., ~ Elimination"O'~r ..... gains -~-- ~:'. reduetion-'of_:.:.._ Federal. :: -"- ~-:.-~-tax ~'- -' ', ~~ ~'---:-~ [] R~etained income rights for a Reduced estatE-.- life pf donor:and/or other benefiCiaries -spehdable ~ income ~.~ " ' ' ' Gifts~Of Cash' Gifts~:of:~PPrecmted B~gam S-ales.:., Tangible ~e~sonal: PrOperty::... .= .?--= ~,o closely held :of- stockTolloWed by .Gift of,a~.. remainder . interest "~ farm ~ ~-.',- ?.~a: CMfitable Bequest ' [] Chafitable~Remainder_Trusts and Pooled:.:~_ :TIME?HAS Plannedgiwng'~'~ has enjoyed growth:' ~'- .... th¢Years but, with th~ graying -~'~:~.6f Amefidh~. ~. , the. next .... decad¢:~:0r tw~O~will s~e ~¢?e Americans reach retirement-age than ~before: :;According to many e group ~s--mcontrot 0~mor~ .. thgn}~70 %~_ .:~ 6f..~ ~all houS~hoid ass ~ts......:' Keypoints to remember are: · Bi d;eserg~ng/Worthy of :? ~supp6?t ~' ~'~ .... :knOWn-~ihd appraclated -:-[] Provi~de a b. enefit to - ~. - "~ ,ffi~ndi~:)P~°gram rd; hcilitate giVing - Well managed charit'able ~ o~gamzat~ons_ ~, ... perform ~ . valued " - ~'- a serVice co~umCate.: effic~entiy -"/~' ~ ~.~ and stay 'current, will.':. thrive: ..... ~ --_ -_, , .~. lhat'share with donors the; '-- : - approaches ~ they:m~ght'.u~e~' ~'~' tO plan thelrgl'fts,:' ' "' ' '~ :b6th '~;~ ~- -'-~ outrlghtand' defe~ed whiie :recogniZihg: tha:.hOst .of'other challenges .donors face; ~' -" .... ' ' the coming.~decades thc :-- .-- will-d~sco~er~ over- ai~gpp°rtunlty b~ the " ' c6min.~.:_ g .~ . g....bu.l~"-'~ in the intergeneiational transfer of Wealth..~ NOTICE OF ADJOURNED MEETING Notice is hereby given that the Rancho Cucamonga Library Board of Trustees at their regular meeting held Thursday, August 7, 1997, adjourned said meeting to Monday, September 8, 1997, at the hour of 7:00 p.m., at a room to be determined at the City of Rancho Cucamonga, 10500 Civic Center Drive, Rancho Cucamonga, California. Said adjournment was passed by the following vote: AYES: Davies, Howdyshell, Swistock NOES: None ABSENT: Gregory ABSTA1N: None Vivian Garcia, Library Administrative Secretary Rancho Cucamonga Public Library August 8, 1997