Transcript Slide 1

Gift Plans and Strategies Every Advisor
Can Suggest to Clients…
to support your annual fund, capital
campaign and planned gift program
James E. Connell FAHP, CSA
Charitable Estate and Gift Planning Specialists
P.O. Box 3335, Pinehurst, NC 28374
Email: [email protected]
Internet: www.connellandassoc.com
Partners in Philanthropy
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Grand Traverse Regional Community Foundation
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Munson Healthcare Regional Foundation
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www.gtrcf.org
www.
Northwestern Michigan College Foundation
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www.nmc.org
Agenda
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Big picture of charitable
giving
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Why are individuals
charitable?
Who are the prospects?
What donors want?
Why donors stop giving?
Life cycle giving
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Conducting the
charitable discussion
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Sorting your
donors/clients
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2013 Tax changes
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Many faces of
philanthropy
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Income tax
Estate tax
Gift tax
Agenda
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Tools and strategies for
charitable giving
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Outright gifts
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Cash
Appreciated property
IRA rollover options
Bargain sales
Testamentary gifts
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Year end gift strategies
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Split interest life income
gifts
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Gift annuities
Charitable remainder
trusts
Life estate agreements
Charitable lead trusts
Changing Financial Environment
Means Changing Strategies
We live in interesting times!
Fiscal cliff (will it return)?
10,000 seniors reach 65 each day!
Financial Planning
Personal Concerns
YOU
Looking back
Giving by Donors 2007-2009
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Cash gifts fell 9.7% while security and noncash gifts declined 46%
90% of the decline in giving from
2007 - 2009 can be traced to donors with
incomes of $200,000+
Under $200,000 reduced their giving by 4.3%
$100,000 to $200,000 incomes reduce their
giving by >.05%
Charitable giving 1969–2009
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Charitable Giving 2001-2011
• 65% of households give to charity.
• The average annual household contribution is $2,213 while the mean is $870.
• Americans gave $298.3 billion in 2011. This reflects a 3.9% increase from 2010.
Net worth growing?
Source: Affluence in America, December 2011
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Net worth changes!
http://www.census.gov/people/wealth/files/Wealth%20Highlights%202011.pdf#zoom=100
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What Motivates Giving
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Belief in the Mission
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Feeling financially secure
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Fiscal stability of the
charity
Regard for staff leadership
Regard for volunteer
leadership
Motivations for Giving
Source: BankAmerica/Merrill, 2011 $200,000+ households
Ages of Top USA Wealth Holders
Women as a
Special Segment
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Older women
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Younger women
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(65 and older)
(volunteers,
Internet-focused,
partnership oriented)
Women who have
businesses
Women who inherit
wealth
 Women married to
successful
businessmen
 Women who work
ordinary jobs and
amass wealth
 Women with
interest in specific
programs
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Why Donors Stop Giving
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54% - Change in financial
circumstances
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36% - Change in priorities
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16% - Relocation or death
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13% - Charity did not
acknowledge gift
8% - Charity did not inform
how gift was used
Source: New Direction for Philanthropy Fundraising
Barriers to Philanthropic Planning
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Your emotional barriers
 Not wanting to relinquish control
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Fear of facing death...indecision
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Fear of what children will think
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Analysis paralysis
Life cycle giving
Life cycle giving
Advisor Input
40s - 50s - 60s - 70s - 80s
Age / Assets / Plans
Financial / Retirement Life
Charitable Life / Lifestyle
Charitable Intent / Motivation
Charity Input
Philanthropy Has Many Faces
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Communitarian
Devout
Investors
Socialites
Repayers
Altruists
Dynasts
Source: Russell Prince study
26%
21%
15%
11%
10%
9%
8%
Hierarchy of Needs
Tactics Strategy
Social
Capital
Legacy
Family Legacy
Financial Independence
Who are the Best
Probable Donors?
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Categories of best prospects – Family
situation
A. Single without children
B. Couples without children
C. Singles with successful children
D. Couples with successful children
E. Individuals who are fearful to leave a large
inheritance to their children
F. Individuals who believe that their children
do not need a large inheritance
G. Individuals who built their wealth in
unrealized income assets
How Much You Have to Make to
be in the Top 50% of Earners
Source: IRS, Statistics of Income Division, July 2011
The income thresholds are for the amount of AGI on a return, not per taxpayer.
Sorting Your Donors
Green: Ready Now
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Business owner that may have
sold business.
Suffered fewer losses with little
invested in stock market.
Older donor who doesn’t seek to
delay gift.
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Yellow: Delayed Giving
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Heavily invested in stock market and
suffered large losses.
Major life event: health problem,
death in family, and delayed
retirement.
Panicked.
Blue: Extended Time
Needed
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Economy has slightly affected
donor.
May feel more comfortable making
smaller gift now, but more next
year.
Understand donor values
and psychology.
Red: Financially Not
Possible
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Prospect has suffered major losses.
Filed for bankruptcy.
Lost business.
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2013 Federal Tax RatesIncome
Surcharges: 0.9% on earned income >$200K, and 3.8% on investment income
with AGI of >$200K (single) and >$250K (married) for Medicare
2013 Federal Tax RatesCapital Gains
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Capital gains rate 0% for
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Capital gains rate of 15% for
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Tax brackets of 10% and 15%
Tax brackets of 25%, 28%, 33%, 35%
Capital gains rate of 20%
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Tax bracket 39.6%
2013 Federal Tax RatesGift and Estate Taxes
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Exempt amount $5,000,000
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Top tax rate 40%
Indexed for inflation
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Estate taxes
Gift taxes
Generation skipping tax
2013 $ 5,250,000 single
2013 $10,500,000 couple
Marital portability
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Surviving spouse gets to use the deceased spouse
unused exemption amount
2013 Federal Tax Rates
Deductions and Exemptions
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Itemized deduction limit for ALL deductions
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“Pease limits” 3% of adjusted gross income over
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$250,000 single AGI
$300,000 married AGI
Indexed for inflation after 2013
Personal exemption limits
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Phase-out for AGI over
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$250,000 single AGI
$300,000 married AGI
2013 Federal Tax RatesPease 3% limit
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Itemized deduction limit for ALL deductions
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“Pease limits” 3% of adjusted gross income over
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$250,000 single AGI
$300,000 married AGI
Indexed for inflation after 2013
Example: Single with $300,000 income
with deductions of $100,000($10,000 gifts)
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For every $1,000 over limit deductions are
reduced 3%
$50,000 * 3% = $1,500 * 39.6% = $594
Michigan tax rates
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4.25% flat rate tax on resident income.
Deductions: Certain miscellaneous deductions
(political donations; prizes won in state,
regulated bingo, raffle, or charity games;
charitable gifts from retirement plans) are no
longer allowed.
The credit for contributions to homeless
shelters, food banks, and community
foundations is no longer allowed.
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Limiting the Charitable Deduction
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1. Limit Tax Rate Benefits – Under White House proposals, the benefit of
charitable deductions could be limited to 28% even though the tax bracket is up
to 39.6%.
$1,000 gift at $39.6%, cost $604
$1,000 gift at 28%, cost $720, a 19% increase
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2. Dollar Cap – The charitable deduction could be limited to a fixed cap such as
$50,000.
3. Dollar Cap all deductions $50,000 – for high income individuals could reach
cap with mortgage interest, and state and local taxes
4. Charitable Floor – A floor such as 1.8% of adjusted gross income would
apply to itemized deductions. Only charitable gifts in excess of this amount
would be deductible.
5. Tax Credit – The system of charitable deductions could be replaced with a
tax credit for charitable gifts.
Charitable deduction one of the 10 largest tax expenditures, $170 billion in 2010
Gift Strategies –
Capital Gain Offset
Tax Bracket
Capital Gain
Charitable Gift
Capital Gain
Offset
25%
15%
$1.00
$1.66
28%
15%
$1.00
$1.86
33%
15%
$1.00
$2.20
35%
15%
$1.00
$2.33
39.6%
20%
$1.00
$1.98
Gift Strategies –
2013 Standard Deduction
Single Joint
Married
Household Separate
Basic
$6,100
$12,200
$8,950
$6,100
65+
$7,600
$13,400(1)
$14,600(2)
$10,450
$7,300
Blind
$7,600
$13,400(1)
$14,600(2)
$10,450
$7,300
65+
Blind
$9,100
$14,600(1)
$15,800(2)
$11,950
$8,500
Three Categories of Gifts
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Outright gifts – irrevocable gifts of
entire interest made today
Expectancies – revocable gifts
committed for the future use
(bequests)
Split-interest gifts – irrevocable
gift arrangements which give a
portion to charity and a portion to
a non-charitable beneficiary
Wealth and Age Matrix
Gift Strategies #1
$100,000 outright cash gift
Tax
Bracket
Gift
Amount
Government
Bonus
Federal Tax
Net Cost
25%
$100,000
$25,000
$75,000
28%
$100,000
$28,000
$72,000
33%
$100,000
$33,000
$66,000
35%
$100,000
$35,000
$65,000
39.6%
$100,000
$39,600
$60,400
Gift Strategies #2
Appreciated property outright gift
Securities or real estate 2013
Value
Tax savings
(28%)
Capital gains
(15%) tax
savings
($4,000 gain)
Total
Tax Savings
A – Give
Cash
$10,000
B – Sell &
Give Cash
$10,000
C- Give
Stock
$10,000
$2,800
$2,800
$2,800
$0
$600
paid
$600
saved
$2,800
$2,200
$3,400
Gift Strategies #2a
Appreciated property outright gift
Securities or real estate 2013
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Example: $100,000 gift of stock with a
cost basis of $20,000 and a $80,000 capital
gain
Income tax saving @28% = $28,000
Capital gains tax savings @15% = $12,000
Total tax saving $40,000
Net cost of gift $60,000
Gift Strategies #2b
Appreciated property outright gift, Securities or
real estate 2013, long term, big or little gain
Investment A
($4,000 gain)
Investment B
($1,000 gain)
Fair market
value
$5,000
$5,000
$0
Ordinary tax
savings (25%)
$1,250
$1,250
$0
$600
$150
A) $450 more
Total
tax savings
$1,850
$1,400
A) $450 more
After tax cost of
gift
$3,175
$3,600
B) $425 less
Capital gains tax
savings(15%)
Difference
Gift Strategies #2c
Capital Gain Offset
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Capital Gain Offset
Tom and Betty 3,000 shares of Merck, cost
$6/share, value $35/share
Gift 1,000 shares ($35,000)
28% tax bracket, offset @ $1.86 = $65,100
Sell 2,000 shares net tax-free
Use deduction to free up additional value
Could sell 2,244 shares with no capital gains
tax
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Approved for 2013 in the American Taxpayer Relief
Act (ATRA)
IRA account owners 70½ or older may make a direct
transfer to qualified charity up to $100,000 per year
Amount received in IRA gifts
Donor profiles
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Convenience donor
Standard deduction
Donor*****
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Generous donor
Major donor
Social security
donor
of Various Size
(Source: PPP survey 2009)
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Allows for IRA rollovers to charity
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Charity must be eligible
Individual must be 70 ½ or older on the date of
contribution
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Qualified Charitable Distribution will qualify for the
Required Minimum Distribution requirements of IRA
$100,000 limit
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Both regular IRA accounts and Roth IRA accounts are
eligible, IRA check books
$200,000 from couple with separate accounts
Transfers from other pensions and profit sharing
plans, i.e. Keogh, 401k, 403b, etc., are not allowed
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Possible to rollover above accounts to IRA if plan and time
permit
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Eligible charities
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501(c)3 public charities
509(a)1 and section 170(b)(1)(A)
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Field of interest funds
Restrictions on use of gifts permitted (i.e.
scholarship funds or building funds)
Not Permitted
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509(a)(3) supporting organizations
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Especially effects some hospital foundations
Donor advised funds
Private foundations
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Permitted transfers/gifts
Qualified Charitable Distribution (QCD)
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Outright gifts only
No charitable gift annuities
No charitable remainder Unitrusts
No charitable remainder annuity trusts
No pooled life income funds
No “quid pro quo” gifts
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No personal benefits
No special events
No athletic tickets
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Donor Profile – Convenience Donor
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Most delay taking distributions until the
last quarter of the year in order to grow
the remaining funds tax free
If actively making charitable gifts may
consider the benefits of taking them from
their IRA account(s)
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No inclusion in income
No income tax deduction
Qualifies for Minimum Required Distribution
(RMD)
Gift Strategies #2d
A Guide to IRA Charitable Rollovers
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Donor Profile – Non-Itemizers
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May be donors with modest IRA account balances,
but sufficient retirement income from personal
investments and tax-exempt accounts
Taking MRD may not significantly increase their
lifestyle
Do not have significant tax deductions
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State and local income taxes
Interest expenses
Medical expenses
Charitable deductions
So the standard deduction applies (2013), over 65
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Married/Joint - $15,800 one / $14,600 two
Single - $9,100
Head of household - $11,950
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Gift Strategies #4
Gifts by Will, Trust or Beneficiary
Designation
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All bequests are
 Revocable
 Do not qualify for a current charitable income tax deduction
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Do qualify for a future charitable estate tax deduction, if
needed
Represent future expectancy income for chaity
8% of those who have a will have included a charitable
bequest
14% of those who do not have a will are considering a
charitable bequest
17% of 2009 taxable estates included a charitable bequest
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Gift Strategies #4
Gifts by Will, Trust or Beneficiary
Designation
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1. Bequest of specific $$$$$ amount or specific
property
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2. Bequest of a specific percentage amount of estate
assets
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Example: $10,000 to favorite charity or my house at 123
Main Street to favorite charity
Example: 25% of my estate to favorite charity and the
balance to my church
3. Residuum of specific amount or percentage
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Example: 25% of estate after specific bequests to friends
and family to favorite charity
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Gift Strategies #4
Gifts by Will, Trust or Beneficiary
Designation
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4. Contingent bequests
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5. Life insurance beneficiary designations
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Example: If my brother does not survive me I give his share to my
favorite charity
Specific amount or percentage
New or existing policy
Charity owner and beneficiary with donor paying premiums makes
the premium gift fully deductible
6. Retirement plan beneficiary designations
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Specific amount or percentage
IRA, 401(k), 403(b), Roth IRA, Keogh plans
Recommended because of possible double taxation
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Gift Strategies #4
Gifts by Will, Trust or Beneficiary
Designation
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7. “Pay on death” for bank accounts
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8. “Transfer on death” for investment accounts
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9. Provide an income & property to a spouse,
children, grandchildren, or others and then provide a
gift to charity
 Testamentary gift annuity
 Testamentary Unitrust or Annuity Trust
10. Disclaimer
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Gift Strategies #4
Gifts by Will, Trust or Beneficiary
Designation
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11. Testamentary gift that provides an income to
your charitable interests for a awhile and then
provide the property to your children, grandchildren
or others
 Testamentary Charitable Lead Trust
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Gift Basics #5
Bargain Sale
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Charity acquires
property for less
than the fair market
value
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Donor benefits
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Donor is able to
transfer property
and receive cash
plus an income tax
charitable deduction
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no market wait
minimum closing
costs
no commission
no selling stress
Charity sell property
and retains proceeds
Gift Basics #5
Bargain Sale Real Estate
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Mr. & Mrs. Brown sell their vacation
home
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value
cost
gain
tax
net
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(does not include selling expenses or state taxes)
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$300,000
$150,000
$150,000
$22,500 (15%)
$277,500
Gift Basics #5
Bargain Sale Real Estate
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Mr. & Mrs. Brown sell their vacation home to
charity for $200,000
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cash
$200,000
cost
$100,000
gain
$100,000 on sale portion
tax
$15,000 (15%)
net
$185,000
Charitable deduction: $100,000
taxes saved: $28,000 (28%) + $7,500 (15%)
total to donors: $220,500
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(does not include selling expenses or state taxes)
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Gift Basics #5- Bargain sale -Stock
BARGAIN SALE
Prepare d For Warre n Buffe tt
Sale Portion
$95,403
Property
$130,000
Charity
Net Benefit
Cas h to Donor
$95,403
Tax on Ga in
$12,109
Taxe s Save d
$12,109
Ne t to Donor
$95,403
$34,597
1. Whe n prope r ty s old at bargain
2. Long te r m capital gain is the
3. Ne t to donor is cas h
pr ice to char ity, income t ax
diff e re nce be twe e n s ale pr ice
be ne fit plus ne t t axes
de duction s ave s $12,109.
and bas is allocate d t o s ale .
sav ed or $95 ,403. Donor
Capital gain bypas s on gift
Tax of $12,10 9 on gain is off s et
re duce s taxe s by $16,500
por tion may save $4,3 91.
by charitable income tax s aving.
and mak e s $34,597 gift .
Split-Interest Gifts
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Allows a donor to make a charitable gift
while retaining certain rights and
benefits to the gifted property,
increased income and decreased taxes
Part gift, part investment
Charitable income tax deduction for the
portion gifted to charity
Donor may also avoid capital gains
taxes, gift and estate taxes
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What is a Charitable Gift Annuity?
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Contract with
Charity…gift
arrangement
Assets are irrevocably
transferred
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Donor receives fixed
guaranteed lifetime
payments
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Payments begin
immediately or may be
deferred
Payments depend upon
age, number of
beneficiaries and type
of annuity
Part Gift –
Part Investment
Candidates for Gift Annuity #1
 Certificates of deposit are maturing…
“Desires more income”
 Corporate bonds are being called…
“Desires lifetime payments”
 Has excess life insurance policy…
“Desires conversion without taxes”
 Municipal bonds being called…
“Desires tax-free payments”
Candidates for Gift Annuity#2
 Freeze value of appreciated stock
“Apple or Google Effect”
 Freeze value of stock that is declining
“Enron Effect”
 Convert dividend income to fixed
guaranteed payments
“Dividend Converter and Extender”
 Tax-free exchange of variable annuity
Candidates for Gift Annuity #3
 Older spouse wishes to give younger
spouse lifetime income starting at
death of older spouse
“Lifetime Partnership”
 Young professional saving for retirement
“Charitable Retirement Annuity”
Annuity payment rates
Single Life
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Age of Donor  Payment Rate
4.40%
60
4.70%
Two Life
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5.10%  Age of Donors  Payment Rate
70
60/60
5.80%
3.90%
75
65/65
4.40%
8.20%
80
70/70
4.60%
75/75
5.00%
80/80
5.90%
ACGA rates effective January 1, 2012
Types of Gift Assets
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Cash
Securities
Bonds - Corporate
Bonds - Municipal
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Bonds - US Savings
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Real Estate
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residence
vacation home
investment property
Mutual Funds
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Life Insurance
Variable Annuity
Personal Property
Business Interests
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S - corp
C – corp
Retirement Assets
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IRA
Keogh
Pension & Profit Sharing
plans
401k, 403b plans
Gift Strategies #6
Gift Annuity Income Enhancement- Cash
Charitable Gift Annuity
M r. Thomas - Age 67
Property
4.80% Annuity
$10,000
Principal
$10,000
Charity
One
$5,000
Life
(Appr oximate Value)
1. Gif t pr ope rt y t o charity.
2. Annuity of $480.00
3. Quarte rly paym e nt s f or
Donor re ce ive s cont ract for
for one life . Tax- fre e
one life . Prope rty pas s es
annuity paym e nts . Incom e
am ount $379 .68. Es tim ate d
to charity w ith no probate
tax de duction of $3,051
one life payout of $9,3 12.
fe e s . The re ar e also no
m ay s ave $763.
Effe ct ive pay out rat e 6.6%.
es t ate t axe s .
Gift Strategies #6
Gift Annuity Income Enhancement- Stock
After the Gift
Prior to Gift
Invested in stock
$100,000
Dividends (2%)
2,000
Tax (15%)
Net spendable
$300
$1,700
Capital if Sold
Fair market
value
$100,000
Cost basis
25,000
Capital gains tax
(15%)
$11,250
Net capital
$88,750
Contributed
Cost basis
$100,000
$25,000
Payment rate
4.80%
Total payment
$4,800
Ordinary
income
$1,003
Capital gains
$2,848
Tax-free*
$949
Tax OI 28%
-$280
Tax CG 15%
-$427
Net spendable
$4,093
Bonus savings
$8,542
*tax-free to 2030
Gift Strategies #6a1
Gift annuity capital gain offset
Offsets $5,674 capital gain
Gift Strategies #6a2
Gift annuity capital gain offset
Charitable Gift Annuity
M r. Smith - Age 76
6.00% Annuity
Property
$10,000
Principal
$10,000
Charity
Offsets $7,800 capital gain
One
$5,000
Life
(Approximate Value)
1. Gif t pr ope rt y t o charity.
2. Annuity of $600.00
3. Quarte rly paym e nt s f or
Donor re ce ive s cont ract for
for one life . Tax- fre e
one life . Prope rty pas s es
annuity payme nts . Income
amount $492 .00. Es tim ate d
to charity w ith no probate
tax de duction of $4,194
one life payout of $7,6 20.
fe e s . The re ar e also no
may s ave $1,049.
Effe ct ive pay out rat e 8.5%.
es t ate t axe s .
Gift Strategies #6a3
Gift annuity capital gain offset
Charitable Gift Annuity
M r. Palme r - Age 76
M rs. Palme r - Age 76
5.20% Annuity
Property
$100,000
Principal
$100,000
Offsets $61,584 capital gain
Charity
Two
Lives
$100,000
(Approximate Value)
1. Gif t pr ope rt y t o charity.
2. Annuity of $5,200.00
3. Quarte rly paym e nt s f or
Donor re ce ive s cont ract for
for tw o live s . Tax-f re e
tw o live s . Pr ope r ty pas s e s
annuity payme nts . Income
amount $4,290.00. Es t imat e d
to charity w ith no probate
tax de duction of $33,110
tw o live s payout of $8 7,360.
fe e s . The re ar e also no
may s ave $9,271.
Effe ct ive pay out rat e 7.6%.
es t ate t axe s , if mar rie d.
Gift Strategies #6a4
Gift annuity to endow annual gift





Female donor, age 80 contributes
$5,000 per year to annual fund
Gift annuity rate age 80 = 6.8%
Stock, bond, mutual fund portfolio
Select $100,000 in stock paying 2.1%
dividend
Result: no decrease in donor income,
$5,000 annual gift, future residuum of
gift annuity, large deduction
Gift Strategies #6a4
Gift annuity to endow annual gift
Charitable Gift Annuity
M rs. White - Age 80
Property
6.80% Annuity
$100,000
Principal
$5,000 for gift, deduction
$1,800 for income
$11,673 annuity tax savings
$1,250 outright charitable gift
tax savings
1. Gif t pr opert y t o charity.
$100,000
Charity
One
Life
$50,000
(Approximate Value)
2. Annuity of $6,800.00
3. Quarterly paym ent s f or
Par tial bypass $50,000 gain
for one life. Tax- free
one life. Property passes
may save $3,502. Incom e
amount $2,835.71. Est imat ed
to charity with no probate
tax deduction of $46,693
one life payout of $69,360.
fees. There ar e also no
may save $11,673.
Effect ive payout rat e 9.2%.
est ate t axes.
Gift Strategies #7
Charitable Retirement Gift Annuity
Deferred Gift Annuity
Jill D. Heide n - Age 66
First Payme nt on De ce mber 31, 2015
Annuity Amount of $680
Initial Amount
$10,000
Deferred
Gift Annuity
Flexible Annuity Opt ions
Payout At Age 68
$528.20
Payout At Age 80
$1,230.00
1. Property transf erred t o
Charity
$5,000
One
Life
(Approximate Value)
2. Annuity payout of $680
3. Aft er annuit y payment s
charit able or ganization.
distributed f or one lif e.
distributed t o annuit ant,
Tot al tax deduct ion of
Tax fr ee payout $396.44.
appr oximat e remaining
$3,696 may save incom e
Est im ated one lif e t ot al
value given t o charity.
taxes of $1,035.
payout s are $10,812.
Gift Strategies #7a
Savings bond
converted to Flexible Deferred CGA
Deferred Gift Annuity
John West - Age 65
First Payme nt on De ce mber 31, 2016
Annuity Amount of $1,425
Initial Amount
$25,000
Deferred
Gift Annuity
Flexible Annuity Opt ions
Payout At Age 68
$1,324.40
Payout At Age 75
$2,000.00
Charity
$12,500
One
Life
(Appr oximate Value)
1. Prope rty tra ns f e rre d t o
2. Annuity payout of $1,425
cha rit able or ganization.
dis tribute d f or one lif e .
dis tribute d t o annuit ant,
Tot al tax deduct ion of
Tax fr ee payout $ 1,010.33.
appr oxim at e re m aining
$8,122 m ay s ave incom e
Est im ate d one lif e t ot al
value give n t o charity.
taxe s of $2,274.
pay out s are $23,798.
$5,000 bond cost $2,500, FMV $10,236, interest $7,736
3. Aft er annuit y paym e nt s
Gift Strategies #7b
Commercial annuities,
supplemental retirement


DOB February 25, 1941,
age 69, Married
Assets:


2 USAA annuity contracts
#1 FMV $23,988


Taxable gain $13,988




#2 FMV $17,057

Taxable gain $7,057






Total assets: $41,045
Total gain: $21,045
AGI $175,000
Tax rates 33%, 15%
Charitable intent
Cash in annuity assets
Offset gain with
charitable gifts
Possible immediate or
future income
No income for spouse
Other charitable gifts this
year
Gift Strategies #7b
Commercial annuities,
supplemental retirement
Deferred Gift Annuity
Allan W - Age 69
First Payme nt on De ce mber 31, 2015
Annuity Amount of $3,504.16
Initial Amount
$44,356
Deferred
Gift Annuity
Flexible Annuity Opt ions
Payout At Age 72
$2,542.68
Payout At Age 77
$3,992.04
1. Property to charit y. Part ial
Charity
$44,356
One
Life
2. Annuity payout of $3,504.16
(Approximate Value)
3. Aft er annuit y payment s
bypass of gain of $37,310.
distributed f or one lif e.
distributed t o annuit ant,
Tot al tax deduct ion of
Tax fr ee payout $269.98.
appr oximat e remaining
$23,179 may save incom e
Est im ated one lif e t ot al
value given t o charity.
taxes of $6,490.
payout s are $43,452.
2,600 shares Genworth Financial, FMV $44,356, Cost $7,045, Deduction $23,179
Gift Strategies #7b
Commercial annuities,
supplemental retirement - Summary


Deferred/Retirement annuity selected
Funded with appreciated stock







Gift date March 24, 2010
2,600 shares Genworth Financial
FMV $44,356
Cost $7,045
Deduction $23,178
Deduction limit 30%
AFR February @ 3.4%
Gift Strategies #7c –
Lifetime partnership or May/December annuity
Deferred Gift Annuity
Bill O'Brie n - Age 72
Sara O'Brien - Age 59
First Payme nt on De ce mber 31, 2019
Annuity Amount of $7,800
Initial Amount
$100,000
Deferred
Gift Annuity
Flexible Annuity Opt ions
Payout Age s 7 4/61
$4,358.48
Payout Age s 9 0/77
$12,700.00
1. Prope rty to charit y. Part ial
Foundation
$100,000
Two
Lives
2. Annuity payout of $7,800
(Approximate Value)
3. Aft er annuit y payme nt s
bypas s of gain of $75,000.
dis tribute d f or t wo liv es .
dis tribute d t o annuit ants ,
Tot al tax deduct ion of
Tax fr ee payout $ 894.14.
appr oximat e re maining
$33,386 may s ave incom e
Est im ate d t wo liv es total
value give n t o charity.
taxe s of $9,348.
pay out s are $145,080.
Gift Strategies #8 –
Dividend substitute, major gift







Donors 70/70
2,200 shares,
FMV $154,000
Cost $ 75,000
Dividend 2.3%, $3,696, $3,141 after
tax
1,000 share gift, $70,000
1,200 shares two-life gift annuity
Gift Strategies #8 –
Dividend substitute, major gift
Charitable Gift Annuity
M r. Wilson - Age 70
Property
M rs. Wilson - Age 70
5.40% Annuity
$84,000
Principal
$84,000
Foundation
Two
Lives
$84,000
(Approximate Value)
1. Gif t pr opert y t o charity.
2. Annuity of $4,536.00
3. Quarterly paym ent s f or
Par tial bypass $43,090 gain
for two lives. Tax-f ree
two lives. Pr oper ty passes
may save $1,686. Incom e
amount $1,476.37. Est imat ed
to charity with no probate
tax deduction of $21,910
two lives payout of $98,885.
fees. There ar e also no
may save $6,135.
Effect ive payout rat e 6.9%.
est ate t axes, if mar ried.
After tax payment $3,879, two tax deduction $70,000 and $21,910
Gift Strategies #9 –
Gift annuity with wealth replacement or
payment for long term care policy
Charity
Age 65
Insurance
$100,000**
#1
Heirs
#2
$100,000
Cash
Annuity
4.70%
$4,416*
*after tax
**premium $1,977 - $2,561 permanent life
Gift Annuity Strategies #10Roth Conversions
1. Fund gift annuity with stock or cash

Increased income and chartable deduction
2. Use charitable deduction to offset taxability
of IRA withdrawal to fund Roth IRA conversion
Gift Strategies #11Testamentary bequests

Beneficiary designations

will or trust
Retirement plans






401(k), 403(b), Keogh, Traditional IRA, Roth IRA
Savings bonds
Life Insurance
Beneficiary can be 100%, partial interest or
contingent
Will/trust can create a CGA for beneficiary
85
What is a Charitable Trust?



Individually designed
tax-exempt trust
agreement


Assets are irrevocably
transferred
Donor(s) or
Beneficiaries receives
fixed or variable
payments for life or
term of years


Payments are not
guaranteed
Payments depend on
rate selected with a
minimum of 5% payout
(IRS regulation)
Payments depend upon
type of trust selected
Part Gift --- Part
Investment
Types of Charitable Trusts

Total return or standard
payment CRT


Beneficiary receives X%
(minimum 5%) of the
annual fair market value
of the trust assets
As the value of the
assets increase or
decrease the beneficiary
payment increases or
decreases

Income only CRT




Beneficiary receives only
the ordinary income
(interest and dividends)
generated by the trust
investments
Payments change as the
income generated by the
trust investments change
May include a makeup
provision when income
would exceed the
payout rate in future
years
Capital gains may be
defined as income
Types of Charitable Trusts

FLIP Charitable
Remainder Trust

established first as
an income only CRT
which changes or
FLIP’s to a standard
payment or total
return CRT upon the
occurrence of a
stated trigger event
 The trigger event may
be a set date (age 65?),
an event (death of
spouse), or a
combination of a date
or event (age 65 or my
remarriage which
ever occurs first)
 Normally sale of hard to
value assets
Types of Charitable Trusts

Charitable Remainder Annuity Trust


beneficiary receives a fixed percentage or a
set dollar amount of the initial trust assets
(minimum 5%)
no additions to the trust allowed
Gift Strategies #12Standard CRT with appreciated stock






Donors age 73 & 71
Stryker Corp @
$54/share
Cost $0.44/share
Return $1.63/share,
$3,260($2,771net)
2,000 shares
transfer to CRT
Value $108,000
Standard Unitrust
CHARITABLE UNITRUST
Jack Rowe - Age 73
Property
Lija Rowe - Age 71
6% Unitrust
$108,000
Principal
$108,000
No cap gain
Increased income
Decreased taxes
1. Give asset , sell Tax-Free.
Charity
Two
Lives
2. UT annual income $6,480.
$159,837
3. If tr ust earns 7.97%, pays 6%,
Bypass up t o $107,560 gain
Increased income $4,720 over
then grows by 1.97%. Af ter
may save $16,134. Income
pr ior $1,760 incom e. Estimated
two lives, trust passes
tax deduction of $40,620
income in 20.1 years $157,926.
without probat e to charit y.
may save $13,405.
Effect ive pr etax rate 6.85%.
Charitable Annuity Trust
Charitable Annuity Trust
Jack Rowe - Age 79
Property
Linda Rowe - Age 77
5% Annuity Trust
$108,000
Principal
$108,000
No cap gain
Set payments
No additions
1. Transfer and sell tax-f ree.
Charity
Two
Lives
2. Annuity Income $5,400.
$194,503
3. If tr ust earns 7.85%, pays 5%
Bypass up to $107,560 gain
Increased income $3,640 over
annuit y, trust value increases.
may save $00. Income
pr ior $1,760 incom e. Estimated
Aft er tw o lives, t rust passes
tax deduction of $44,557
income in 15.3 years $82,620.
without probate to charity.
may save $00.
Effect ive return r ate 5.00%.
Just passed 5% probability test
Gift Strategies #13FLIP CRT for retirement
FLIP UNITRUST
Bill Hipp III - Age 57
FLIP Sale on De ce mbe r 31, 2020
5% Unitrust
Initial Amount
$100,000
Principal
$147,915
Charity
$209,901
One
1. Trans fe r as s e t into trus t.
Life
2. Unit rus t Income up to 5% to
3. Inc om e for e s timate d
Tr ust e e is re s ponsible
donor for one life . Annual
pe r iod of 27.9 ye ars .
for managem e nt . Income
income at payout $7,396.
Af te r one life , tr ust
tax de duction of $34,066
If tr us t e arns 6.87%, pays 5%
pr incipa l paid t o charity.
may s ave $11,923 .
income during one lif e , total
life time income is $196,002.
7% total return assumption, 2% income 5% growth
Gift Strategies #14Corporate stock or assets
TERM OF YEARS UNITRUST
Prepare d for ABC Corporation
Property
5% Unitrust
$300,000
Principal
Corporate owed real estate
Appraisal requirements
$300,000
Charity
Term of
1. Transfer and sell Tax-Free.
20 Years
2. Unit rust Income of $15,000.
$366,057
3. If t rust earns 6%, pays 5%,
Bypass up to $250,000 gain
Increased income $15,000 over
then grows by 1%. After
may save $87,500. Incom e
pr ior $00 income. Est imat ed
the t er m of 20 years,
tax deduction $108,585 may
income in 20 years $330,285.
trust asset s pass w it hout
save taxes of $38,005.
Effect ive return r ate 5.73%.
pr obat e t o charity.
Gift Strategies #15Real estate sale and cash
SALE AND UNITRUST
Jim Crawford - Age 73
Anne Crawford - Age 69
Cash Received
$566,400
Property
$944,000
Iowa Farm
Cap gain
Depreciation recapture
6.5% Unitrust
$377,600
Two
1. Gif t $377,600 to trust.
Charity
Lives
2. Unit rust Income of $24,544.
$516,975
3. If t rust earns 8%, pays 6.5%,
Bypass up t o $299,716 gain
Increased income $13,216 over
then gr ows by 1.5%. After
may save $66,717. Tax
prior $11,328 income. Est im ated
tw o lives, tr ust passes
deduction $129,521. Taxable
incom e in 21.1 years $603,960.
without probate to charity.
gain $449,575 on cash part.
Effect ive return rate 7.54%.
Net Cash to donors $518,470.
Zero taxes $414,135 cash, $529,865 unitrust
Unitrust/Insurance Trust
Mar y Jones - Age 65
John Jones - Age 65
Property
6% Unitrust
Charity
$400,000
$400,000
$641,650
Two
1. Transfer assets, sell t ax-fr ee.
Lives
2. Unit rust Income of 6% t o
3. Estimat ed 26.2 years income,
Bypass up to $350,000
donors for two lives. First
less premium, is $700,649.
gain. May save $52,500.
year income $24,000. From
Effect ive return r ate 6.62%.
Deduction of $114,236 m ay
income, donors pay $12,000
Af ter two lives, insurance
save taxes of $37,698.
annual prem ium for 8 years
to f amily, tr ust t o charity.
to t rustee of insurance trust.
Gift to
Trust
Ins. Trust
Family
$400,000
$400,000
CGA from a CRT or CRAT



It is possible to convert a poorly
functioning charitable remainder
unitrust to a charitable gift annuity
Donor transfers their income interest
Donor obtains additional 30% of AGI
charitable deduction, income interest is
a capital asset
98
Types of Real Estate


Personal residence
Vacation home



Non-rental
Rental property
Commercial property

Used in taxpayers business




Condominium
Farmland
Investment real estate


Motels, recreational parks
Apartments, office buildings
Raw land
Gift of Real Estate









Outright Gift
Bequest
Bargain Sale
Life Estate
Gift Annuity for 85%
18 month Deferred Annuity
Installment Sale
Unitrust and Sale
Charitable Lead Trust
Life Estates

When a donor establishes a life estate
they transfer a “personal residence”
(IRC §163) or farm and retain the right
use the property during his/her/their
lifetime.
Life Estate

Significant income
tax deduction offsets
other fully taxable
income or capital
gains on the sale of
other assets

tax free social
security, dividends,
IRA withdrawals, etc.




No market wait
Minimum closing
costs
No commission
No selling stress
Life Estate

Financial benefits

Income tax deduction which when placed on their
tax return will lower their income and decrease
their taxes


Gift taxes




30% limit
No tax for spouse transfer
Tax on transfer to non-spouse if life estate is immediate
No tax for non-spouse beneficiary if testamentary right
to revoke is retained
Estate taxes


None for one life agreement
May be estate tax on two-life non-spouse agreement
LIFE ESTATE
Scott Honan - Age 71
Bre nda Honan - Age 69
Property
$300,000
Deed to Charity
Reserve Life Use
$300,000
Charity
Two
Lives
$372,672
1. Transfer deed to charit y
2. Live in home f or t wo lives.
3. Aft er tw o lives, property
and reserve r ight to use
Receive a charit able income
transferr ed to charit y.
pr opert y f or t wo lives.
tax deduction of $188,722.
Full charitable estate
Ow ner s pay for m aint enance,
Curr ent deduction may save up
tax deduction.
taxes and insurance.
to $62,278 in income t axes.
105
Substantiating charitable gifts





Close is not good enough
Gifts under $250, donor must have a bank record or
written communication from charity with name, date
and amount of gift
Over $250, donor must have written receipt and
include a statement that no goods or services were
received in return for the transfer
Over $500 donor must file 8283 for personal property
gifts
Over $5,000 donor must file 8283 and have appraisal
of personal property but not securities
Helpful Internet Sites

Planned Giving Design Center


American Council on Gift Annuities


www.acga-web.org
Guidestar


www.pgdc.com
www.guidestar.org
Leave a Legacy

www.leavealegacy.org
Gift Plans and Strategies Every Advisor
Can Suggest to Clients…