Charitable Giving by suchenfz

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									PRIVATE FOUNDATIONS
What is a Private Foundation?

      All charities are private foundations unless
       they prove to the IRS that they are not, and
       maintain that status
      NOT private foundations
            Church, Educ, Hosp, Med Res, Govt
            Supporting organizations
            Publicly supported, donative
            Publicly supported, service provider
            Common funds, private operating foundation
Session 5, Summer 04    Charitable Giving (c) 2004 Dr Wm A Raabe   2
Using the Private Foundation

      Retention of control over gifts, after
       receiving char contrib deduction
      Enjoy fruits of philanthropy during life
      Pass along “values” to others
      As the income beneficiary of a CLT



Session 5, Summer 04   Charitable Giving (c) 2004 Dr Wm A Raabe   3
Alternative: Donor Advised
Fund

      Allows retention of some control by the
       donor, “Advisory board” to charity
      Avoids administration, penalty taxes
       assoc with private foundation
      Allows 30% AGI limit, rather than 20%
      Variation: Fidelity Charitable Gift Fund


Session 5, Summer 04   Charitable Giving (c) 2004 Dr Wm A Raabe   4
Using Life Insurance
      “Inside buildup” of the value of whole life
       insurance is (almost) never subject to
       income tax
      Value of life insurance on a third party is
       included in gross estate
      Life insurance proceeds on decedent are
       included in gross estate, if:
            D holds incidents of ownership, or
            Proceeds payable to the estate
      Naming a charity the benef is not a tx gift

Session 5, Summer 04     Charitable Giving (c) 2004 Dr Wm A Raabe   5
Charities and Life Insurance
      Use to fund wealth replacement trust
            Eg after gift of apprec property to charitable trust
            How will premiums be paid?
            Administration and compliance costs
            Payment of premium is not deductible
      Charity uses to insure the major donor
            Is there an insurable interest?
      Tax exempt feature of whole life is wasted if
       charity is the beneficiary

Session 5, Summer 04      Charitable Giving (c) 2004 Dr Wm A Raabe   6
International Charitable Giving

      Gift by US person to non-US charity
            More important as global business, expat
             assignments increase
            Income tax: gift must be made to US corp
            Former rule: where funds were used
            Query: what is the US entity?
            Effects of earmarking the gift
            Treaties: Canada
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International Charitable Gifts
and Bequests

      Gifts/Bequests by US estates are
       deductible
            To foreign charitable corp
            To foreign govt for public purposes
      Gift/bequest by alien is deductible for
       gift tax if to US entity or used in the US
      Treaties: Denmark, France, Sweden

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Corporate Gifts Outside US
      Corporate limit on char gifts = 10% TI
      Gift must be to a US corp or used in the US
      Deductible gift if from foreign affiliate to non-
       US charity
            However this can reduce the foreign tax credit
            In-kind gifts also are business deductions
      Private foundation can make overseas gifts
       to charity
            “Taxable Expend” unless non-charity subject to
             expenditure responsibility of the US foundation

Session 5, Summer 04     Charitable Giving (c) 2004 Dr Wm A Raabe   9
COMPLIANCE ASPECTS

      Less than $250
            Written, reliable, contemporaneous
      $250 or more
            Written substantiation from donee
            Separate payment rule, same for w/hold
            Nor reporting reqd to IRS
            Bundled employer gifts discouraged
            Quid pro quo: ignore insubstantial consid
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DEFERRED GIFT PLANNING

      Why doesn’t a charity get into
       planning?
            Too complex
            Easy to put off
            Only for the largest organizations
            Too expensive to start up
      Charity’s need for stable income and
       growing endowment
Session 5, Summer 04   Charitable Giving (c) 2004 Dr Wm A Raabe   11
DEFERRED GIFT PLANNING

      Benefits rendered to the donor
            Crafting a will, trust document
            Increase income flow to donor
            Convert ordinary income to capital gain
            Avoid tax on appreciation
            Defer recognition of gross income
            Avoid (pre-tax) asset value accumulation
            Create long-life entity for donor’s wishes

Session 5, Summer 04   Charitable Giving (c) 2004 Dr Wm A Raabe   12
SCHEDULED TAX LAW
CHANGES OF INTEREST

      Phase down of estate tax 2003-10
            State responses
      Return of estate tax 2011
      Step up in basis reduced 2010
      Exemption equivalent increases to
       $3.5M
      Top E/G rate reduced to 45%
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EFFECTS OF SCHEDULED
CHANGES ON GIVING

      Massive transfer of wealth, est $750B per
       year through 2050
      Taxable estates < 2%
      Charitable bequests about 8%
      Some giving is not tax motivated
      More “after tax” $ to give
      No change in treatment of IRD items
      No repeal of exclusion of gain on gift prop
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