Ch 7 - The Basics Of Charitable Giving Flashcards
- deduction for charitable gifts available regardless of tax-avoidance motivation
- recipient of gift must be a charity recognized by the government
- there are several distinctions in the federal tax treatment of charitable contributions
What are the Federal Tax Implications of Charitable Giving*?
- gift of donor’s property
- gift of donor’s income (such as rent)
- promises or pledges
- gift of donor’s services
- unreimbursed expenses incurred on behalf of charity
- allow charity to use donor’s property
- bequest of donor’s property
- designating charity as beneficiary of a life insurance contract
- split-interest transfers
What are the different Types of Charitable Donations?
- gift or contribution
- no deduction permitted for transfer of services
- if contribution with expectation of some benefit in return, donative intent must be examined
- deduction generally available only if the transferor contributes entire interest in the property to the charitable organization
What are the Deductible Contribution rules?
- undivided portion of a donor’s entire interest
- remainder interest in a personal residence or farm
- charitable remainder trust
- transfer to a pooled income fund
- charitable lead trust
- qualified conservation easement
What are Partial Interests in Property transfers are allowed?
- deduction is only available for transfers that are predictable or “ascertainable” at the time of the decedent’s death
- estate expenses (death taxes, admin expenses) that are apportioned or allocated to the charitable contribution reduce the size of the charitable deduction
What is the Federal Estate Tax Charitable Deduction
- Sec. 2522 provides that a completed gift to a qualifying charitable organization will trigger a charitable deduction for gift tax purposes
- deduction is unlimited
- The gift tax annual exclusion is available for gifts to all donees, including charities, and must be used
- Larger gifts and gifts of a future interest can create gift tax problems
- charitable deduction was first enacted in 1917
- income tax law limits the amount of the charitable deduction
- adjustments to value may be required if certain types of property are transferred to charity
What are the Federal Gift Taxes & Charitable Giving rules?
- used to determine the income tax ceiling on charitable contributions
- equals Adjusted Gross Income without regard to any net operating loss carry backs to the year of the contribution
What is the Contribution Base?
•Public Charity: supported with public funds; includes all Sec. 501(c)(3) organizations that are not Private Foundations
What is a Public Charity?
•Nonpublic Charity: charities supported by private funds
What is a NonPublic Charity
Look up
What are the Charitable Deduction Limitations?
- may elect to increase the LTG property contribution to a public charity to the 50% limitation
- donor must reduce the size of the contribution (for income tax purposes) from its fair market value to his or her adjusted cost basis in the property
What is the Special Election for Appreciated Property?
- current donations are deductible
- promises and deferred gifts are not deductible until actually made
- See Table in Text
When are Donations are Deductible?
- summary of appraiser’s qualifications
- appraiser’s valuation and definition of the term value
- restrictions, covenants, and other factors that entered into the appraisal
- date of the appraisal
- appraiser’s signature
What are the Substantiation Requirements related to Appraisals
•Appraisal is required for
- •property donation of $5,000 or more
- •gifts of closely held stock of $10,000 or more
- Appraisal rules were toughened by PPA of 2006
- No appraisal required for donations of
- •cash
- •publicly traded securities
What are the Section 170 Appraisal Requirements?
- contemporaneous receipt for donations of $250 or more
- written acknowledgment should include
- •amount of cash donated and description of donated property
- •whether or not the charity provided goods/services
- •description and good faith estimate of the value of the quid pro quo
What are the Charitable Dontation Substantiation Requirements?
- since value is guaranteed, charity will collect the face amount of the policy
- can make significant contribution without substantial out of pocket cost
- clients want to make charitable gifts, but do not want to deprive heirs of estate property
- policy proceeds are not part of probate estate, thereby reducing challenges
- death benefit paid to charity will not be subject to taxation
- donor receives significant tax benefits
What is the relationship between Life Insurance & Charitable Giving
- no completed transfer has occurred
- since beneficiary designations are revocable, the transfer is incomplete, and no current tax deduction will be allowed
What is the impact of Designating a Charity as Beneficiary
- federal gift and income tax charitable deductions apply
- deduction equals value of the policy
- replacement cost
- interpolated terminal reserve plus unearned premium
- subsequent premiums are deductible
- subject to the 30% limitation, unless donor sends check directly to charity and charity pays the premium
What is the impact of Giving an Existing Policy to a Qualifying Charity
- if charity is owner and beneficiary, all initial payments and subsequent premium payments by the donor should qualify for gift and income tax charitable deductions
- “insurable interest” laws may limit the use of this technique
What is the impact of Purchasing a New Policy for the Charity
•by naming a charitable organization as beneficiary of the group insurance coverage in excess of the Section 79 limit ($50,000, the donor can make a gift to charity and eliminate the federal income tax liability on the amount otherwise taxable under Section 79.
How can Group Term Life Insurance be used as a Charitable Donation
If an Life Insurance Donation is by Assigning a Policy, what is the Tax Deduction amount?
Replacement Cost/Premiums
If an Life Insurance Donation is by Assigning a Dividend, what is the Tax Deduction amount?
Value of Dividends
If an Life Insurance Donation is by Beneficiary Designation, what is the Tax Deduction amount?
No Current Deduction
If an Life Insurance Donation is by Policy Guarantees Pledge, what is the Tax Deduction amount?
Premiums
If an Life Insurance Donation is by Assigning Excess Group, what is the Tax Deduction amount?
Table I Insurance Costs
- charitable contributions can improve estate’s liquidity position
- remove illiquid assets from the estate, reducing estate taxes
- charitable contributions reduce income tax liability, causing more cash to be available
- qualification under Secs. 303, 2032A, or 6166
- charitable deductions can bring the estate into compliance
What are Non Life Insurance Planning Opportunities for Charitable Donations
