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10/28/2015
1
Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.
Vice President of DevelopmentSilicon Valley Community Foundation
Gifts that Give BackGifts that Give BackGifts that Give BackGifts that Give Back
Planned Giving: any gift given for any charitable purpose which is considered by the
donor as part of an overall financial and/or estate plan
What is Planned Giving?What is Planned Giving?What is Planned Giving?What is Planned Giving?
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What mankind fears is not so much extinction, but
extinction with insignificance. Man wants to know that
his life has somehow counted, if not for himself, then
at least in the larger scheme of things. That it has left
a trace, a trace that has meaning.
-Ernest Becker
But It Is Hard to Talk About…But It Is Hard to Talk About…But It Is Hard to Talk About…But It Is Hard to Talk About…
What Motivates Donors?What Motivates Donors?What Motivates Donors?What Motivates Donors?
Creates a Legacy
Lowers cost of gift
Possible tax advantages
Possible life income
Larger Gift to Charity
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Charitable
Gift
Annuities
Charitable
Remainder
Trusts
Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)
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How a Life Income Gift WorksHow a Life Income Gift WorksHow a Life Income Gift WorksHow a Life Income Gift Works
Remainder
to Charity
Gift
Income tax deduction
Capital gains tax advantages
Income
Donor
Life
Income
Gift
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Donor wants to make a large gift, but is afraid to outlive his assets
Donor is leaving an estate gift but also wants an immediate tax deduction and income
Donor wants an income stream from a trusted source
Donor wants a simple way to give a small amount and still get income and a tax deduction
Charitable Gift Annuity ExampleCharitable Gift Annuity ExampleCharitable Gift Annuity ExampleCharitable Gift Annuity Example
* Assume basis of $50,000
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Donor gets:
• Tax deduction of $24,664
• $4,000 a year for life with $1,322 tax-free for 28.5 years
• Charity receives remainder
Charitable Gift AnnuityCharitable Gift AnnuityCharitable Gift AnnuityCharitable Gift Annuity
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Donor sets up the CRT naming
charity as remainder beneficiary
Donor can be income
beneficiary or can name
another person
Donor must select payout of
at least 5% at setup
Donor can elect lifetime or term
of years (20 year max)
Donor transfers property to trust (cash,
securities, etc.)
Payout must begin right away
Charitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder Trusts
Charitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder Trusts
Annuity
(CRAT)
Unitrust
(CRUT)
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CRAT
Fixed amount
Cannot make
additions
Potential to
exhaust
Charitable Remainder Annuity TrustsCharitable Remainder Annuity TrustsCharitable Remainder Annuity TrustsCharitable Remainder Annuity Trusts
CRUT
Payout can
change
Can make
additions
Less likely to exhaust
Charitable Remainder Charitable Remainder Charitable Remainder Charitable Remainder UniTrustsUniTrustsUniTrustsUniTrusts
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Cash
Securities
Real Estate
Other illiquid assets
CRTs can be funded with:CRTs can be funded with:CRTs can be funded with:CRTs can be funded with:
Four Tiers of Taxation
•Ordinary Income
•Capital Gains
•Tax Exempt
•Trust Principal
Taxation of CRTsTaxation of CRTsTaxation of CRTsTaxation of CRTs
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Taxation of CRTsTaxation of CRTsTaxation of CRTsTaxation of CRTs
Income tax deduction = present value of
remainder interest
50% AGI Limitation for cash
30% AGI Limitation for long-term appreciated
assets
5 Year Carryover
CRTs usually need to start paying out right away
By combining a Net Income CRT with a CRUT, donor can get best of both worlds
CRTs with CRTs with CRTs with CRTs with IIIIlliquid lliquid lliquid lliquid AAAAssetsssetsssetsssets
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Before Sale:
Trust treated as Net
Income Trust
After Sale:
Trust flips to a CRUT
Pays out the set payout
rate
Pays out only income up to payout rate
CRTs funded with Illiquid AssetsCRTs funded with Illiquid AssetsCRTs funded with Illiquid AssetsCRTs funded with Illiquid Assets
We want to control my own assets and spend about 5% of my assets per year. I would also like to make a gift to charity from our estate.
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Using a 5% Charitable Using a 5% Charitable Using a 5% Charitable Using a 5% Charitable UnitrustUnitrustUnitrustUnitrust as an option:as an option:as an option:as an option:
ASSUMPTIONS:
Measuring lives age 72, 76.
Original principal is $1,000,000. Cost basis is $500,000
Growth Assumption: Income 2%, Capital Appreciation 2.5%
Gross Principal $1,000,000
Average Annual Payment $ 48,049
Charitable Deduction $ 472,450
Income Tax Savings $ 187,090
Cost of Gift $ 812,910
Total Before-Tax Benefit $ 816,835
Benefit Benefit Benefit Benefit to Charityto Charityto Charityto Charity $ 918,316 $ 918,316 $ 918,316 $ 918,316
Total Total Total Total BenefitBenefitBenefitBenefit $1,501,210 $1,501,210 $1,501,210 $1,501,210
We need $50,000 to live on every year and would like to make a gift to our favorite charities.
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Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:
Measuring lives age 72, 76.
Original principal is $1,000,000. Cost basis is $500,000.
Growth Assumptions: Income 2%, Capital Appreciation 2.5%
Gross Principal $1,000,000
Annual Payment $ 50,000
Charitable Deduction $ 351,690
Income Tax Savings $ 139,269
Cost of Gift $ 860,731
Total Before-Tax Benefit $ 850,000
Benefit Benefit Benefit Benefit to to to to CharityCharityCharityCharity $ 876,291 $ 876,291 $ 876,291 $ 876,291
Total Total Total Total BenefitBenefitBenefitBenefit $$$$1,487,084 1,487,084 1,487,084 1,487,084
I have property I am
not using and want
to convert it to an
income stream.
After death I want to
benefit charity.
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Assumptions:
Donor is in highest tax bracket
Property has been fully depreciated
Gross Principal $1,500,000
Average Annual Payout 73,521
Charitable Deduction 466,785
Income Tax Savings 184,847
Total Benefit to Charity 1,457,854
Total After-tax Benefit to Beneficiaries 1,521,679
FLIP UniTrust with a 5% Payout to Beneficiary
• valuation of trust assets
• selling contributed assets
• establishing annual annuity or unitrust amounts
• receiving and disbursing revenues
• accounting under the four-tier system
• filing fiduciary tax and information returns
• maintaining the trust's tax-exempt status
• following private foundation rules
• holding and managing trust assets, and
• communicating and reporting to recipients
There are several general
rights and duties for which a
trustee is responsible:
Should the charity act as Trustee?Should the charity act as Trustee?Should the charity act as Trustee?Should the charity act as Trustee?
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If charity wants to be trustee before
illiquid asset is sold
Charity has more control over the
sale price
Charity has burden of taking title and selling
the property
If charity does not act as trustee before illiquid asset is sold
Charity runs risk that donor will
sell for less than original value
Charity would not have to take title
and liquidate
Should the Charity act as Trustee?Should the Charity act as Trustee?Should the Charity act as Trustee?Should the Charity act as Trustee?
CGA v. CRTCGA v. CRTCGA v. CRTCGA v. CRT
Remainder Trusts Gift Annuities
Donor retains control over how assets
are invested
Charity invests the assets
Donor can set the payout rate as long
as 5% or more
Charity sets the payout rate
Donor can select multiple income
beneficiaries
Donor is limited to two annuitants
Trust assets could be exhausted Charity must pay for life even if
underlying assets are exhausted
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Thank You
Rebecca E. Dupras, Esq.
Vice President of Development
[email protected] | 650.450.5519