Post on 23-Dec-2015
Charitable GivingMaximizing the impact of your contributions
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Agenda
• Deciding how to give• Tax treatment of charitable gifts• Life insurance: an important asset for charities• Trusts and advanced giving strategies• Strategies for increasing involvement
8 The Center on Philanthropy at Indiana University, “ Bank of America 2012 Study of High Net Worth Philanthropy.”
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Deciding how to give
Deciding how to give
Benefits of lifetime gifts
• Typically qualify for an immediate income tax deduction• Give the donor the satisfaction of supporting the charity
while alive
Deciding how to give
Benefits of testamentary bequests
• Unlimited estate tax deduction• Donor has access to property or assets during their lifetime• Potential income tax deduction, depending on type of
donation
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Tax treatment of charitable gifts
Tax treatment of charitable gifts
Income tax deduction
• Deductions for gifts to qualifying charities• Rules do not allow deductions for
– Services– Gifts to specific individuals– Charitable loans– Quid pro quo
• Deduction limited to 50% of donor’s Adjusted Gross Income– Value in excess is deducted over subsequent years
Gift Adjusted Gross Income (AGI) deduction limit
Value of asset
Cash 50% Fair market value
Long-term securities and real estate holdings
30%50% election4 available
Fair market value
Short-term securities and real estate holdings
50% Cost basis
Ordinary income property
50% Cost basis
Personal property Related – 30%Unrelated – 50%5
Fair market valueRealized gain
Tax treatment of charitable gifts
4 Donors of these gifts may take an election permitting the donor to deduct all “30%” gifts at cost basis, and then take the reduced gifts as a charitable deduction subject to the “50%” limitation.5 When tangible property is donated to a charity, it is treated differently when it is unrelated. For example, artworks donated to an art institute are “related.” If the art was donated to a food bank, it would be “unrelated.”
Tax treatment of charitable gifts
• Gift tax charitable deduction– Unlimited gift tax charitable deduction for lifetime gifts– May not impost conditions, restrictions or contingencies
• Estate tax charitable deduction– Estate may take charitable deduction for testamentary
transfer– Limited to the total amount included in the decedent’s estate
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Life insurance: An important asset for charities
Benefits • Large gift with small
premium• No trusts or trust admin• Minimizes the risk that gift
will be contested
Considerations • Cost of life insurance• Donor may change mind• Insured may not qualify for
insurance
Life insurance: An important asset for charities
Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Policyholders could lose money in this product.
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Trusts and advanced giving strategies
Trusts and advanced giving strategies
Charitable remainder trusts (CRT)
• The donor avoids capital gains taxes • The donor receives an immediate charitable income tax
deduction• The donor potentially receives an estate tax deduction.• Trust assets qualify for an offsetting estate tax deduction.• Trustees can invest the trust asset in a tax-free
environment.
Trusts and advanced giving strategies
• Charitable lead trusts• Pooled income fund• Charitable gift annuity
Strategies for increasing involvement
• Donor advised funds• Private foundations• Supporting organizations
Comparing donor-advised funds, private foundations and supporting organizations
Features Donor-advised funds Private foundations Supporting organizations
Structure Written agreement between charity and donor
Corporation or trust Corporation or trust
Cost to establish $0-500, depending on charity
Significant legal and accounting fees
Significant legal and accounting fees
Cost to run Flat fee Annual administrative and operating expenses
Annual administrative and operating expenses
Minimum donation Approximately $10,000, depending on charity
Approximately $1-2 million Approximately $1-2 million
Donor’s deduction limits Cash: 50%Appreciated assets: 30%
Cash: 30%Appreciated assets: 20%
Cash: 50%Appreciated assets: 30%
Five-year carryover? Yes Yes Yes
When to use Donor would like some control over how the charitable donation is spent
Wealthy donors not concerned about overhead costs who wish to create a permanent endowment aligned with their own charitable goals
Wealthy donors who are willing to give up some degree of control to avoid the restrictions imposed on a private foundation
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Partnering with you to give back to your community
SubheadThis information is a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer.
Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.
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