PLANNED GIVING TECHNIQUES

Phil Purcell, JD

GIFT Consultant

Vice President, Ball State University Foundation

Resource Development Plan

Planned Gifts that Help Now

Planned Gifts that Help Later

Planned Gifts that Pay Income

OUTLINE

RESOURCE DEVELOPMENT PLAN

DO YOU HAVE A RESOURCE DEVELOPMENT PLAN?

GIFTS THAT HELP NOW

NON-CASH GIFTS

Stock (public, private)

Bonds (government, corporate)

Artwork and other collections

Equipment and other “in-kind”

Home, Farms

Commercial Property

OUTRIGHT NON-CASH GIVES AS PLANNED GIFTS

Under significant recent scrutiny by the IRS and Congress.

Concern for over-valuation for income tax deduction purposes.

IRS Publication 561: Determining the Value of Donated Property.

TAX BENEFITS FOR NON-CASH GIFTS

IRS Form 8283: Claim of Tax Deduction for Non-Cash Gifts

IRS Form 8282: Charity Report of Sale of Non-Cash Gifts

IRS Publication 1771: Gift receipts need not state value for non-cash gift.

REPORTING NON-CASH GIFTS

1. Income tax charitable deduction for fair market value (FMV): • For private stock, FMV is based on qualified

appraisal.

• For public stock, FMV is average of high and low on date of gift.

2. Escape of capital gains tax.

INTANGIBLE PERSONAL PROPERTY

Date of receipt into charity’s account if wired by DTC (Depository Trust Company).

Postmark date if mailed. Note: Mail unsigned stock certificate in separate envelope from signed stock power.

Delivery date for hand delivery of stock certificate.

DATE OF GIFT

For publicly traded stock, side A of 8283 is required regardless of dollar amount.

Charity need not file 8282 when sold.

Deduction limit of 30% of Adjusted Gross Income (AGI).

Five years of carry-over for excess deduction.

GIFT OF APPRECIATED STOCK

Artwork, jewelry, equipment, etc.

FMV deduction if use by charity is related to its mission.

If unrelated use, deduction is limited to cost basis.

Cost basis deduction if donated by creator or artist (unless given through estate).

Cars, planes and boats that are sold: deduction limited to sale price.

TANGIBLE PERSONAL PROPERTY

REAL ESTATE GIFTS

Significant potential of real estate gifts: homes, farms, commercial.

Deduction for FMV as determined by qualified independent appraiser.

Escape of capital gains tax.

GIFTS OF REAL ESTATE

No pre-arranged sales.

Environmental review required.

Appraisal is donor’s responsibility.

Marketability.

Impact of debt: bargain sale.

Title transfer.

Procedure for acceptance: Approval by Board of Directors.

SPECIAL CONSIDERATIONS

Charity buys real estate (or other property) for less than appraised value.

Part sale/part gift.

Charitable income tax deduction for gift part of transaction.

Escape capital gains on gift part of transaction (pro rata).

Pay over time: installment bargain sale.

BARGAIN SALE

IRA CHARITABLE ROLLOVER

Applies only to IRAs (Regular and Roth)

Donor age 701/2 or older (Required Beginning

Date).

Direct transfer to charity by check or wire

transfer.

Expired 12/31/2013.

May be extended. Stay tuned!

ROLLOVER REQUIREMENTS

No income taxation on amount donated.

No income tax charitable deduction.

Donated amount removed from taxable

estate.

ROLLOVER BENEFITS

CHARITABLE ENDOWMENTS

Donor Advised Funds: How is the fund designated when the donor passes?

Agency Funds

Field of Interest Funds

Scholarship Funds

Unrestricted Funds

Matching Gift Opportunities!

COMMUNITY FOUNDATION “BREAD AND BUTTER”

Increasing importance.

Donor designated for endowment.

If unrestricted gifts are designated for endowment by the Board, then considered “quasi-endowment”.

May be established by current outright gifts as well as by deferred or planned gifts (deferred gift fund agreements)

CHARITABLE ENDOWMENTS

CHARITABLE LEAD TRUSTS

SPLIT INTEREST GIFT

Income to charity.

Remainder to donor or loved ones chosen by donor.

Reverse of charitable remainder trust or gift annuity.

WHAT IS A LEAD TRUST?

Grantor Lead Trust: Significant income tax deduction.

Non-Grantor Lead Trust: Gift/estate tax paid when CLT is established – not when trust assets received by heirs.

No income tax charitable deduction for donor.

But substantial gift/estate tax savings are possible!

TAX BENEFITS

GIFTS THAT HELP LATER

CHARITABLE BEQUESTS

Most popular form of planned gift.

Revocable and simple.

Included in will, codicil (will amendment) or revocable trust.

Can provide for outright gifts, unrestricted, restricted, endowment or for life income plans

CHARITABLE BEQUESTS

Percentage of estate.

Specific dollar amount.

Specific property.

Residual of estate.

Contingent on other factors such as upon passing of loved ones.

TYPES OF BEQUESTS

Provide sample language.

Carefully monitor estates in probate.

Extend appreciation to surviving family.

Honor donors with recognition if appropriate.

TYPES OF BEQUESTS

QUALIFIED RETIREMENT PLANS

Individual Retirement Accounts

403(b)

401(K)

ESOP

Keogh

TYPES OF PLANS

During life:

Income tax owed on payments

IRA Rollover exception – expired 2014

At death:

Income tax owed by non-charitable beneficiaries.

Estate tax owed.

Combination of income and estate tax can result in 70% of plan value.

TAX RAMIFICATIONS

Name charity on beneficiary designation form.

Revocable and simple.

Can designate for testamentary life income plan.

Saves income and estate taxes.

TESTAMENTARY GIFT

LIFE INSURANCE

Name charity as beneficiary only:

• Use designation form.

• Revocable.

• No tax benefits.

Name charity as owner and beneficiary of new policy:

• Irrevocable

• Income tax deduction for premium payments.

ACCEPTABLE LIFE INSURANCE GIFTS

Name charity as owner and beneficiary of an existing policy:

• Irrevocable.

• Income tax deduction for approximately cash value.

• IRS Form 712.

• Removed from taxable estate.

• Income tax deduction for gifts of future premium payments.

ACCEPTABLE LIFE INSURANCE GIFTS

GIFT OF REMAINDER INTEREST WITH RETAINED LIFE ESTATE

SPLIT INTEREST GIFT

• Applies to personal residence and farms only.

• Irrevocable deed of remainder interest to

charity.

• Donor retains life estate, i.e., right to live on

and/or use the property.

• At death, passes to charity.

GIFT OF REMAINDER INTEREST

• Income tax charitable deduction for present

value of charity’s future interest.

• Property removed from taxable estate.

• Gift made directly to charity at death without

probate costs.

TAX BENEFITS

Responsibility for:

• Property tax.

• Maintenance.

• Property insurance.

• Rights of parties if donor desires to move or stop use temporarily or permanently.

CONTRACT WITH DONOR

• Payment on death of bank accounts.

• Transfer on death of stock accounts.

• Transfer on death of real estate.

• Automatic transfer to surviving interest.

POD OR TOD

GIFTS THAT PAY INCOME

LIFE INCOME PLANS

SPLIT INTEREST GIFTS

• Irrevocable lifetime or testamentary contract between donor and charity. Payments are corporate obligation of charity.

• Payments to donor and/others for one or two lives per contract.

• Rates offered for payment are recommended by the American Council on Gift Annuities at www.acga-web.org

• Rates increase with age.

CHARITABLE GIFT ANNUITIES

• Income tax charitable deduction for the present value of charity’s future interest.

• Deduction must be 10% of value donated.

• Donated assets removed from taxable estate.

• Capital gains tax owed if persons other than donor are annuitants.

TAX BENEFITS

• Assets donated for annuity now.

• Fixed payments guaranteed to begin at a future designated date.

• Increased payout rate due to deferral period.

• Income tax deduction accrues now.

• Donor may retain right to delay payments once the deferred payment date is reached.

DEFERRED GIFT ANNUITY

• High fixed rates appeal to older donors.

• Gift annuities may be issued for smaller gifts (e.g., $5,000).

• Deferred annuities appeal to donors to provide for extra retirement income for self or loved ones.

• Tax deduction and tax-free portion of payments increase effective rate of return.

PLANNING OPPORTUNITIES

• Vary from state to state.

• Reserve requirements.

• Annual notification and fee.

• Specific contract language.

• Adherence to rates.

• State laws summarized by American Council on Gift Annuities at www.acga-web.org.

STATE REGULATIONS

CHARITABLE REMAINDER TRUSTS

• Operated pursuant to a trust document that complies with state and federal law.

• Donor and/or others designated by donor receive income for life or a term of years not to exceed 20 years.

• Fixed income payout percentage between 5% and 50%.

• Established during life or at death.

• Remainder to charity is irrevocable. But donor may retain right to change the recipient charity(ies).

BASICS OF CRTS

• Income tax deduction value must be at least 10% of original value of donated cash or assets.

• Donated cash or assets removed from taxable estate.

• Assets donated to CRT are sold without capital gains tax liability since CRT is a tax-exempt trust.

TAX BENEFITS OF A CRT

• Standard Unitrust (CRUT).

• Net Income Unitrust (NICRUT).

• Net Income with Make-Up .Unitrust (NIMCRUT).

• Flip CRT (begins as NICRUT or NIMCRUT and flips to a CRUT).

• Annuity Trust (CRAT).

TYPES OF CRTS

• Sale of appreciated assets without capital gains tax.

• Reinvestment for income for retirement or for loved ones.

• Common minimum of $100,000.

• As trust value grows, so does income with unitrusts.

• Charities should be cautious about serving as trustee. Requires board approval.

• Donor may be trustee.

PLANNING OPPORTUNITIES

“It takes a noble person to plant a seed to grow a tree that will one day provide shade to those whom one may never meet.” Dr. David E. Trueblood (Earlham College)