Charitable Transfers Flashcards
What is the income tax deduction for a charitable remainder annuity trust (CRAT)?
Donor receives an income tax deduction for the present value of the remainder interest
Is raw land generally an appropriate investment for a CRAT or a CRUT?
No, because the corpus must pay out a specified amount each year at least 5% raw land may produce no income at all
What is the tax deduction for a charitable lead trust?
- Can claim an upfront income tax deduction for the present value of the payment stream distributed to charities
- However, future income and gains that the trust generates will be taxable to the grantor, and the grantor will not be entitled to any additional charitable deductions for the annual distributions
- If the trust is established at death, the estate can take the present value of the payment stream as an estate tax deduction
What is a charitable gift annuity and what is the difference between a charitable gift annuity and a CRAT?
- Donor transfer cash or other property to a qualified charitable organization in exchange for a commitment by the organization to pay the donor a specified amount each year during the remainder of the donor‘s life
Differences between a CRAT:
- Transferred to the charitable organization, not to a trust
- Charity receives money now
- Value of the property transferred to the charitable organization exceeds the value of the annuity, guaranteed by the charity. Donor intends to make a charitable contribution in the amount of the excess, and the amount contributed is in an allowable deduction.
* The transaction is about simultaneously and acquisition of an annuity and a charitable contribution no 5% rule applies
What is the charitable deduction for a charitable gift annuity?
Example you give $1 million to a university in exchange you receive a charitable gift annuity or $750,000. The amount of the deductible charitable gift is the difference $250,000.
Can a Pooled income fund be invested in tax exempt securities?
No
Can a term of years be used for a Pooled income fund?
No, must be paid out over life expectancy
Is a Pooled income fund subject to the 5% rule
No
Private foundations/ family foundations
- Created and controlled by wealthy individuals for family charitable purposes
- Not held to the requirements that govern public charities were supporting organizations
- Distributes a minimum of 5% of its investment assets each year
- Donor has complete control over the amount and recipients
- Can be in family over generations
- Can distribute tax deductible gifts to non-charitable beneficiaries
- Exempt from regular federal tax, they are subject to a number of exercise taxes generally pay an excise tax equal to 2% of net investment income 15% penalty is applied if the foundation does not distribute 5% annually
Charitable stock bail out
Gift stock to charity
- Charity will tender the stock for cash redemption by the corporation
- Advantage bailing out corporate earnings, and profits without incurring dividend income, helping younger family, shareholders, concentrate their ownership, and enable the charity to receive cash
- Stockholder and the charity cannot agree to the time or certainty of the redemption
- Corporation does not redeem the stock. Redemption of the stock are directly to the stockholder would result in unwanted dividend treatment of the redeemed stock.
What is a charitable bargain sale?
- Property is sold to the charity for less than fair market value
- Sale must be allocated between the portion of the property sold, and the portion gifted to charity based on the fair market value of each portion
(Sale to charity / fair market value) x basis = amount needed to adjust basis
Sale minus the amount needed to adjust basis equals taxable gain
Is there a required minimum distribution from a CLAT or CLUT?
No, there’s not
That applies to a CRAT and a CRUT
