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42 Cards in this Set

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  • Back

Charitable Gift Annuity

A contract to pay a fixed dollar amount annually to one or two beneficiaries for life issued by a charitable organization in exchange for a contribution.

Charitable Lead Trust

An irrevocable trust that pays income to charity for a number of years and then distributes its remainder to one or more individuals

Charitable Remainder Trust

An irrevocable trust that pays income to charity for a number of years and then distributes its remainder to one or more individuals

Charitable Remainder Trust

An irrevocable trust that pays income to one or more individuals for life or for a number of years and then distributes its remainder to one or more charitable organizations

Effect of Charitable Deduction

Reduces taxable income and, therefore, reduces amount of income tax due




Reduces taxable income at the margin (last dollar of income) and produces tax savings at the taxpayer's highest tax rate

Fair Market Value

The amount of the deduction to which the donor is entitled




Cash - total of the cash contributed




Publicly Traded Securities - the mean (average) between the high and low prices of the securities on the date of contribution

Benefit of donation of appreciated securities

Donor can receive a charitable deduction and avoid capital gains taxes by contributing long term capital gain property to charity




Must contribute property itself with no prearrangement to sell

Capital Gains Tax

Long term capital gain = > 12 months; taxed as capital gains at 15% for most and 20% for top bracket




Short term = = or < 12 month; taxed as income





Limitations on Charitable Deductions

Charitable Contributions are 100% deductible, max a donor can claim is 50% of AGI for cash and 30% of AGI for appreciated property




Excess of limit may be carried forward for 5 years but max must be taken in each of the following 5 years

Special Rules for Mixed donation of cash and appreciated property

A donor may elect to have 30% contributions (gifts of appreciated property) treated as 50% contributions, however, the deduction will be limited to the cost basis of the appreciated property and the election will apply to all appreciated property contributions. Complex and should seek guidance of tax advisor.

Quid Pro Quo Reduction

The amount of a deduction must be reduced by the value of goods or services the charity makes available to the donor as a result of the contribution. This is value of the goods/services NOT the cost to the charity. It is the availability that matters and not whether the donor actually used the goods/services.

Date of Gift


By Mail

Postmark Date

Date of Gift


Physical Delivery

Date of gift Delivered

Date of Gift


Credit Card

Date authorized by donor

Date of Gift


Electronic/Telephone Transfer

Date completed by the bank

Date of gift


Stock/Security Certificates

Date delivered in negotiable form

Date of gift


Stock/Security in Brokerage Account

Date transferred into charity's account

"Related Use" items rule

If the item can be put to a use that is related to the tax-exempt purpose of the charity, then the donor may take a deduction for the full FMV

"Unrelated Use" items rule

If the use of the item is unrelated to the tax-exempt purpose of the charity, the deduction is limited to the LESSER of the donors cost basis or FMV

Ordinary Income Property

Any item, which, if the donor were to sell it, would result in taxable income. Determination very specific to the individual.




Income tax deduction for a contribution of ordinary income property is FMV less appreciation (generally cost basis)

Alternative Minimum Tax

Designed to ensure that everyone pays some tax. Must complete ordinary income tax and AMT = pay whichever is higher

Transfer Tax

Tax (40%) on transfer from one individual to another; does not affect most because of exclusions:


Annual exclusion - $14k per year ($28k for married couples); payments for medical expenses are excluded


Lifetime: can transfer up to $5.25


Spousal exclusion: unlimited between spouses


Charitable deduction: Unlimited

Stepped-up vs. Carry-over basis

Taxpayer sells appreciated property received while living = pays appreciation from donor's tax basis




Taxpayer sells appreciated proeprty that was reeived from estate, capital gains tax due only on appreciation since the date of death

Generation Skipping Tax (GST)

Designed to prevent wealthy from avoiding one or more levels of tax by leaving property to grandchildren. GST taxes generation skipping transfers as though the transfer had gone first to the intervening generation.

Split Interest Charitable Gifts

Gifts in which the donor, or others, retain a financial interest while making an irrevocable charitable gift

Charitable Deduction for split interest gifts

Calculated using formulae, life expectancies, and interest assumptions set by USTR. In general, the calculations take into account the amount of time before the charity will receive full ownership of the gift, the amount retained by donor, and then apply a discount to arrive at current value of the gift to charity

Charitable Mid-Term Federal Rate (CMFR)

Key variable in the calculation of the deduction for a split interest gift = interest (or discount) rate used to arrive at the present value.




120% of the applicable federal mid-term rate (AFR) for the month in which the gift was given OR for one of the two months prior to the date of the gift.




CMFR changes each month, announced on or about 20th of previous month

Substantiating Charitable Deduction

The donor's responsibility

Testamentary Gift

Formal direction or instruction to transfer money, property, or other assets, to a charity at death

Charitable Bequest

A provision in a will or trust directing a gift to a charity upon death of a donor. Specific, percentage, and remainder (or residue), and contingency

Charitable IRA Roll Over

Donors may use their IRA assets to make a qualified charitable distribution without incurring income tax on the withdrawal from the IRA.


Rules:


* Donor must be aged 70 and 1/2 when gift is made


* Account must be IRA or Roth IRA


*Contribution must be outright, no life income plans


*IRA rollover cannot exceed $100,000 per year


* Transfer must be direct from IRA admin to transfer


* Must be made to public charity NOT donor advised fund, supporting organization, or private foundation

Life Income Gift

Are irrevocable once made; Provide a current tax deduction for calculated value of the charitable gift; can be made during lifetime or in a testamentary instrument; subject to federal and state laws

Ad/Disadvantages of Life Income Gift


Donor

Advantages: Ability to receive income, avoid capital gains tax, and shift investment strategies




Disadvantages: Irrevocable and there is little flexibility

Ad/Disadvantages of Life Income Gift


Charity

Advantage: Gift is irrevocable


Disadvantages: Relationships (sometimes life long) must be established and stewarded

Types of Life Income Gifts

Charitable Gift Annuity


Annuity Trust


Unitrust


Pooled Income Fund

Charitable Gift Annuity

* Money, property, or other asserts are irrevocably given to a charity now in exchange for a contractual promise to pay a fixed amount each year to one or two beneficiaries



* Amount of payment set at time gift is made and cannot be changed




* 1 or 2 annuitants named at time of gift and cannot be changed




* Date of 1st annuity payment may be delayed




* Payments are backed by the charitable organization that issues the gift annuity

Charitable Remainder Trust

* Money, property, or other assets are irrevocably transferred to a trustee with instructions to pay income to one or more income beneficiaries for a period of time and then to transfer the remainder in the trust fund to charity




*Trustee may be charity, trust company, an individual or others




* Payment method (annuity or percent), rate or amount of payout, income beneficiary(ies), and other terms of trust are set at the time the first is made and cannot be changed

Annuity Trust

Pays a fixed dollar amount to the income beneficiaries

Unitrust

Pays a fixed percentage of the value of the trust fund to the income beneficiaries

Pooled Income Fund

*Many donors irrevocably contribute money, property, or other assets to a pooled investment fund operated by a charity




*Income beneficiaries are paid a share of the fund's net income proportionate to the value of their contributions




*As income beneficiaries die, their share of the fund is withdrawn for use by the charity

Annuitants (Beneficiaries)

There can be no more than 2 beneficiaries of a charitable gift annuity contract and they both must be named at the time the gift annuity is issued

Taxation of Annuity Payments

*Part tax free- a portion of each payment is deemed to be due to the donor's investment in the contract and return of that which already belongs to the donor which is therefore tax-free




*Part taxed as capital gain income - if long term appreciated capital gain property was contributed and the donor is the annuitant (which is usually the case), then the portion of the payment deemed to be "invested in the contract" that is attributable to the capital gain will be taxed as capital gain income. If the donor is not the annuitant, then the donor must report all of this capital gain in the year of the gift and the tax-free portion of the annuity payments becomes greater.




*Ordinary income -