|
Take advantage of the expertise of our president,
André R. Donikian, JD.
We invite you to submit a question, or call André directly at
(317) 875-0910, ext. 222.
Below is a sampling of some of the questions André has answered for our clients.
"After speaking with André for the first time, I was pleasantly surprised at how helpful and easily accessible he was, both by phone and e-mail. Whether my question was minor or more involved, André was great at helping me think things through, both the technical aspects and the more subtle nuances involved."
—Office of Gift Planning
Clarkson University
Thank you so very much for your helpful insights this morning during our call. You distill elements down to the key parts, which is so helpful to us. I would truly benefit from the continuation of these discussions with you ... you are a great consultant ..."
—Don Martin
Colgate University
November 2008
- Does high income, straight gift bypass limitations?
Chip,
I just received the Financial Planner in the mail. It looks great and has some powerful testimonials. However, I think there might be a problem with the first example (Joe and Donna T). With taxable income that high ($250,000), a straight gift to the University reported on Schedule A would be subject to limitations on Total Itemized Deductions when income exceeds $156,400* (2008 limits) reported on Form 1040, Line 38. Or is there a way for direct gifts like this to bypass this limitation for high-income donors?
Ralph
Ralph Blanchard
Cornell University alumnus
André,
We’ve got a question about one of the “Seven Ways” from a donor. André, do you have some insight for our friend?
John
John McKain
Assoc. Dir. Gift Planning for Mkting, PR & Training
Cornell University
John,
He does have a point, but it does not apply in this example.
Itemized deductions for 2008 are reduced by 1% of adjusted gross income in excess of $159,950. So if AGI was $250,000, then the charitable deduction would be reduced by 1% of $250,000 less $159,950, or $900.50.
But to avoid this complication, the example says taxable income that already factors in the 1% reduction by other itemized deductions. So the charitable contribution of $20,000 stands on its own unfettered by the 1% adjustment.
Hope this helps.
André
* The correct amount for 2008 is $159,950.
- Tax benefits of a CRUT funded by qualified employee stock
Hi Andre, (I can never figure out how to get that tilde on top of the “e” in your name),
I have a question (no surprise to you, I’m sure) …
You covered a topic that I’m having a hard time recalling, and I can’t seem to find it in my notes, your notebook, or in my Crescendo software helpnotes. Could I trouble you to just speak for a moment to the benefit and value of someone who received qualified employee stock (such as the Lilly corp. exec. example you cited) and used it to create a CRUT and what those tax-advantages are? Maybe there’s an article you wrote on this or something you can point me to on the web at NCPG, PGDC, or some other source.
I hope all is going well for you. Perhaps you’re sipping a fine wine somewhere in the Rockies right about now … ☺
Thanks!
David
David Troutman,
Sr. Major & Planned Gifts Officer
Wabash College
David:
I am not sipping wine in the Rockies, I am drinking McDonald's coffee in my office. Bummer. Actually we were supposed to be in Paris now, but Molly hurt her knee so we had to cancel. Just as well considering the economy.
As to your question, let me answer by way of an example:
Let's say Bob retires from Lilly with $1,100,000 in Lilly stock in his 401(k) with a cost basis of $100,000 (the non-taxed contributions to the plan). He can either:
1. Do a tax-free rollover of the entire amount to his IRA. Any subsequent withdrawals from the plan will be taxed as ordinary income to him and to his designated beneficiaries.
2.Take out the entire $1,100,000 as a lump-sum distribution from the plan. The $100,000 cost amount will be immediately taxed to him as ordinary income. The remaining $1,000,000 is “net unrealized appreciation” (NUA), a capital asset with 0 basis. When it is sold, but not before, it will be taxed as capital gain. When Bob dies, there is no step up and his heir will pay capital gain when he later sells.
3. Bob can do a combination of 1 and 2.
4. NUA can be used as any long-term appreciated property to fund a CRT, avoid the capital gain on initial transfer, and receive a charitable deduction.
Hope this helps. Please call if you have questions.
Warm regards,
André
- “Help—I need a calculation on this retained–life estate!”
André,
Here’s the deal:
Birth dates:
4/12/1931
9/30/1931
Date of gift: 21/1/2008
Value of property: $1.3MM
Cost basis: $700K
Building value: $700k-62 years (years are per appraisal)
Mortgage: $200K
AFRL: 3.8%
What I am looking for, and I don’t know how to figure the deduction for:
Example 1: use birth dates and mortgage
Example 2. use 7-year term of years and mortgage
Example 3. assume no mortgage for 7-year term
I need this by end of day on Friday (17th)—can you help me out?
Laird
Laird Yock
Director of Gift Planning
Mayo Clinic
Laird,
1. Charitable deduction would be based on: $1,300,000 - $200,000 = $1,100,000, then PGCalc RLE calculation.
2. Recognized portion of the mortgage as capital gain would be $61,538:
$200,000 x $400,000
$1,300,000
André
October 2008
- Can a charitable gift annuity be restricted to a specific branch?
André,
Our finance department is questioning our ability to allow a donor to restrict his/her CGA gift to a specific branch. “From what I know from the AICPA Accounting and Audit Guide—the ‘remainder’ of a CGA is unrestricted because it is for the organization’s use and donors do not restrict that piece. If donors wish to restrict any ‘remainder’ values, they set up other types of split-interest agreements.” Any insight?
Thank you,
Lisa
Lisa Sifre
Director, Planned Giving
YMCA New York City
Frank,
Is this a valid interpretation of the AICPA? I really do not know much about it, but I would not think so.
Thanks,
André
André
That is incorrect. Donors establish gift annuities for restricted purposes all of the time. It is common for a national organization, such as the Presbyterian Foundation, to allow donors to designate the residuum of a gift annuity for a related Presbyterian entity.
Frank
Frank Minton
Senior Advisor
PG Calc Incorporated
Lisa,
Pretty strong confirmation, wouldn’t you say? It was good to talk with you, Lisa. Take good care,
André
- Gift annuity and gift tax, non-spouse beneficiary
André,
I believe there are gift-tax consequences when someone (in N.Y. state) funds a charitable gift annuity and names another person, NOT a spouse, to be the sole income beneficiary. But—when would the gift tax have to be paid? At the time the CGA is funded? Or, is it deferred until death when a lifetime gift-tax credit might apply?
Regards from the northeast,
Don
Don Blunk
Director of Gift Planning
Skidmore College
Don:
There are two issues here:
1. If appreciated assets are used, the realized capital gain is not amortized and has to be paid up-front for the year the gift is made.
2. If there is any gift tax on the present value of the beneficiary’s annuity interest, it is payable when the gift-tax return is filed, usually the year after the year the gift is made. Of course, the donor can apply his or her $1,000,000 gift-tax exemption or any portion thereof to offset the gift tax. Unless the gift is very large this will usually take care of it.
André
September 2008
- Charitable Giving for IRA Owners
Frank,
What do you think of PLR 200741016?
André
André,
I think this offers a planning opportunity for people with an IRA who would like to help a charity, like a church, that needs money for a building, etc.
Presumably, it must be a reasonable market rate of interest that is charged. I doubt that the IRS would approve a no-interest or very low-interest loan.
Also, if the IRA owner wanted to forgive the loan, I assume this would be treated as a taxable distribution followed by a contribution.
Suppose the church defaults. Would it be treated any differently than buying a publicly traded bond where the bond issuer defaults?
Frank
Frank Minton
Senior Advisor
PG Calc Incorporated
Frank,
I agree with all of your conclusions. What do you think of the life insurance angle?
André
André,
The question is whether the church has an insurable interest in the IRA owner. I have some reservations about that, but it would have to be decided under state law. I suppose the IRA owner could take out the policy, pay one month’s premium to put it in force, and then transfer ownership to the church. There would be a risk if he dies within three years. What do you think?
Frank
Frank Minton
Senior Advisor
PG Calc Incorporated
- Tax Considerations for Retirement-Plan Beneficiaries
André,
Two questions in your area of expertise:
- When an individual beneficiary receives distributions from the retirement plan of a deceased participant, an income-tax deduction is allowed for the federal estate tax attributable to the retirement funds.
My question is how this works mechanically. Is the deduction reported ratably over the period distributions are made? Or is the deduction claimed up front so that distributions are tax-free until the deduction is fully used?
- When an employee who is terminating employment receives a lump-sum distribution (LSD) of company stock from his 401(k), the basis in that stock is taxed as ordinary income and the gain as capital gain. My understanding is that the basis would have to be added into income the year of the distribution rather than when the stock is subsequently sold. Is this correct?
Frank
Frank Minton
Senior Advisor
PG Calc Incorporated
Frank:
- The deduction is claimed with each distribution received by the beneficiary. The second method would make life easier.
- You are right, the basis is recognized as income in the year the LSD is received.
Warm regards,
André
- Trick Question
André,
If someone gifts $1 million, 35-year, 5% bond to us either today or in 10 years, what's the value for income-tax deduction purposes? Isn't it always $1 million?
Nelson Wittenmyer, Esq.
Executive Director
Cleveland Clinic Foundation
Nelson,
Is this a trick question, Nelson? If it's worth $1 million whenever you give it to charity, then your deduction is $1 million at that time.
André
André,
That's what I told the donor's advisor. They insist the charitable deduction is the face value of the bond plus the future income stream (at face value).
Nelson
Nelson,
Would that be like saying I pledge $1 million to the campaign today, and I'll give you $1 million today, but I will claim a charitable deduction today for the value of what becomes of the $1 million at the end of the campaign in 5 years? Or, I’ll wait and claim a deduction in 5 years for whatever the $1 million is worth at that time.
André
André,
We're on the same side. The advisor is trying to tell me that a bond that cost $1 million today that will pay 5% for 20 years and then be redeemed for $1 million in year 20 is worth a $2 million charitable deduction if her client gifts that bond to us today. I told her no but she didn't believe me and that caused the donor to not make the gift.
Nelson
Nelson,
Tell her she needs a new advisor because this one is going to get her into serious trouble.
Hope you are well.
André
André,
You are absolutely right! I'm surviving. I'll have to update you on the results of the bond deal and what's been happening. Just let me get through these two big donor events tonight and tomorrow.
Nelson
- Partnership to Partner CGA Taxation
Frank,
Can a partnership set up a gift annuity for one of its partners?
It seems to me that the present value of the annuity payments would be current compensation to the partner and he would continue to be taxed on the annuity distributions.
Thanks,
André
André:
You are correct. He would be taxed on the present value of the payments when the annuity is established. Since he will already have been taxed on the "investment in the contract," the taxation of payments will be the same as a cash contribution: payments that are partly a tax-free return of capital and partly taxable as ordinary income. The deduction would be shared by the partners in proportion to their respective interests.
Frank
Frank Minton
President, Planned Giving Services
A division of PG Calc Incorporated
August 2008
- One Nonprofit Donates Sculptures to Another
Hi André,
I remember from last year's conference the sticky situation where a 501(c)(3) accepted a thoroughbred horse and then turned around and sold it within 24 or 36 months, potentially causing an issue for the donor who provided the horse and took a deduction.
Our situation is different than that one, as we have some works of sculpture that were donated to DePauw more than three years ago. The pieces are not a good fit for our collection, according to our curator, and we are thinking of giving (not selling) them to the Putnam County Museum, as the artist was from Putnam County. They are also a 501(c)(3).
Are there any bear traps in doing so? I wouldn't think so, but I remembered the horse story and thought it best to check!
Jason
Jason G. Petrovich '93
Executive Director of Development
DePauw University
Jason:
Not that I can think of. I think you are good to go.
André
- Value of Life Estate at Death?
Hi André,
A question about the value of a life estate. I purchased a property from a lady for $500/month paid over 110 months. She deeded the property to me and gave me a mortgage. I have made 76 payments to her totaling $37,500. At her death, the mortgage is paid off. The house is worth about $100,000. She died at 87 yrs old. At the time of her death, what is the value of her life estate?
Ted
Ted:
At the time of her death the value of her life estate is zero.
André
- Combination Real Estate Gift Raises Questions
André,
Good evening! Our office received a call from a couple, aged 88 and 82, who own a 169-acre farm. They want to give 129 acres to fund a life-income arrangement (NIMCRUT, I assume) and give 40 acres that will be a life estate for the use of their daughter for her lifetime. Age of daughter is unknown, but may be 50-60 plus. They are in a rush to determine the charitable gifts they want to make by the time they see their attorney on Tuesday July 29. The husband has cancer, is on oxygen—therefore the hurry. The couple has never made a gift to our hospital, so this is quite interesting.
I assume this is two gifts—a NIMCRUT for the 129 acres and a life estate for the 40 acres. The latter gift will have greatly reduced tax benefits for the donors, right? What if the surviving spouse AND the daughter both live in the house on the 40 acres for a period of years?
Any thoughts you have would be appreciated! I am actually missing the pages from my class notebook [Pentera's Comprehensive Planned Giving Seminar] on retained life estate—poor filing or a loan with consequences I suspect.
Best,
Laura
Laura:
Yes, indeed these are two separate gifts. The life estate gift for the daughter will produce lower tax benefits because of her relatively young age.
If the wife continues to live on the 40 acres, she should make fair-market rental payments to the daughter.
André
July 2008
- Unsuccessful twist on a home with a retained life estate
Hi André,
Here is a question for you.
Donor owns a condo in his revocable trust. The bank, located in another state, is the successor trustee and said that it does not want the responsibility to manage the property. So he is wondering what to do. I suggested a gift with retained life estate. Brilliant, I thought.
Then he said, What if I wanted to trade houses after I gave the house to Culver? I thought for a minute and said it might be a problem since Culver would own the property.
So, André, what would you have said to him?
Dale
—Dale Spenner
Director of Planned Giving
Culver Academies
Dale,
Tell him that he cannot trade a house he no longer owns.
André
June 2008
- Five-year carryover—over mechanics
André,
Help me to recall how the accounting works for the charitable deduction … year of the gift up to 50% or 30%, depending on cash or stock given, then up to five years to carry forward any unused portion of the gift. Why not deduct the carryovers first? Can you help resolve?
Pete
—Peter Ticconi
Senior Director of Gift Planning
Georgia Institute of Technology
Peter:
It's not logic, it's the law.
AGI $100,000.
Cash gift in 2007, $300,000 cash. Max. ded. $50,000 a year. In 6 years you exhaust the total ded.
But, if in year 6, you give a new $50,000 to Tech, that will be your deduction for year 6, but you lose the carryover ded. for year 6, cannot carry it over to year 7.
André
Yes, got it. Louis is looking over my shoulder … we just researched it in Teitell and understand.
We both agree with your opening explanation … it's not logic, it's the law.
Thanks. Have a good weekend.
Cheers,
Pete
- Gold to fund a charitable gift
André,
Explain to me the transfer of Krugerands to a charitable gift annuity. What are the issues?
—Laird Yock
Director of Gift Planning
Mayo Foundation
Laird,
According to the IRS, Krugs are more akin to money than to collectible coins, they have no numismatic value, and therefore are not tangible personal property. So you treat it as appreciated property for purposes of funding a charitable gift annuity. (Rev. Rul. 69-63.)
André
May 2008
- Question on five-year carryover deduction
André,
I wasn't sure on this.
A gift of appreciated assets allows a five-year carry forward for the tax deduction to meet the 30% of AGI limit.
Does that mean the deduction can be taken during the year of the gift—plus five more years—or four more years after the year of the gift?
Question 2: If he gives another gift the next year, do the two gifts combine to meet the 30% of AGI for the current gift and the gift carried forward?
Thanks,
Dale
—Dale Spenner
Director of Planned Giving
Culver Academies
David:
Greetings from beautiful Paris!
Q 1: The deduction must be taken for the year of the gift—plus an additional five years—for a total of six years.
Q 2: Yes, they do for purposes of the second year only. Technically speaking, in year two you must first use up the gift from year one, if any is left, then start using up the gift from year two.
Let me know if this is clear.
It's a beautiful day here. We are here another 10 days and I am already depressed at the prospect of going back.
Warm regards,
André
April 2008
- Are shipping costs for a gift deductible?
Hi André,
Here's one for you. Transportation costs to ship a horse to Culver. Can it be included in the value of the gift?
Please read full question. I would appreciate your sage wisdom. It's okay to throw in a little oregano and splash of garlic too.
You can tell I'm hungry.
Talk soon
Dale,
P.S. Everyone is pleased with the progress of the Culver Web site.
—Dale Spenner
Director of Planned Giving
Culver Academies
Dale:
We have received gifts in kind (horses, boxes of music, etc.) from donors where a shipping cost to the donor is involved. At a CASE conference, we learned shipping costs are not deductible and should not be considered part of the gift value. I have since talked with Mike and he would like this confirmed. Mike thinks if a donor pays $1,000 for shipping a horse, the shipping cost should be included in the gift value. We also discussed vet check fees and if they are deductible by the donor. I think the vet fees—if paid by the donor—are not deductible by the donor because the vet check is done on a horse, which is not currently in the possession of Culver. Would you send this question on to Andre?
Respectfully,
Jacqueline L. Smith
Development Department, Gifts
Culver Educational Foundation
Dale:
No, it's not deductible.
You can go pick up the horse or arrange for its shipment and pay for it. It's your horse after all.
Donor, if he or she wishes, can make a separate cash gift to your annual fund to cover your expenses.
Please let Mike know that his position makes a lot of sense, but then tax law is not based on common sense.
Hope you enjoyed your lunch.
Do you know which herb is beloved by most great chefs?
Mike,
Our well paid, but most beloved retained counsel claims that transportation and vet expenses are not tax deductible since they are the donor's expenses if he owns the property and our expenses if we own the property. Solution: Culver pays the transportation and the donor gives us a check for an equal amount.
Dale
André
- Question about S-corp's
André,
If someone is part owner of an S-corp and wants to fund a life-income gift with company stock, is it better to sell and contribute the cash, or to contribute the stock directly to the charity?
David
—David Troutman
Sr. Major & Planned Gifts Office
Wabash College
David:
From charity's standpoint, it would be better if the donor sells the stock and contributes the proceeds either outright or for a life-income plan. There would be no need to incur an expensive appraisal for the stock and more important, a sale of the S stock by charity would mean the charity would pay UBIT on the sale proceeds of the stock.
André
- Question about charitable foundations
Hi André,
I know you like to answer odd little philanthropy questions so here's one for you.
Several donors who direct family foundations have stated that they cannot make multi-year pledges because of the constraints placed on Family Foundations.
My question is this:
Are Charitable Foundations restrained from making multi-year pledges because of some legal restriction, state law, IRS statute, or is it simply a policy within its own by-laws?
Thanks in advance for your usual thoughtful, thorough, timely, elucidating, and often entertaining response.
Your admiring client often prone to annoying alliteration,
Dale
—Dale Spenner
Director of Planned Giving
Culver Academies
Hi Dale:
There are no such legal restrictions on Foundations and I double checked with other sources just to be sure. There are perhaps imaginary and self-serving restrictions but not legal.
Hope you are doing well,
André
Thanks for your research on this.
All is well.
Dale
December 2007
- Question on a gift of land and associated tax credits
Hi André,
Hope all is well and you are ready for the holidays!
Quick question—we received a gift of land—77 acres—valued at just over $190,000. It has been in the federal and state set-aside programs and therefore is not being farmed and the donor was to receive income from the government through 2014.
My first thought on this was the donor take a life interest in the farm and bequest it to us and continue to receive the income—which amounts to about $32,000 through 2014. Then, if he chose, he could make charitable gifts to us.
However, he wanted to give it to us now but he also wants credit for the income each year through 2014—which my boss wants to do.
It would seem to me—and after doing some research—that the only thing we can do is credit him this year for the future value of the income and we do this one time—which means I would need to calculate the future value of the cash for "each" year and come up with one total that we would credit to him for now. Am I on the right track?
Missed you at NCPG this year—we are headed to CASE this weekend—are you on the schedule?
Best wishes to you and everyone at Pentera for a Happy Holiday Season!
Sincerely,
Brad
—Bradley L. Bainter
Director of Planned Giving
Western Illinois University
Hi Brad:
Your first thought, the retained life estate in the farm, is the best solution. Your second thought is OK as well under the circumstances. Considering the income stream is only for six years, I would suggest giving credit for the entire $32,000. Pretend you are in a campaign and he pledges $32,000 over six years.
Won't be going to CASE but have a great time.
André
- Guaranteeing gift annuities
André,
For the longest time, we use to say that gift annuities were guaranteed. However, in recent years, many of us have had it pointed out to us that the guarantee is only as good as the provider and we might be better off staying away from saying that the annuity is guaranteed. Can you comment for us as my colleagues and I consider preparing our literature and letters to prospects?
Pete
—Peter J. Ticconi Jr.
Senior Director of Gift Planning
Georgia Institute of Technology
Pete:
True, the guarantee is as good as the provider. Tech is about as good as it gets for a guarantee. Just consider your endowment and your real estate. Pretty good guarantee as far as I am concerned. It is also a great selling point. Now, the animal shelter down the street or some other very small organization, the guarantee becomes a serious issue and I would not use it.
André
- How do we finalize gift of income interest in a unitrust?
André,
Could you please clarify what we need to do to finalize the gift of an income interest in a unitrust?
Dyan
—Dyan Sublett
Executive Vice President
YMCA of Metropolitan Los Angeles
Dyan:
There are two parts to this gift. First, the calculation of the charitable deduction for the value of the income interest which I provided to you.
Second, since this is not a gift of cash or marketable securities, a qualified appraisal by an independent, qualified appraiser is necessary to substantiate the charitable deduction. Usually an actuary will perform this function. I merely suggested calling the planned giving office of UCLA or USC or whatever to find out who they use and recommend for you to use.
You can go ahead with the gift now and get the appraisal done later, it must be done no later than when her income-tax return is filed.
André
November 2007
- IRA Rollover questions
Dear André:
Hope you are having a wonderful time in France, and the euros aren't giving you indigestion!
I met with an alumnus yesterday who wants to make a $100,000 gift to Tech using an IRA rollover. Most of his retirement assets are in a tax-deferred profit-sharing trust, and he is the plan administrator. He has rolled over assets from the trust into an IRA whenever an employee has left the company. Is it possible for him to roll over assets from the profit-sharing trust to his IRA with Paine-Weber (doesn't have $100,000 in this P-W account) or create a new IRA to accept the transfer, and then effect the charitable rollover to the GT Foundation from the IRA?
Also, he has already taken $37,500 as the minimum distribution from the Profit Sharing Trust this year and wanted to know if he could still transfer $100,000 to the GTF. I told him yes, but the $37,500 is taxable to him, and the $100,000 is neither taxable, nor does he receive a charitable deduction … but at least he is making a major gift to Tech while reducing his position in the company's profit-sharing trust.
My initial reaction on both of these was "yes," but I wanted to run them by you. The alum is anxious to get all the pieces together soon since year-end is fast approaching.
Merci bien et bon appetit!
—Ann W. Dibble
Director of Gift Planning
Georgia Institute of Technology
Dear Ann:
So good to hear from you, and, yes, it's tres, tres cher ici—but what the heck, it's Paris.
You are right on both counts.
- The transfer to you has to come from one—or if not enough in it then from two—or however many it takes to get $100,000.
- It does not matter how much he has taken out from the IRA, he still can give you the $100,000 if he still has some left.
Please tell Louis we went to Chez Georges yesterday and it was wonderful as always.
A bientot,
André
Hi André:
There is a lingering question in my mind about this alumnus and his transferring assets from a tax-deferred profit-sharing trust to an IRA and then affecting a charitable rollover. Are there any pitfalls where employer contributions and employee contributions should be segregated, and employer contributions not rolled over? Maybe this was a question when the legislation was first enacted, but I don't want him to have a problem down the road.
Thanks!
Are you back?
Ann
Ann:
You are right to linger. The distribution is treated first as income to the extent of income in the IRA. See example 2 in the attached JCT explanation on page 263 of the report (it's page 273 on my computer).
http://www.house.gov/jct/x-38-06.pdf
I am not exactly thrilled to be back.
André
- What portion of a gift should be included in a deceased donor's estate?
Hi André,
I have a question about what portion of a gift should be included in a deceased donor's estate. Here are the facts:
The donor established three two-life deferred-payment charitable gift annuities in 1998. In each case, he was the first annuitant and a child was the survivor annuitant (3 different children, thus the 3 contracts). Each annuity was $95,000 and the annuity payments were deferred until 2010. The donor retained the right to revoke the survivor interest in his will, but did not do so.
The donor died 12/28/05. The accountant is asking what to include in the donor's final tax return. We asked TIAA-Cref and the figures they gave us exceeded the original gift amount. For instance, one contract has a life interest of $110,950. Can this really be the amount that has to be included in his estate-tax return?
Thanks so much—any advice you or Frank can give me will be greatly appreciated. I really liked the donor and I want to help the accountant as much as possible. He left everything pretty much to Union except for these dpcgas.
—Alice Marocco
Gift Planning Advisor
Union College
Alice:
Unfortunately, that seems to be the case. Note that, if this was a CRAT, the includable portion, if its value exceeded the value of the CRAT, would be limited to the value of the CRAT.
André
- Assignment of Right to Unitrust Payments to charity
André,
Do you have any language pertaining to the Assignment of Right to Unitrust Payments to Charity?
—Dyan Sublett
Executive Vice-President
YMCA of Metropolitan Los Angeles
Dyan,
Here you go...
Assignment of Right to UNITRUST Payments to Charity
I, , co-creator of and successor beneficiary of the right to receive unitrust distributions for my life from the Unitrust, established on (date), hereby absolutely and irrevocably relinquish and assign any and all of my rights to receive any distributions from said unitrust [to the remainder beneficiary, the YMCA - LA], from the date of this assignment. It is my intention that the remainder beneficiary, the YMCA - LA, have immediate access to and benefit from the assets of the unitrust in carrying out its exempt purposes.
André
This is perfect. Many thanks. And I AM jealous of Paris! I cried when I left, many years ago.
Dyan
- Is there a charitable deduction for interest-free loans?
André,
I hope all is well there in Paris.
Interest free loans … if we were to enter into such an arrangement with an individual, do I recall that there is no charitable deduction, just a warm and friendly helping hand? It used to be that a donor could give up to a certain amount, maybe $250,000 total with favorable tax consequences. The donor-lender obtains no charitable deduction for the loan, but the income earned from the loaned funds received by the institute is not taxed to the donor. Is this still the case? Is there a limit on the amount of time that the loan can be outstanding?
Self-insurance question emerges again by Barrett as to whether the GTF should be telling donors that we can self-insure as an option to the donor who wants to buy a new policy as a gift plan to Tech. Barrett has heard that the University of Minnesota is doing self insurance. Have you heard of this happening? I found this info on the web … http://blog.lib.umn.edu/mpdean/blog/001792.html
After reviewing the blog, I did not think that the self insuring applies to donors electing to be a participant. What do you think, or know about it?
All the best.
Pete
—Peter J. Ticconi Jr.
Senior Director of Gift Planning
Georgia Institute of Technology
Peter:
You're right on with regard to interest free loans to charity. Maximum loan: $250,000. Demand the note so that the donor can reacquire funds at any time. There is no charitable deduction, but income earned by loan funds are not taxable to the donor.
The best candidates for this arrangement would be those who do not itemize and those who give away the maximum allowable charitable contributions.
Another option: Lead trust.
Re: self insurance, I mentioned this at the seminar and the experience of the Univ. of Minnesota when Craig Wruck was there long ago. He is now at the Hazelden Foundation and can be reached at craig@wruch.com.
André
- DCGAs and taxes to the beneficiary
Here's my question:
If a donor sets up a deferred charitable gift annuity with a child as a beneficiary, would part of the annuity payment be tax-free to the child?
—Jason Petrovich
Associate Director of Gift Planning
DePauw University
The answer is yes. Here's the scoop …
- Donor sets up a deferred CGA for his child ($500,000 cash)
- Donor gets charitable income-tax deduction
- Donor reports taxable gift (which is present value—line #9—on the actuarial chart of the PG Calc report). If donor hasn't used his $1 million lifetime exemption there won't be any current taxable ramifications.
- Child begins receiving income based on DCGA term
- Child recognizes a portion of the annuity payment as ordinary income and tax-free income as outlined in the PG Calc summary report
OR
PG Calc said the donor could include revocation language in the DCGA agreement, which gives the donor the right to change or revoke the beneficiary. In this case …
- Donor sets up a deferred CGA for his child ($500,000 cash)
- Donor includes revocation language in DCGA agreement (with no intention of ever using it)
- Donor gets charitable income-tax deduction
- Child begins receiving income based on DCGA term
- Child recognizes a portion of the annuity payment as ordinary income and tax-free income as outlined in the PG Calc summary report
- When the beneficiary begins receiving annuity payments the donor will report a taxable gift (each year) equal to the amount of the annuity payment less the annual exclusion (currently $12,000). The taxable gift will not cause any taxable ramifications to the donor until the $1,000,000 lifetime gift exemption has been used.
I hope this helps. Please don't hesitate to call PG Calc if you want to confirm this information. Their phone number is 617-497-4970.
André
- Can you do a retained life estate in your will for someone else?
André,
Greetings from Saratoga!
Question: Is it possible for someone to do a "retained life estate" gift by will? That is, can our alumna leave a ranch to the College in her will, but with retained life use by her 60-year-old nephew?
And, what if the nephew got tired of running the ranch, say, ten years after our alumna's death? Would it be legal for us to then pay him for the then value of his remaining life estate? (Or, some other agreed upon amount?) You will argue that we already own the property so why would we want to pay anything for it. But—the donor would want to know that her nephew got some $$ out of it.
It's a complicated situation … but it involves a beautiful cattle ranch valued at $10 million!
Thanks,
Don
—Donald L. Blunk
Director of Gift Planning
Skidmore College
Hi Don:
The answer is yes to both of your questions.
Re: 2, you only own the right to receive the property after the nephew dies. He owns the life estate or the right to live on and enjoy all rights to the property until he dies. Whenever he decides to move, he can either sell the life estate to you—or someone else—or make a gift of the life estate to you, in which case he will get an income-tax deduction for its value based on the FMV of the ranch at that time and his age at that time.
Hope this helps, Don. Call me if you have questions.
André
P.S. Nice gift!
- Is this considered a donor-advised fund?
Hi, André,
The IRA distributions have been a good thing for us this year with three in just the last week contacting me to state they were sending the distribution from their IRA to WIU.
I know the answer to this question, but I have one donor that I am working with that has an advisor that is concerned that by directing $50,000 from her IRA to the WIU Foundation for a scholarship she is actually establishing a donor-advised fund with us. I have assured her this is not the case. However, she is insisting that I run this by our planned giving counsel for the answer for her advisor.
So, I am contacting you for the answer so that she will move ahead with this distribution!
Thanks for your help and best wishes to you and all those at Pentera for a Happy Thanksgiving!
Sincerely,
Brad
—Bradley L. Bainter
Director of Planned Giving
Western Illinois University
Hi Brad:
Good to hear from you.
Please let your donor know that a direct transfer of IRA assets to WIU is not considered a transfer to a DAF because WIU is not a DAF.
Hope this helps,
André
October 2007
- Question about retained life estate in a co-op
André:
The prospect lives on the fifth floor of a co-op apartment building in Washington, D.C. He has his medical practice in a space on the first floor that will become an apartment after he leaves his practice. The co-op would not let a business continue in the building.
- Can a co-op apartment be given in a life estate?
- Can he give his practice space in a life estate?
- The practice space is worth $1 million and his apartment $2 million. If number 2 isn't possible, how difficult would it be to give an undivided partial interest in a co-op for a retained life estate?
Laird
—Laird Yock
Director of Gift Planning
Mayo Foundation
- A co-op can be given in a life estate if the co-op board agrees to it.
- No, only personal residences qualify.
- Not hard—see number 1.
André
- Can a family foundation be named as the remainder beneficiary of a CRUT?
André:
The Saratoga Seminar was outstanding as usual.
Can a family be named as the remainder beneficiary of a CRUT? If so, what language is needed to accomplish it? Do specific code sections need to be specified?
I'd appreciate your answer on this one as I'm doing an estate plan in Boston where the donor wants his retirement assets to go into CRTs for three sons and then the family foundation.
HELP!
Tom
—Thomas B. Hunt, JD, CFP
Charitable Gift Planning Consultant
Tom:
Yes, you can do that, no problem. You just name the PF as the remainder beneficiary in the CRT document with its tax ID # and legal name, location, etc.
Thank you for the nice job you did with your presentation, several people said they enjoyed it...
André
- Can you reduce payout rate on a CRUT?
Dear André,
We have a parishioner who has established a charitable remainder unitrust for the eventual benefit of the Cathedral. His current payout is 8%, and he would like to reduce that payout to 6 or 7 %. Is this possible? If not, can we accomplish the same goal via another method?
Many thanks,
David
—David Rocchio
Director of Stewardship
Cathedral of St. Philip
Dear David:
No, it is not possible to reduce the unitrust payout.
However, many trust beneficiaries in similar circumstances have elected to exchange the value of their income interest in the unitrust for a gift annuity.
Regards,
André
August 2007
- Crediting a donor for a deferred gift
Hi André,
Greetings on a hot summer's day in Indiana.
Could you give me a little advice in the area of crediting a donor for a deferred gift? I know we have walked this way before.
Below is a set of e-mails concerning a gift "intention" by a 55-year-old donor. His e-mail is the only documentation we have, which is rather vague.
He said: We are committing to a $1 million deferred gift to Culver. This gift will be made by one or more of the following: naming Culver as beneficiary of a charitable remainder or charitable lead trust, naming Culver as beneficiary of one or more life insurance policies or testamentary gifts to Culver. We will inform the School of the specific approach when we have finalized our family's charitable planning.
We are wondering if we should credit it at the full million, discounted by 75% because of his age, or wait until we have a document in writing that could stand up as a legitimate pledge in case he did pass away before the family's charitable planning is finalized.
What would your advice be?
Thanks,
Dale
—Dale Spenner
Director of Planned Giving
Culver Academies
Good to hear from you old friend.
At his age of 55, the chances of his dying before they finalize their charitable plans are fairly remote so you can wait.
The lead trust is tantamount to an outright gift and that would be in your best interest. The bequest is the most problematic in terms of crediting the gift given his age. The trust could be counted at either full value or charitable deduction, my preference, again, given his age.
I think it is best to wait until their plans gel.
I hope you are well; it's going to be 102° on Thursday.
André
PS. Life insurance: premiums paid over duration of campaign.
Archive of Previous Q&A's »
|
|
8650 Commerce Park Place, Suite G, Indianapolis, Indiana 46268 • (317) 875-0910 • Fax: (317) 875-0912