Ch 7 - The Basics Of Charitable Giving

Question 0

• 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

Answer 0

What are the Federal Tax Implications of Charitable Giving*?

Question 1

• 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

Answer 1

What are the different Types of Charitable Donations?

Question 2

• 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

Answer 2

What are the Deductible Contribution rules?

Question 3

• 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

Answer 3

What are Partial Interests in Property transfers are allowed?

Question 4

• 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

Answer 4

What is the Federal Estate Tax Charitable Deduction

Question 5

• 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

Answer 5

What are the Federal Gift Taxes & Charitable Giving rules?

Question 6

• 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

Answer 6

What is the Contribution Base?

Question 7

•Public Charity: supported with public funds; includes all Sec. 501(c)(3) organizations that are not Private Foundations

Answer 7

What is a Public Charity?

Question 8

•Nonpublic Charity: charities supported by private funds

Answer 8

What is a NonPublic Charity

Question 9

Look up

Answer 9

What are the Charitable Deduction Limitations?

Question 10

• 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

Answer 10

What is the Special Election for Appreciated Property?

Question 11

• current donations are deductible
• promises and deferred gifts are not deductible until actually made
• See Table in Text

Answer 11

When are Donations are Deductible?

Question 12

• 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

Answer 12

What are the Substantiation Requirements related to Appraisals

Question 13

•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

Answer 13

What are the Section 170 Appraisal Requirements?

Question 14

• 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

Answer 14

What are the Charitable Dontation Substantiation Requirements?

Question 15

• 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

Answer 15

What is the relationship between Life Insurance & Charitable Giving

Question 16

• no completed transfer has occurred
• since beneficiary designations are revocable, the transfer is incomplete, and no current tax deduction will be allowed

Answer 16

What is the impact of Designating a Charity as Beneficiary

Question 17

• 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

Answer 17

What is the impact of Giving an Existing Policy to a Qualifying Charity

Question 18

• 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

Answer 18

What is the impact of Purchasing a New Policy for the Charity

Question 19

•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.

Answer 19

How can Group Term Life Insurance be used as a Charitable Donation

Question 20

If an Life Insurance Donation is by Assigning a Policy, what is the Tax Deduction amount?

Answer 20

Replacement Cost/Premiums

Question 21

If an Life Insurance Donation is by Assigning a Dividend, what is the Tax Deduction amount?

Answer 21

Value of Dividends

Question 22

If an Life Insurance Donation is by Beneficiary Designation, what is the Tax Deduction amount?

Answer 22

No Current Deduction

Question 23

If an Life Insurance Donation is by Policy Guarantees Pledge, what is the Tax Deduction amount?

Answer 23

Premiums

Question 24

If an Life Insurance Donation is by Assigning Excess Group, what is the Tax Deduction amount?

Answer 24

Table I Insurance Costs

Question 25

• 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

Answer 25

What are Non Life Insurance Planning Opportunities for Charitable Donations