While most people gift assets to a charity for solely altruistic reasons
and usually at death, it is possible to combine such motives with a tax and
income enticement while one is still alive. One can gift assets away while
alive, enjoy a tax deduction and an income stream for their lives and for
the lives of their beneficiaries as well. Additionally, it is possible to
be recognized by the charity while you are alive rather than posthumously.
So my attempt here is to provide readers with an overview of such possibilities.
Of course, when you want more detailed review, you should contact an attorney.
But I'll go further by indicating that you don't use just any attorney because
they can cost you an arm and a leg to draw up the documents. If you are gifting
to a major charity, talk to them FIRST since they invariably will draw up
all the documents for you at no charge. As a caveat however, remember that
they are there to "induce" a gift. DO NOT expect comprehensive estate or
retirement planning. For example, I don't know of any material currently
presented by charities that include a definitive explanation of a trust
protector. And without that inclusion in your trust as part of estate
planning, your beneficiaries could end up in a legal quagmire with incompatible
and incompetent trustees that can exhaust their patience and, ultimately,
exhaust their money. My point being is that they are charities, not financial,
retirement or estate planners, so don't expect everything you need.
Also recognize who will do the actual investing for a charitable remainder
trust? Since the yield is a percentage of the annual value, you would want
such value to increase and to use the increase as a hedge against inflation.
If that is really important, then select an advisor that has the capability
of performing that function. That's probably not you or a friend.
You must understand as much about the estate and retirement planning aspects
of your gift as possible. Within this context, you or your adviser MUST
completely recognize the basis of the gift(s),
how long you are going to live,
have you already drafted a will or
living trust, have you done a formal budget, etc. (I absolutely "demand"
that all clients do a formal budget.
Frankly, I think it is at least as, if not more important than, a net worth
statement. You may have lots of money, but unless you know how much you are
spending, the money may NOT last your actuarial lifetime.) The list goes
on from there. And while I feel reasonably confident that all communications
with a charity are above board (particularly the large ones), I still nonetheless
unequivocally state that whoever is advising you MUST have the capability
with the HP12C or comparable financial calculator.
If they do not, they almost clearly do not understand money and the use of
it over time and therefore much of the entire negotiations may not ultimately
produce the desired results. Yes, I do use a computer to create numbers and
the numbers and spread sheets presented by the charity will unquestionably
come from a software program. But unless someone knows how the figures were
mashed- or the alternatives thereto- you could end up doing the wrong thing
at the wrong time for the wrong reason. You must remember that once the money
is given to a charity, IT'S GONE!!!
1998 Tax Law Change for Charitable Remainder Trusts: New tax laws
disqualifies any charitable deduction for any "charitable remainder trust"
for which the computed charitable remainder interest is less than 10%. This
effectively precludes the use of remainder trusts (and the resulting charitable
gifts) by persons younger than 35, and precludes the use of such trusts with
reasonable annuity rates for persons under age 50.
Click to Buy it now!
Sample
Pages
The list below includes all articles and specific links in alphabetical
order with accompanying description. The listings in the column to the right
are separate sections for articles and links
AMERICAN COUNCIL ON GIFT ANNUITIES
LINK: Offers info including its suggested rates
of return and applicable state regulations
APPLICABLE FEDERAL
RATES LINK: You must use an interest rate in the calculation of annuities,
reversionary interests, life estates, etc.- but you can't use just anything.
You are subject to the movement of rates in the economy and as stated by
an AFR- Applicable Federal Rate for the month of use (slight variations-
see Interest Rates below for further commentary.)
APPRECIATED REAL ESTATE AND
SECURITIES: If you have owned real estate, stocks or mutual funds for
a long time, they may have increased considerably in value. You, obviously,
can sell them, but you are apt to incur large capital gains taxes. However,
if they were gifted to a charity, no tax is normally paid at all and you
can get an annuity in return. Also some comments about gifting, basis and
IRA versus other assets.
CASE STUDY LINK: Case
Studies and Articles Charitable Trust & Estate Planning. Very good info
by attorneys
CHARITABLE
BARGAIN SALE LINK: Good identification of where it might be used, IRA
rules, more. You will need to become a member of GiftPlan.Org
CHARITY LINK 1: This goes
directly to a major site with searchable information on over 72,000 voluntary
organizations worldwide
CHARITY LINK 2: This
link can provide reports on the programs and finances on over 40,000 nonprofit
organizations.
CHARITABLE ARTICLES
AND LINKS An excellent source of extended commentary about charitable
annuities and gifting.
CHARITABLE
LEAD TRUST LINK: Daniel L. Daniels, JD and David T. Leibell, JD review
the basics of charitable lead trusts
CHARITABLE
LIFE INSURANCE LINK - The Wall Street Journal and Forbes published
articles recently on the use of insurance by charitable organizations - both
the good and the bad.
You must register at www.pgdc.net first but it is worth the
effort.
CHARITABLE REMAINDER
TRUST FORMS LINK: (You will need to register at their
front page. Sample forms that will help
you understand the intricacies
CHARITABLE
STRATEGIES LINK: This site lets you enter values for various charitable
"products" such as a CRUT, CRAT, Charitable lead trust for lives or term
and it immediately calculates the possibilities with one or two
beneficiaries.
GIFTS AT DEATH: This is the standard
charitable gift. For small estates, (under $675,000 net) the gift will not
help federal estate tax. But larger estates will find a tax break. Just remember,
any gift disinherits a beneficiary. Be sure you are aware of this and any
negative implications that might be imparted to other survivors (your spouse
for example)
INTEREST RATES:You can
select the Applicable Federal Rate that is the best for your gift/annuity
situation. And if rates are changing, here is some info on what effect they
might have. Both can help you in the timing of decisions for gifting.
LIFE EXPECTANCY: If you
are 45, how long do you have to live? How about at age 65 or 75 or even 85.
You must know these numbers in order to do estate, insurance or retirement
planning AND for any charitable planning strategies. The longer your (or
the combined) actuarial lifetime(s), the more money you get from the annuity
and the less the tax deduction.
LIFE INSURANCE: A charity may be
designated as the beneficiary of a policy and therefore the value will not
be included in the estate and taxed. (Yes, almost all life insurance is INCLUDED
in an estate and therefore, with estates over $675,000, beneficiaries NEVER
can get the full amount of insurance.) You may gift an existing policy to
charity (or obviously buy a new one) but you DO NOT
get a deduction for face value.
LIFE
INSURANCE AND CHARITABLE STRATEGIES LINK: Excellent insight by John L.
Olsen
NATIONAL CENTER FOR CHARITABLE STATISTICS
LINK: (NCCS) This is the national repository of data on the nonprofit
sector in the United States. Access IRS data on nonprofits: Statistics of
Income, Business Master files, and Form 990 Return Transaction Files. Statistics
on Tax-Exempt Organizations registered with the IRS, number of non-profit
entities in the U.S., and reporting charitable organizations and finances
by state and type. Profiles of the nonprofit sector in each state.
All charities, which fall under Section 501(c)(3) of the tax code,
as well as most other nonprofit organizations, like trade associations, have
been required to file 990's with the Internal Revenue Service. The returns
include detailed information, such as how much of the money taken in goes
directly to charitable services and how much to pay individual top officers,
directors and consultants. these returns show how much revenue came from
donations, fees and government; they also list the organization's debts and
investments, and detail overhead and fund-raising costs.
PLANNED
GIVING GLOSSARY LINK:
POOLED INCOME FUNDS: George
Chamberlain
PRIVATE FOUNDATION LINK: The site
explores the reason for giving, restrictions, tax incentives, case studies,
glossary and more for setting up your own foundation.
QUALIFED
INTEREST DEFINTION WITH GRAT or GRAT LINK: The IRS has issued final
regulations relating to the definition of a qualified interest under section
2702 of the Internal Revenue Code. The final regulations apply to a grantor
retained annuity trust (GRAT) and a grantor retained unitrust (GRUT) in
determining whether a retained interest is a qualified interest. These final
regulations affect individuals who make a transfer in trust to a family member
and retain an interest in the trust. These final regulations clarify that
a trust that uses a note, other debt instrument, option, or similar financial
arrangement to satisfy the annual payment obligation does not meet the
requirements of section 2702(b).
RETIREMENT NUMBERS:
Literally every magazine puts out numbers to show how long $100,000 (or whatever)
would last during retirement if it was growing at "x" interest rates.
Unfortunately, they do not reflect the real world and can lead retirees to
financial disaster. Look at this analysis and you might understand why you
MUST know how to use an HP12C. The first
table came from a major charity and shows again why you may need professional
assistance in figuring out what to do with money. That is NOT necessarily
the charity.
SAMPLE CHARITABLE GIVING
FORMS: By the Montana Community Foundation.
24 forms including Charitable Remainder Unitrust, Testamentary Charitable
Remainder Unitrust: One Life, Instrument of Transfer (under Sec. 10.03),
etc. These are not proofread and, obviously, require a review by your own
attorney. But they should provide an understanding of the basic documents
you will use and allow you to discuss the issues more competently with your
attorney.
SPLIT DOLLAR CHARITABLE INSURANCE LINK: An outright gift
is a gift- you do not get a return (I am not referring to charitable annuities
which are not outright gifts). But with these Split Dollar deals, you can
make up a trust that keeps all the cash value in an insurance policy (the
charity gets the life proceeds if still in force when you die)- while you
get to take a take a tax deduction for the policy premiums that are given
to the charity to pay for the policy upkeep. Sound too good to be true? Yep,
and here is an independent analysis that you should review.
Stephan R. Leimberg,
Esq.
SUPPORTING
ORGANIZATION LINK: George Chamberlain
TRUST
GLOSSARY LINK: Good concise definitions of trust related issues
TYPES OF ANNUITIES: General comments
on Remainder Trusts, life estates, etc.
TYPES OF CHARITIES: There are charities
and then there are CHARITIES. Depending on which
you choose to gift to, the amount of tax deductions vary. Also provides
commentary on some bad charities
WEALTH REPLACEMENT TRUST: If you give away
assets to a charity while alive, you have essentially disinherited your
beneficiaries. This can create immeasurable strife within the family. However,
with the greater income and the tax deduction from a remainder trust, you
can buy a life insurance policy to replace the assets. Does it work? Here
are some numbers to review.
This is just an overview to get you on your way- though the added
cynical caveats will hopefully make you aware that this is "no walk in the
park". The charity will help all it can but it still has its own agenda.
I definitely suggest that you engage someone to look out solely for your
interests. As stated ad infinitum, Trust is NOT the answer- competency
is.
|
