Charitable GivingMaximizing the impact of your contributions

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Agenda

• Deciding how to give• Tax treatment of charitable gifts• Life insurance: an important asset for charities• Trusts and advanced giving strategies• Strategies for increasing involvement

8 The Center on Philanthropy at Indiana University, “ Bank of America 2012 Study of High Net Worth Philanthropy.”

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Deciding how to give

Deciding how to give

Benefits of lifetime gifts

• Typically qualify for an immediate income tax deduction• Give the donor the satisfaction of supporting the charity

while alive

Deciding how to give

Benefits of testamentary bequests

• Unlimited estate tax deduction• Donor has access to property or assets during their lifetime• Potential income tax deduction, depending on type of

donation

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Tax treatment of charitable gifts

Tax treatment of charitable gifts

Income tax deduction

• Deductions for gifts to qualifying charities• Rules do not allow deductions for

– Services– Gifts to specific individuals– Charitable loans– Quid pro quo

• Deduction limited to 50% of donor’s Adjusted Gross Income– Value in excess is deducted over subsequent years

Gift Adjusted Gross Income (AGI) deduction limit

Value of asset

Cash 50% Fair market value

Long-term securities and real estate holdings

30%50% election4 available

Fair market value

Short-term securities and real estate holdings

50% Cost basis

Ordinary income property

50% Cost basis

Personal property Related – 30%Unrelated – 50%5

Fair market valueRealized gain

Tax treatment of charitable gifts

4 Donors of these gifts may take an election permitting the donor to deduct all “30%” gifts at cost basis, and then take the reduced gifts as a charitable deduction subject to the “50%” limitation.5 When tangible property is donated to a charity, it is treated differently when it is unrelated. For example, artworks donated to an art institute are “related.” If the art was donated to a food bank, it would be “unrelated.”

Tax treatment of charitable gifts

• Gift tax charitable deduction– Unlimited gift tax charitable deduction for lifetime gifts– May not impost conditions, restrictions or contingencies

• Estate tax charitable deduction– Estate may take charitable deduction for testamentary

transfer– Limited to the total amount included in the decedent’s estate

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Life insurance: An important asset for charities

Benefits • Large gift with small

premium• No trusts or trust admin• Minimizes the risk that gift

will be contested

Considerations • Cost of life insurance• Donor may change mind• Insured may not qualify for

insurance

Life insurance: An important asset for charities

Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Policyholders could lose money in this product.

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Trusts and advanced giving strategies

Trusts and advanced giving strategies

Charitable remainder trusts (CRT)

• The donor avoids capital gains taxes • The donor receives an immediate charitable income tax

deduction• The donor potentially receives an estate tax deduction.• Trust assets qualify for an offsetting estate tax deduction.• Trustees can invest the trust asset in a tax-free

environment.

Trusts and advanced giving strategies

• Charitable lead trusts• Pooled income fund• Charitable gift annuity

Strategies for increasing involvement

• Donor advised funds• Private foundations• Supporting organizations

Comparing donor-advised funds, private foundations and supporting organizations

Features Donor-advised funds Private foundations Supporting organizations

Structure Written agreement between charity and donor

Corporation or trust Corporation or trust

Cost to establish $0-500, depending on charity

Significant legal and accounting fees

Significant legal and accounting fees

Cost to run Flat fee Annual administrative and operating expenses

Annual administrative and operating expenses

Minimum donation Approximately $10,000, depending on charity

Approximately $1-2 million Approximately $1-2 million

Donor’s deduction limits Cash: 50%Appreciated assets: 30%

Cash: 30%Appreciated assets: 20%

Cash: 50%Appreciated assets: 30%

Five-year carryover? Yes Yes Yes

When to use Donor would like some control over how the charitable donation is spent

Wealthy donors not concerned about overhead costs who wish to create a permanent endowment aligned with their own charitable goals

Wealthy donors who are willing to give up some degree of control to avoid the restrictions imposed on a private foundation

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Partnering with you to give back to your community

SubheadThis information is a general discussion of the relevant federal tax laws. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer.

Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.

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