How W-2 Employees “Do Well By Doing Good”
Interview with Bill Lloyd
The last two years have been brutal for nonprofits. Due to the contracted economy and Coronavirus, nonprofits are working harder than ever to raise funds for many worthy causes. By leveraging our unique approach, nonprofits can expand their donor base, create a new market, and increase revenue immediately with minimal expenses, while helping donors enjoy better retirements.
Bill Lloyd: Math teacher. Swim coach. Father. Financial Advisor. Wealth Manager. Tax Strategist. Whistleblower. Entrepreneur. These are all titles that describe Bill Lloyd over his forty-year career from Tulane to the corporate world. In every role he has held, his modus operandi has been to act with integrity and build deep connections with the people he serves.
Raised in a household where your word was your promise and handshakes were given more importance than a contract, it is no surprise that Bill is known as a straight arrow who cares about his customers and the community. In 2008, he discovered a $2.5 Billion math problem which led to blowing the whistle (SEC) and saving the retirements of thousands. “Not on my watch,” became Bill’s refrain as he navigated the consequences of being a whistleblower.
It would be years later when tax laws changed that Bill put on his math thinking cap and came up with a way to help hardworking W2 employees escape to the land of better retirements. Coupled with the pandemic and the challenges facing nonprofits and philanthropy, he launched The Charitable Payraise™ in 2020 to expand the impact individuals can have on their retirement and giving back.
Designations – CFP®, ChFC, AIF®, CPFA
Washington DC Estate Planning Council
More about Charitable Payraise at – https://CharitablePayraise.com
Read the Interview Transcript
Hugh Ballou: Hello, everyone. This is Hugh Ballou again with The Nonprofit Exchange. The topic of fundraising comes up a lot. It’s a complex topic, and a lot of people go about it in old ways that don’t work as well as we hoped they would. My guest today is Bill Lloyd. Bill is going to share his discoveries and wisdom with us. Before we go there, Bill, please share a little bit about who you are and why you have a passion for doing this work.
Bill Lloyd: First of all, Hugh, thank you very much for inviting me to participate. I am a 33-year veteran of the financial services industry, and I have the stars to prove it. My career has evolved over the years from starting in the insurance and investment side of things, evolving into financial planning. Within the realm of financial planning, I always had a bent for looking at different tax strategies to see what we could do to help take some of the sting out of the tax bill for people in small businesses. I have been very blessed to be surrounded by a lot of great advisors and mentors over my career who brought me along.
About four years ago, there was a small change in the tax code that opened the door. It occurred to me that if we harnessed that little change in the tax code and stuck it together with an area near and dear to many of your clients and watchers in the nonprofit world, out of the charitable giving part of the tax code and trust with the States, that we could do some real good, both for retirees as well as for charity.
I have been motivated in this area for many a year. I have been on the planned giving committee of my alma mater for almost 20 years. My dad was a career Marine who ran Toys for Tots as part of his duty when he was in the D.C. area. Giving back has been part of my family and professional life. To have the opportunity to stick two things and help people have better retirement and help the many good causes on God’s earth, that’d be a good thing. That’s my motivation.
Hugh: We come to this place every week to learn something that we didn’t know. Every week, I learn a lot of stuff. Bill and I have talked a little bit, but I am ready with my notepad to learn a lot more. Your website is CharitablePayRaise.com. How did you come up with that name and that positioning in the market?
Bill: I’m blessed to be working with a gal named Jen Dalton. We were in our first white board session. I was explaining to her the architecture of the concept. She shared a sentiment by saying, “What you’re really doing with this new method is freeing people from the land of W-2.” What we are able to do is help people in retirement in the right circumstances, anywhere from 20-40% greater after-tax cash flow and help charities simultaneously. It dawned on us that the Charitable Payraise was a pretty good title for what was happening, for those folks who go through the method.
Hugh: A lot of us in this space make a pitch for donations. People go, “Oh, I wish I could afford it.” This is for retired people specifically, not before retirement?
Bill: It could actually work before retirement. So often, individuals really take stock of all their holdings and try to batten down the hatches a couple years out. This concept in the right circumstances is an alternative to a rollover IRA.
In particular, we have sought to work with individuals who happen to own company stock inside their retirement plans, 401(k), profit sharing, ESOP, all of the above work. It can be publicly traded stock or closely held, and it still works. At the end of the day, the greatest variable to determine whether the new method is going to make a big difference is the amount of appreciation in the stock of that company. The more the appreciation of that company’s stock, the better it works. It sets in play some very good dominoes that at the very end set up a situation where the retiree, soon to be retiree, or in some cases just the stockholder and the charity come together in a business relationship that has benefits for both.
Hugh: A lot of listeners have a 403(b). Same place as a 401(k)?
Bill: It would. What we’re looking at right now is an entirely new market for charity for nonprofits. Heretofore, most of the time, your C-suite, entrepreneurs, professionals are often the targets and the potential donors that many nonprofits look for. In this instance, the opportunity could be with anybody. In particular, it’s with good hard-workin’ W-2 folk, especially those who have been with a company for 10, 20, 30, even 40 years and accrued company stock all that time. We have the opportunity to take advantage of that stock and do something neat with it by taking it through the Charitable Payraise.
Hugh: Give us a snapshot of what the concept looks like. Then we will talk about benefits and responsibilities for the nonprofit.
Bill: Sure. I mentioned the fact we are focused on the market of hardworking W-2 employees. There is a reason for that. It turns out there are over 26,000 retirement plans in the United States in which the corporate stock is held inside those retirement plans. That in and of itself is a market. When you overlay baby boomers, and statistically we know that by the year 2030, there will be 78 million baby boomers in retirement. Of those, between 7 and 9 million of them have company stock in their retirement plans and will have to make a decision about how to handle that. Ask anybody who has ever worked for Enron or Philip Morris or Monsanto about what can be a little bit problematic by having a highly concentrated large position in their company’s stock. Something internal goes wrong. What does it do to their retirement? It’s not good.
From a financial planning standpoint, we want to diversify that holding. If we can diversify it, and help them get preferential tax treatment on it, those are good things. Especially if we set up a partnership, a legal entity, between the retiree and the charity such that the charity is going to be receiving revenue every year for the rest of the retiree’s life, which amounts to a planned gift, and upon the demise of the retiree and their spouse, they are going to get a major gift, a very large final bequest.
I’m sure most of your listeners are very familiar with charitable reminder unit trusts, charitable remainder annuity trusts, gift annuities, all these structures. We think we have built a better mouse trap. It’s better for the retiree and the charity. The three I just mentioned tend to be depleting assets over time. The longer we live, we take money out of the charitable remainder trust. If we are taking out more than it’s earning, we have a depleting asset the charity will be left with. In this structure, the mechanics are such that it actually accrues over time. The charity is going to end up with more than there was when it started. They will also be getting some revenue every year while the client is alive.
Hugh: The client may have heirs they want to live in the will. How does that impact what they will leave to their family?
Bill: I hope some of your listeners will visit our website because there are a couple of blogs on there. One of them is entitled “If You Don’t Like Your Children, Leave them Your Retirement Plan.” Of all the assets that someone could leave to their heirs, the retirement plan is the worst, for a multitude of reasons. Most especially, it got even worse when the Secure Act was passed because now, IRA assets, retirement plan assets, must be taken out in the ten years following the death of the parent. There is no longer a stretch.
If you have a sizable holding of IRA or 401(k) money, imagine that money coming out on top of your children’s earnings as taxable income to them in their mid-careers, which is when most of them would receive this. Now you have taken them from tax bracket A to A + 10 or 20 by kicking them up a bracket or two.
The reason this is such an effective method is because yes, we are going to be taking something out that the kids might be getting. It might be doing sometimes more harm than good from a tax standpoint. There are strategies such as the use of life insurance, where we could carve out a little bit of the extra income that we’re providing to the family, and instead take a little bit of that and get some single life or second to die life insurance to replace the asset we have given away. And we could do it more tax efficiently since life insurance is not taxed.
Hugh: Absolutely. Just been through the other side of both pieces of that. You want to support your family and not leave them a liability they don’t know is coming. “Look, I got the money!” You lost it by paying tax on everything. This is all a benefit of the tax laws. There is nothing sneaky about this. It’s all very straightforward, it sounds like to me.
Bill: Remember those stars I mentioned before? We have been through seven different kinds of attorneys who have all had their chance to get in there and smack it around. All for good reason. I am blessed to have unbelievably good counsel. One of my best friends since 5th grade has been my intellectual property attorney. The good thing about having a friend like that is you know you’re getting it straight. He’s one of the few people on Earth who can say, “Bill, shut your mouth and sign right here.” I do what he says because I know I’m getting it straight. We have been through intellectual property, trust and estates, SEC, content and usage, all the language, terms of use, that stuff, ERISA, and finally tax. We went to a very good firm, FisherBroyles, and achieved a good tax opinion on our structure.
Hugh: I was going to ask you about a tax opinion, so you have done the due diligence. You are the holder of a few licenses for your profession. There is a professional requirement in your industry, and there is an ethical standard you have to adhere to, correct?
Bill: Absolutely. I am and for many years have been a 321 fiduciary working with retirement plans and trusts and endowments and things of that nature. Wouldn’t have it any other way.
Hugh: I just ask that because when people listen, they’re like, “Oh, that’s too good to be true. It’s got to be a scam.” I wanted to be straightforward. That’s a lot of due diligence you’ve done to make sure you don’t get in trouble by getting other people in trouble. I remember you telling me that when we talked last time. What are the responsibilities, costs, and liabilities that a nonprofit (I’m including religious organizations here) could incur?
Bill: I’m glad you asked that. Frequently, when I first lay out in a technical manner how this works and what’s going on, there is always this fear that this is going to absorb a lot of manpower, time, effort, and maybe even some money. The fact of the matter is it doesn’t.
From the nonprofit side, their responsibilities amount to accepting a gift as they would. It’s a non-traditional gift. As I mentioned previously, they actually are getting in business from the standpoint of a partnership. That’s where the magic happens: the operating agreement of the partnership. The nonprofit, the church, the university, the hospital, etc. accepts the gift of those LLC units. They are given a number of powers and rights in the operating agreement that reach a great effort to leaning toward the charity to protect those interests. Whether it’s the IRS or any legal matter, the interest of the nonprofit is paramount. We have done that.
From the standpoint of time and money, what we’re looking for is the nonprofit obviously needs to do due diligence on us when they start. We often try to get to the finance person involved in that nonprofit. It’s more likely they will have some familiarity with what we’re doing. Eventually, we will end up with a legal eagle affiliated with them, either a board member or a law firm that works with that nonprofit, to review it. My tax people have made themselves available to speak to any leaders or advisors to the nonprofit pro bono to answer any tax questions they might have. We also as you might imagine have a lot of materials that we have built over the years to answer questions and to go over the technical facts for that realm.
It starts off by sitting down with the leaders of the nonprofit to explain to them this combination of a planned gift they will receive with a major final bequest. We just ask the nonprofit to come to an annual LLC meeting once a year. That’s mandated.
Hugh: It’s to our advantage to show up to that meeting as well because we learn some things. We teach there are eight streams of revenue for any nonprofit. One of them is planned giving. That’s the one we have the least activity with when it ought to be the one that’s in front that we value the most. Who with substance wouldn’t want to leave a gift that creates legacy in their name? Or not even in their name, but the family knows you have created a program or helped a nonprofit create a legacy.
You said W-2 employees. Some people on boards are local businesspeople who are coaches or consultants and do work for organizations on a 1099 basis, but they might still have a retirement plan. Is it someone who has a retirement plan? Or does it have to be a W-2 employee?
Bill: I should elaborate just for a minute. The reason that we focused on that particular segment is that stock held inside retirement plans is known as NUA (Net Unrealized Appreciation) stock. We sought them as a market because they have never been taken care of before. Finally, we have an instrument that really benefits them. Put that in one corner.
But this method, this system actually works for anyone with a highly appreciated capital asset, whether it’s a stock, a piece of land, etc. We can also do it with that. We don’t want to restrict individuals who don’t have NUA stock. If they have other appreciated assets, they should take a look at this method. Our app, which is patent pending, analyzes whether it’s better to do it the old-fashioned way or the new way.
Hugh: My car would qualify as an appreciated asset during this last year. First time in history, golly gee.
Bill: I’m looking for appreciated assets.
Hugh: It did go up. I bought it at a price, and four years later, it’s at a higher price. It’s amazing.
Bill: Let me give you an example. A woman who is a part of my team and her husband, years ago, were yelling like we all do across the house, “Hey honey, my broker is on the line. He said there is this new company we should invest in.” She is getting in the shower and is like, “$500? Go ahead.” She gets in the shower. He invested $5,000. That did not go over real well at the kitchen table, but it goes over real well now. It was at the very beginning of Apple. They have held those shares all these years.
Hugh: Oh my.
Bill: And they are looking at using this as maximizing the value to them, which will generate a lot of tax-free cash flow to them even before their retirement years. The question from before, they are in their mid-50s. Simultaneously, they will be helping their synagogue and several of the Jewish ministries in the Baltimore area.
Hugh: That is brilliant. I remember those days. I remember when Chrysler was a dollar. If we only had a crystal ball.
When people to go to CharitablePayRaise.com, they see this nice-looking green website. I like the green color; it’s suggestive. You’re speaking about the blog. On here, you referred to a specific article about if you don’t like your children, leave them your retirement plan.
Bill: Because of the tax implications that will come down on them fast and furious.
Hugh: There is a knowledge bank. Here is where to get started. There is quite a few good, helpful things there. I think the first thing is to do some due diligence. Getting smart about this. We all have our supporters, be it a volunteer, a board member, an advisor, or a general donor. There are people there who would be in this sweet spot. I heard you say “boomers.” That’s a huge number. Boomers are getting out of the workplace.
Bill: I’m living the dream.
Hugh: I’m at the top end of the boomers. My wife is in the back end. I don’t know the word “retirement,” as I enjoy what I do. I do have a fund that could qualify for this. How can we begin to have a conversation? We don’t know how to talk about planned giving as nonprofit leaders. Where do we start? If someone has assets, they have a financial planner. Is that person going to be a block, or do they need to be in the conversation with you?
Bill: I’m so glad you asked that question. We’re not trying to replace any advisors. As a matter of fact, in our business model, we require that the client’s own attorney perform due diligence on us. They will be the ones writing the documents. When our clients sign an NDA and the user license, we provide them with templates of all the materials that then the attorneys can modify or question for the domicile where that client lives and wants to have this partnership with the charity of their choice or donor advised fund, etc. Their financial advisor, assuming they have a good relationship, is going to be managing those assets along with their client inside the LLC. The CPA is going to be doing the tax work for it. We require an annual mini audit of this LLC because we want to run it like a business. If there was ever an audit, we want to have our books and records all in good shape. It’s another reason why we mandate there is an annual meeting every year. We are doing it by the books. We are not replacing any advisors. We are working with them.
The other thing is, it’s an all or none solution. Part of our outreach to financial advisors is to teach them how to use this appropriately. As you know, once upon a time, everyone had to learn how to use these tools properly. Then a donor advised fund. These are all wonderful tools. We’d like to believe we’re the next in that evolution of positive new tools that can be beneficial in the nonprofit environment and create a win-win.
The way to get started is to get ahold of us and do a test case. I think you learn by doing. We can talk about it, and you can read on the website and get your feet wet. You can also do a template case. You can do a what if case with us and go through it. Or if you have somebody you’d like to put through directly, we can do that, too. By going through the process and seeing the numbers, you will get a much better feel as to what this can do to assist the revenue flows to your nonprofit.
Hugh: I might need to get my financial planner on this call so I can get him on the phone with you. I am trying to think about what other people might think. You should have an attorney and a CPA and a financial planner that advises you on everything. They get their hands on all the documents and can write the other documents that you need.
That’s very strong, Bill. You obviously have done a lot of heavy lifting here that I’m sure is very costly as well. You’re getting people into a space where we really need to let go of some of our old bad habits, especially in today’s market, that aren’t doing justice for what we need to do and look at some new avenues.
We’re in a new era. People want to say, “It’s the new normal.” There’s nothing normal about this. It’s time to do something radical if we are going to survive and thrive. Take advantage of these tax laws that are right there in front of us. You have opened my eyes to this big-deal thing, I think.
Bill: It is. It can have some ancillary- Not every time, but frequently, because of the mechanics involved, it can lead to some other positive opportunities such as the ability for the client to do a loft conversion because some of the tax deductions and things that happen through the process. In addition, we find that it’s a great time for people to get caught up on their traditional estate planning documents that maybe they have left in the drawer for 20 years and need to brush off. It’s been good all the way around.
Hugh: We’re talking to Bill Lloyd today. His business is CharitablePayraise.com. Bill, you have taken time to educate me and other people. I’m grateful for this. I had a little knowledge of this, but it’s better than I had remembered. Thank you for spending time with us today. What do you want to leave people with today?
Bill: I really like and believe in our tagline: Better retirement, lasting legacy. The good Lord keeps throwing great people in front of me, Hugh. You’re one of them. Getting the word out, and the means I have had, has been unbelievable. This can be just such a positive arrow in the quiver of charities, nonprofits, advisors, CPAs, and attorneys to help rebuild the money that may have not gotten to many a nonprofit through COVID, with what’s going on in the markets right now, and another way of reaching out to the people in Ukraine as well as all the Lord’s good works. I am looking forward to helping facilitate all these good causes. I hope this is where we can meet those who are listening someday and help you be a benefactor of this new concept.
Hugh: He actually read the laws, took advantage of them, and did the due diligence on them. Thank you for being our guest today, Bill.
Bill: Thank you for having me. It was great.
