Planned Giving

Question 1

4 kinds of knowledge required to run planned giving program

Answer 1

1. Basic tax considerations
2. Ramifications of particular gift to donor/ heirs / beneficiaries
3. Ramifications of particular gift on your institution
4. Considerations necessary to manage / accept different kinds of gifts / property

Question 2

Calculate estimated tax savings from a gift

Answer 2

Deductible amount x tax bracket

Question 3

Marginal Rate

Answer 3

Refers to highest tax bracket

• Donors don’t pay whole tax at marginal rate due to graduated structure
• *Used commonly with donor for illustration purposes

Question 4

Holding Period

Answer 4

The length of time an asset was held

Short = 12 months or less
Long = 12 months and 1 day or more

Question 5

Short-term capital gain property (3 considerations)

Answer 5

1. Value of donor’s deduction limited to COST basis
2. Advisable to delay contribution of APPRECIATED property until long-term holding period met
3. Exception to above might be if market value is less then cost basis

Question 6

Long-term capital gain property

Answer 6

Claim deduction based on fair market value

Question 7

Capital gains (3)

Answer 7

1. Devastating tax on seller of highly appreciated property
2. When donated, long term property results in tax deduction for FULL MARKET VALUE and AVOIDS capital gains tax
3. When add income tax deduction to capital gains taxes avoided = SIGNIFICANT saving from gift

Question 8

Charitable Gift Annuity(3)

Answer 8

1. Contract between donor and issuing charity where donor transfers asset in exchange for fixed payment for life
2. Can choose immediate or deferred annuity
3. Can name himself / one other annuitant solely, consecutively or concurrently

Question 9

5 Benefits of CGA to donor

Answer 9

1. Opportunity to support your organization with an irrevocable gift
2. Receive lifetime income (or provide income for another person)
3. Avoid capital gains taxes on appreciated long-term property
4. Federal income tax charitable deduction for PART of gift
5. Remove property from estate (tax free)

Question 10

ACGA - Who are they and what do they do (4)

Answer 10

1. American Council of Gift Annuities
2. Sets suggested max annuity rates to which most organizations subscribe
3. Rates set to reflect current interest and mortality rates
4. Rates increase with age

Question 11

IRD Definition and common examples

Answer 11

Income in Respect of a Descendent:
Any assets, income or other payment that would have been considered ordinary income for the donor if received while living.

Common Examples:

• Traditional IRAs
• 401ks / retirement plans
• accrued interest on savings bonds
• deferred compensation
• deferred capital gains
• profit sharing plans

Question 12

2 types of Charitable Remainder Trusts (CRT)

Answer 12

1. Charitable Remainder Annuity Trust (CRAT)
2. Charitable Remainder Unitrust (CRUT) (5 kinds)

All IRREVOCABLE

Question 13

5 types of CRUTS

Answer 13

1. Regular Charitable Remainder Unitrust
   (CRUT, SCRUT, Type 1 Unitrust)
2. Net Income Unitrust
   (NICRUT, NIOCRUT, Type II Unitrust)
3. Net Income Unitrust with Makeup Provision
   (NIMCRUT, Type III)
4. Flip Unitrust
5. Flip Unitrust with Makeup Provision

IRREVOCABLE

Question 14

What is a Charitable Remainder Trust (CRT)

Answer 14

A tax-exempt IRREVOCABLE trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity

Charitable remainder trusts enable you to skip the tax man, give to charity and receive an income, too.

Question 15

CRAT

FIXED!

Answer 15

Charitable Remainder Annuity Trust

Donor places an IRREVOCABLE gift of cash or property into a trust. The trust then pays a FIXED amount of income each year to the donor or the donor’s specified beneficiary. When the donor dies, the remainder of the trust is transferred to the charity

The amount of the annual payment is set by donor must be at least 5% of the trust assets’ initial fair market value.

The income stream is STABLE over the life of the trust and is generally taxable to the beneficiaries.

Question 16

Key benefits of a CRT? (4)

Answer 16

1. Receive federal and possible state charitable income tax deduction for value of asset
2. Pay no capital gains tax on transfer / sale of highly appreciated assets
3. Provide increased fixed income to self / spouse
4. Reduce or eliminate estate tax

Question 17

CRUT (SCRUT, Type 1 Unitrust)

VARIABLE!

Answer 17

Charitable Remainder Unitrust:

Donor places an IRREVOCABLE gift of cash or property into a trust. The trust then pays a VARIABLE amount of income each year to the donor or the donor’s specified beneficiary depending on the value of the assets

The amount of the annual payment is set by donor must be at least 5% of the trust assets’ initial fair market value

When the value of the investments goes higher, more income is received. The income will be less if the value of the assets declines

When the donor dies, the remainder of the trust is transferred to the charity

Question 18

NICRUT (Type II)

Answer 18

Net Income Unitrust:

Same as CRUT BUT donor receives lesser of the stated percentage payout or the net income earned by the asset.

Used in past for illiquid assets such as real estate, but unpopular today due to the creation of Flip Unitrusts

Question 19

NIMCRUT (Type III)

Answer 19

Net Income Unitrust with Makeup Provision:

Like NICRUT, If trust earns less the established payout percentage, it pays net income to beneficiary.

However in later years, if the trust earns more then stated percentage, it will pay as much income as necessary to makeup the amount that should have been paid in prior years.

Question 20

Flip Unitrust

Answer 20

Blend of Net Income unitrust and regular unitrust

Operates on net income basis in beginning

On 1 Jan following a “flip-triggering” event the trust flips to a regular / Type I unitrust.

Perfect for illiquid assets

Question 21

Flip-triggering event

what is it and what are some examples

Answer 21

Many different kinds of events that can trigger the flip from a net income trust to a regular unitrust.

Examples:

• Specific date or single event
• Marriage, divorce, death, birth
• Sale of an unmarketable asset
• Person attaining a specific age

Question 22

Flip Unitrust with Makeup Provision

Answer 22

Make up provision works the same as a NIMCRUT.

However any makeup amount eligible to be paid to beneficiary is lost and remains with the principal if it is not paid out before the end of the year before the flip.

Question 23

Charitable Bequest

Answer 23

A written statement in a will / trust (trust distribution) which directs that a gift be made to charity upon the death of the person who made the will (the testator).

Question 24

4 types of bequests (SPeRC)

Answer 24

1. Specific
2. Percentage
3. Residual
4. Contingent

Question 25

Specific Bequest: Definition Pros / cons

Answer 25

Bequeaths a certain dollar amount ($10,000) or certain other property (such as a home, art collection, etc.). Pros: During distribution of estate, these are satisfied firs. If there is not enough to satisfy all, these get priority. Cons: If testator disposes of asset prior to death, beneficiary gets nothing. Tend to be smaller then other types.

Question 26

Percentage Bequest: Definition Pros / cons

Answer 26

Devises a set percentage, i.e., 5% of the value of the estate Pros: Most likely assured something regardless of size of estate. Cons: No way of telling exactly how much you will get.

Question 27

Residual Bequest: Definition Pros / cons

Answer 27

Bequeaths assets that remain in the estate after all other bequests as well as any tax or administrative costs have been satisfied. Pros: If estate increases in size, could end up with more then expected. Cons: Las portion to be distributed. If estate has been exhausted by other bequests / taxes, may end up with little or nothing.

Question 28

Contingent Bequest: Definition Pros / cons

Answer 28

Takes effect only if primary intention cannot be met or if primary beneficiary predeceases the donor. Pros: Foot in the door? Cons: Slim chance you will receive anything...

Question 29

Charitable Lead Trust

Answer 29

An IRREVOCABLE trust that generates a potential income stream for one or more charities of the donor's choice, with the remaining assets eventually going to family members or other beneficiaries.

Question 30

3 reasons for donors to use a charitable lead trust

Answer 30

1. Accelerate an income tax charitable deduction for future charitable gifts into the current tax year. (qualified grantor trust) 2. pass property to heirs at reduced transfer tax cost (qualified non grantor trust) 3. Make charitable gifts beyond federal income tax charitable contribution ceiling.

Question 31

6 options for donating real estate

Answer 31

1. outright gift 2. bargain sale 3. gift annuity (not recommended) 4. deferred payment gift annuity 5. flip unitrust 6. retained life estate / gift of remainder interest

Question 32

What are the 4 variations of a lead trust?

Answer 32

1. qualified grantor lead trust 2. qualified nongrantor lead trust 3. nonqualified grantor lead trust 4. nonqualified nongrantor lead trust

Question 33

nonqualified lead trusts

Answer 33

Does NOT entitle the donor to an income tax, gift or estate tax charitable deduction (uncommon)

Question 34

qualified lead trusts

Answer 34

entitles owner to both a gift and estate charitable deduction if the donor is treated as an owner

Question 35

3 requirements for a qualified lead trust

Answer 35

1. income payment must be in the for of either an annuity interest (fixed dollar payment annually) or unitrust interest (fixed percentage of market value annually). 2. Trust's terms must be measured by the life of one or more persons living when trust created or bya term of years 3. The charitable beneficiary must be included in the appropriate sections of the IRS code.

Question 36

grantor lead trust definition and primary purpose

Answer 36

Donor considered to be the owner per IRS grantor trust rules. Primary purpose: accelerate a deduction for future charitable gifts into the current year

Question 37

nongrantor lead trust definition and primary purpose

Answer 37

Donor NOT considered to be the owner per IRS grantor trust rules Primary purpose: reduce the gift or estate tax on property passing to heirs

Question 38

Differences between the 2 CRTs | CRAT and CRUT

Answer 38

Determining pay-out to non charitable beneficiaries. CRAT - provides FIXED income at rate determined by the donor at time gift was made. Not affected by changes in market. Cannot add funds to a crat but can establish additional trusts. CRUT - provides annual income that is percentage of trust assets. Funds may be added by subsequent gifts Both are irrevocable however beneficiaries may be changed.