More About Gift Planning

• Income Tax Deduction
The donor may deduct the amount of cash transferred in the year of the gift, up to 50% of his or her adjusted gross income (AGI), for gifts to public (50%) charities; the limitation is 30% of AGI for gifts to private foundations (30% charities). A five-year carryover is allowed for deductions that exceed these ceilings.

• Capital Gains Considerations
None

• Date Gift Is Effective
The gift is effective on the date of the unconditional delivery of cash, check, or electronic transfer of funds to a charity or its agent. Gifts by check are considered made when they are mailed (postmark date governs); credit card gifts are completed on the date the charge is made. Pledges and promissory notes are deductible when paid.

• Method of Transfer
Checks or other cash equivalent, including credit card charges, electronic transfers, and physical delivery of cash.

• Valuation of Gift Assets
Amount of cash

• Substantiation Requirements
For gifts under $250, a canceled check or other bank record is required. For gifts of $250 or more, a written receipt from the charity describing the gift and stating whether goods and services were received by the donor (quid pro quo statement), issued prior to the filing of the donor's tax return, is needed.

• Special Considerations
Cash gifts are deducted first when donor gives both cash and noncash assets during the year; carried over deductions from cash gifts are considered before carryovers of property gifts. Gifts also may save gift and estate taxes.

• Common & Preferred Stock  • Corporate Bonds  
• Government Securities  • Mutual Funds

• Income Tax Deduction
The current value of appreciated securities held long-term (more than one year) is deductible, if transferred to a 50% charity, up to 30% of AGI with a five-year carryover for excess deductions. The ceiling is 20% of AGI for 30% charities, with a five-year carryover. Securities with short-term gain are deductible at cost basis up to 50% of AGI (30% for private foundations).

• Capital Gains Considerations
No gain is reportable when donors give appreciated securities, which is advantageous even for taxpayers who do not "itemize" deductions.

• Date Gift Is Effective
The gift is effective on the date of delivery of certificates in negotiable form to a charity or its agent (postmark date if certificates are mailed). If securities are held in "street name," the gift is effective on the date the transfer is noted on the charity's account. If a new certificate is issued in the name of the charity, the date is when the security is transferred on the books of the transfer agent.

• Method of Transfer
Donors who hold the certificates must endorse the securities or sign a stock power and deliver to a charity or its agent. Where securities are held in street name, the transfer can be made to a charity's account or be delivered to a charity's agent in negotiable form.

• Valuation of Gift Assets
The value is the mean between the high and low or the bid and ask price on the date of the gift, based on published figures or quotes from securities dealers. Gifts of mutual funds are measured by "net asset value" or the bid on the date of delivery of certificates in negotiable form or the date of transfer on the books of the transfer agent.

• Substantiation Requirements
Securities worth $250 to $500 require a receipt from the charity, with quid pro quo statement. A gift of securities worth more than $500 requires a receipt from the charity and completion of Section A of Form 8283.

• Special Considerations
Donors of appreciated securities can qualify for the 50%-of-AGI ceiling by electing to reduce their contribution deductions by 100% of the gain present in the property. This strategy may be attractive where long-term capital gain is insubstantial.

IRA owners age 70½ and older can make charitable gifts directly from their IRAs up to $100,000 and exclude such gifts from their incomes. This gift strategy first became available for the tax year 2006, but has since been renewed by Congress on an annual basis and remains in effect through the end of 2011.

• Income Tax Deduction
Income tax charitable deductions are not available for IRA “qualified charitable distributions” but donors may save taxes anyway because QCDs can satisfy part or all of their required minimum distributions, which are generally taxed 100%.

• Capital Gains Considerations
None

• Date Gift Is Effective
The gift is effective on the date of the unconditional delivery by the custodian of IRA funds to a qualified organization or its agent.

• Method of Transfer
Only the IRA custodian can transfer gift amounts to a qualified organization. If IRA owners withdraw funds and then contribute them to charity separately, amounts withdrawn will be included in the donor’s gross income.

• Valuation of Gift Assets
The gift amount will be the sum of cash transferred to charity by the IRA custodian.

• Substantiation Requirements
Donors and custodians need receipts from donee organizations of the same kind provided for other types of charitable contributions. It’s important that donors coordinate IRA contributions with the charitable organization to ensure that appropriate receipts and acknowledgements are provided.

• Special Considerations
Donors must be 70½ or older and own a traditional or Roth IRA, or be the beneficiary of an inherited IRA, provided the beneficiary has reached the age of 70½. Other retirement plans, such as pensions, 401(k) plans and others are not eligible. IRA gifts cannot be made to charitable remainder trusts or other “life income gift” arrangements. Transfers are not permitted to donor advised funds or “supporting organizations.”  An IRA owner can use a distribution to satisfy an outstanding pledge to the charity. QCDs are not subject to withholding under IRC §3405. The IRA owner requesting the distribution is deemed to have elected out of withholding under IRC §3405(a)(2).

• Income Tax Deduction
The current value of appreciated real estate held long-term is deductible, less any indebtedness, if transferred to a 50% charity, up to 30% of AGI, with a five-year carryover for excess deductions. Transfers to 30% charities are deductible at cost basis only, up to 20% of AGI, with a five-year carryover. Realty with short-term gain is deductible at cost basis.

• Capital Gains Considerations
No gain is reportable. The deduction is not reduced for prior depreciation deductions, unless the donor took an accelerated depreciation that would have resulted in the recapture of ordinary income upon a sale. Gain must be reported from any bargain sale, including gifts of mortgaged realty.

• Date Gift Is Effective
The gift is made on the date an executed deed is delivered to a charity or its agent. If the deed is mailed, the postmark determines the date of the gift. In some states, the date of the gift may be when the deed is recorded.

• Method of Transfer
Transfer of title of contributed realty is generally made by a quit-claim deed, unless a warranty deed is deemed necessary by either of the parties.

• Valuation of Gift Assets
The value is established by an independent appraisal. Comparable selling prices for similar properties may be the best evidence of value. Indebtedness reduces value.

• Substantiation Requirements
A receipt from the charity and a quid pro quo statement are required. For deductions exceeding $5,000, donors also need qualified appraisals and completed Sections A and B of Form 8283, including a declaration by the appraiser and a donee acknowledgment.

• Special Considerations
Charities generally require Level 1 environmental assessments. The title should be checked for liens and defects. The charity may incur taxable income if mortgaged realty was owned by the donor less than five years and the mortgage is less than five years old.

• Income Tax Deduction
A donor may deduct the current value of appreciated closely held securities held long-term, if transferred to a 50% charity, up to 30% of AGI with five-year carryover for excess deductions. Transfers to 30% charities are deductible at cost basis only, up to 20% of AGI, with a five-year carryover. Securities with short-term gain are deductible at cost basis.

• Capital Gains Considerations
No gain is reportable when donors give closely held securities, which is advantageous even for taxpayers who are unable to "itemize" deductions.

• Date Gift Is Effective
The date of the gift is the date of delivery of securities in negotiable form to a charity or its agent. If certificates are transferred into a charity's name, the gift is made on the date the securities are transferred on the books of the transfer agent; normally it is the date of the certificate.

• Method of Transfer
Delivery of securities must be made in negotiable form to a charity or its agent, or by transfer of certificates into the charity's name.

• Valuation of Gift Assets
The value is established by an independent appraisal, applying IRS rules. Factors considered in valuing closely held stock include corporate assets, earnings and future earning power, dividend policy, prospects of the company, and sales of stock near the contribution date.

• Substantiation Requirements
For deductions of $5,000 or less, a receipt from the charity and Section A of Form 8283 are required. From $5,001 to $10,000 of deduction, Section A and Parts I and II of Section B of Form 8283 are also required. Above $10,000, receipts, qualified appraisals, and completed Sections A and B of Form 8283 are needed.

• Special Considerations
Gifts of closely held securities are often negotiated with anticipation of corporate redemption of charity's stock. A new certificate of stock should be obtained. Gifts may also be attractive where the sale of a corporation is anticipated.

• Income Tax Deduction
A donor may deduct the fair market value of the policy or the donor's cost basis, whichever is less, when the donor transfers all rights of ownership in the policy, subject to a 50% of AGI ceiling (30% for private foundations). Policy loans reduce deductions. No deductions are allowed where the charity is merely named the death beneficiary.

• Capital Gains Considerations
Life insurance is ordinary income property. Generally a gift does not cause recognition of gain unless the policy is subject to a loan.

• Date Gift Is Effective
Generally, the gift is complete on the date the policy is delivered to a charity, accompanied by an endorsement from the company.

• Method of Transfer
Ownership of the policy is transferred to the charity through an endorsement by the donor on forms supplied by the insurance company and accompanied by the delivery of the insurance policy.

• Valuation of Gift Assets
The value of a paid-up policy is its replacement cost; the value of a non-paid-up policy is the interpolated terminal reserve plus any unearned premium and accrued dividends, less any policy loans as of the date of the gift.

• Substantiation Requirements
For gifts under $250, a canceled check or other bank record is needed. For gifts of $250 or more, a written receipt from the charity is required. Gifts over $500 require Section A of Form 8283, and some commentators suggest qualified appraisals are necessary where the deduction claimed for a policy exceeds $5,000 (Section B of Form 8283).

• Special Considerations
Rather than contribute a policy or make charity the death beneficiary, donors may employ life insurance in a wealth replacement plan, often including an irrevocable life insurance trust, to replace in their estates assets contributed to a charitable remainder trust or other gift arrangement.

• Income Tax Deduction
A donor may deduct the fair market value of long-term capital gain property if the property is transferred to a public charity that can put the item to a use related to its purposes; 30% of AGI ceiling applies. Unrelated use will limit the deduction to cost basis, but a 50% ceiling applies. The same reduction applies if item is artwork transferred by the artist who created it. Gifts to 30% charities limited to cost basis.

• Capital Gains Considerations
No gain is reportable when donors give "collectibles" or other tangible personal property, which is advantageous even for taxpayers who cannot "itemize" deductions.

• Date Gift Is Effective
The date of the gift is the date of delivery of property to a charity or its agent, including the gift of a fractional interest. For subsequent gifts of fractional interests in the same asset, deductions will be based on the asset's value on the date of the original contribution.

• Method of Transfer
A transfer is generally made by the delivery of the property. A deed of the gift or bill of sale is advisable.

• Valuation of Gift Assets
An appraisal is generally required. Donors must send photos of the artworks to the IRS advisory panels that value contributions of art over $20,000. Donors can request a "Statement of Value" from the IRS for artwork valued at more than $50,000.

• Substantiation Requirements
For a single item worth $250 to $500, a receipt from the charity is needed. For a single item worth $501 to $5,000, Section A, Form 8283 is also required. For a single item over $5,000 (or multiple "similar items" exceeding $5,000), Section B, Form 8283, is required as well, with a qualified appraisal.

• Special Considerations
The sale of tangible personal property by a charity is by itself an unrelated use, even where the sale proceeds are used for the charity's programs. Gifts of future interests in tangible personal property are not deductible until any intervening interest ends.

• Summary of Gift Plan
The donor funds a qualifying trust under Code §664, providing a fixed annuity (minimum 5% of the original value of the principal, maximum 50%) for one or more individuals. The trust may last for the lifetimes of the beneficiaries or a term of years (maximum 20 years). When the trust ends, the principal passes to one or more qualified charities. No additional contributions are permitted to the trust.

• Income Tax Deduction
The present value of a charity's remainder interest (10% minimum required) is deductible, based on the ages of income beneficiaries (or a fixed term up to 20 years), applicable federal rate (§7520 rate) and an unvarying dollar amount to be paid each year. A 5% probability test limits the maximum payouts.

• Capital Gains Consequences
No capital gains are recognized upon a transfer of appreciated assets to the trust, or upon a sale by the trustee. Part of the beneficiary's income may be taxed at low capital gains tax rates under the four-tier tax reporting system.

• Federal Taxation
Charitable remainder trusts are tax-exempt. Payments are taxable to income beneficiaries under a four-tier, worst-in-first-out system: (1) any current and accumulated ordinary income (15% dividends considered last); (2) capital gains, beginning with short-term gain, then 28% gain (collectibles), 25% gain (recapture of depreciation), and finally 15% gain; (3) "other" (tax-exempt) income; (4) corpus (tax free). The trust pays a 100% tax on its unrelated business taxable income.

• Transfer Taxes
One-life trust for donor: corpus is included in the gross estate, but a 100% charitable deduction is available. Two-life trust for donor and spouse: gift and estate tax marital/charitable deductions eliminate tax; adding additional beneficiaries voids the marital deduction. A trust for a non-spouse creates a taxable gift for income interest. The donor can retain the right to revoke, by will, the income interest of the survivor beneficiary, avoiding a taxable gift, but the survivor's interest is taxable in the donor's estate. The value of the testamentary trust is included in the donor's gross estate, but remainder interest gives rise to an estate tax charitable deduction.

• Tax Returns
Donors must file gift tax returns (Form 709) for all lifetime trusts, even where a donor is the sole income beneficiary [Code §6019(3)]. Form 8283 is needed with the donor's tax return except for cash transfers. The trustee must file Form 5227 and Form 1041-A annually and Form 4720 is required if the trust is liable for excise taxes.

• Best Funding Assets
Appreciated property, generally, and cash work best. Transfers of mortgaged real estate will disqualify the trust. Unproductive, hard-to-sell assets may be unsuitable for annuity trusts if the trustee is unable to make the required annuity payments. S stock is prohibited.

• Special Consideration
Annuity trusts are most appealing where the income beneficiaries are in their mid-70s and older and prefer the security of a fixed income. Low §7520 rates (AFR) limit deductions and payouts for annuity trusts.

• Summary of Gift Plan
Beneficiaries receive a fixed percentage (minimum 5%, maximum 50%) of the value of the trust assets as revalued every year (the standard unitrust). Alternatively, the trust may pay the lesser of the unitrust amount or the trust's actual income (a net-income unitrust); make-up provisions are permitted. Additional contributions are possible.

• Income Tax Deduction
The present value of the charity's remainder interest (10% minimum) is deductible, based on the ages of income beneficiaries (or a fixed term up to 20 years), §7520 rate and percentage of trust value to be paid each year. Higher payout rates are possible than with an annuity trust because the 5% probability test does not apply.

• Capital Gains Consequences
Same capital gains result as with an annuity trust. Post-contribution long-term capital gain may be treated as "income" and paid out from net-income unitrusts, if the trust instrument and state law permit.

• Federal Taxation
Charitable remainder trusts are tax-exempt. Payments are taxable to income beneficiaries under a four-tier, worst-in-first-out system: (1) any current and accumulated ordinary income (15% dividends considered last); (2) capital gains, beginning with short-term gain, then 28% gain (collectibles), 25% gain (recapture of depreciation), and finally 15% gain; (3) "other" (tax-exempt) income; (4) corpus (tax free). The trust pays a 100% tax on its unrelated business taxable income.

• Transfer Taxes
One-life trust for donor: corpus included in gross estate, but 100% charitable deduction. Two-life trust for donor and spouse: gift and estate tax marital/charitable deductions eliminate tax; adding additional beneficiaries voids marital deduction. A trust for a non-spouse creates a taxable gift for income interest. The donor can retain the right to revoke, by will, income interest of the survivor beneficiary, avoiding a taxable gift, but the survivor's interest is taxable in the donor's estate. The value of the testamentary trust is included in donor's gross estate, but remainder interest gives rise to an estate tax charitable deduction.

• Tax Returns
Donors must file gift tax returns (Form 709) for all lifetime trusts, even where the donor is the sole income beneficiary [Code §6019(3)]. Form 8283 is needed with a donor's tax return except for cash transfers. The trustee must file Form 5227 and Form 1041-A annually and Form 4720 if the trust is liable for excise taxes.

• Best Funding Assets
Appreciated property and cash work best. Transfers of debt-encumbered real estate disqualify trust. Gifts of unproductive assets may be facilitated with a "flip" unitrust. Deductions for gifts of tangible personal property are reduced and postponed until the assets are sold by the trustee. S stock is prohibited.

• Special Considerations
Greater flexibility of the unitrust enables donors to arrange lifetime income with a hedge against inflation. Unitrusts can be structured to shift income to retirement years and to achieve other purposes, including college funds for grandchildren.

• Summary of Gift Plan
The donor transfers cash or securities in exchange for a charity’s promise to pay a fixed annuity to one or two individuals for life with the first payment occurring at least one year after the date of the gift. Most charities offer deferred payout rates based on recommendations of the American Council on Gift Annuities. Payout rates are higher for deferred annuities than for immediate payment gift annuities: the longer the deferral period, the higher the payout rate.

• Income Tax Deduction
The amount transferred to a charity, less the present value of the lifetime annuity retained for one or two persons, is deductible. Charitable deductions are higher for deferred payment annuities than those available for immediate payment gift annuities.

• Capital Gains Consequences
Capital gains are partially avoided when appreciated assets are used to fund a deferred payment annuity. Remaining gain can be reported ratably as payments are received over the annuitant’s life expectancy, if the donor is the annuitant.

• Federal Taxation
Annuity payments are partly tax-free return of principal, during the annuitant’s life expectancy, and the rest is ordinary income. Some capital gain is reportable where a donor funds a deferred annuity with appreciated securities, but the donor/annuitant may spread such gain ratably over his or her life expectancy.

• Transfer Taxes
No transfer tax results from a one-life deferred annuity where payments are made only to the donor. For a two-life annuity, a taxable gift occurs, but gift taxes may be postponed or avoided if the donor keeps the right to revoke the second annuitant’s annuity. The gift would be rendered incomplete for gift tax purposes except for payments actually received. No gift tax would be due, however, if the payments are sheltered by the annual gift tax exclusion, or if the recipient is married to the donor. The value of the survivor’s annuity is included in the donor’s estate, but the marital deduction is available if the survivor is the donor’s spouse.

• Tax Returns
A gift tax return is required if another person, including a spouse, is named as an annuitant, and the donor has not kept the right to revoke. The charity reports annual payments to annuitants on Form 1099-R. Gifts of securities require Form 8283.

• Best Funding Assets
Cash gifts ensure maximum tax-free payments. Gifts of securities enable donors to convert stocks to annuities while minimizing capital gains taxes. Many charities do not accept gifts of real estate, closely held stock or tangible personal property for charitable gift annuities.

• Special Considerations
Deferred gift annuity donors are generally younger than people who arrange immediate payment gift annuities. “Baby Boomers” often see deferred gift annuities as a way to supplement retirement savings while minimizing income taxes during their peak earning years. However, deferred gift annuities may be attractive to any donor who needs a large income tax deduction in a particular year and has the ability to wait several years before receiving the initial annuity payment. Several private IRS rulings have approved “flexible deferred gift annuity” plans whereby donors may choose an initial starting date for payments, but have the option to then continue postponing payments for several more years – resulting eventually in larger payments.

• Summary of Gift Plan
The charitable lead trust is the reverse of the charitable remainder trust. The lead trust pays either an annuity or a unitrust amount to one or more charities during the trust term and the remainder passes to the donor or a named beneficiary. Lead trusts can be set up during life (either as grantor or nongrantor trusts) or at death.

• Income Tax Deduction
The present value of income interest is deductible, if the donor is considered the owner of the trust under grantor trust rules, having retained reversionary interest or certain other powers. The deduction is based on the length of the trust term or age of measuring life, §7520 rate and annual payments, which can be an annuity or unitrust amount.

• Capital Gains Consequences
The trustee takes the donor's basis, and the trust is taxable on net gains realized, unless the trust is structured as a grantor trust, in which case the donor is taxed. A testamentary lead trust receives a stepped-up basis.

• Federal Taxation
Trust income of a grantor lead trust is taxed to the donor; at death, the trust becomes subject to tax as a complex trust. Nongrantor trusts, including testamentary trusts, are taxed as complex trusts but are allowed deductions under Code §642(c) for amounts paid to charity.

• Transfer Taxes
A gift tax charitable deduction enables donors to transfer assets to family members at reduced gift tax or generation-skipping transfer (GST) tax. Testamentary lead trusts generate estate tax charitable deductions. A lead unitrust should be employed if the transfer is subject to GST tax.

• Tax Returns
Donors must file gift tax returns for lifetime trusts. Trustees file Forms 1041, 1041-A (in general) and Form 5227 annually. Form 4720 must be filed if the trust owes excise tax.

• Best Funding Assets
Appreciated property may be less suitable for lifetime lead trusts, if sale and reinvestment of assets by the trustee is anticipated, because trusts are not tax-exempt. Transfers of income-producing assets may be more tax efficient. Testamentary lead trusts receive a step-up in basis.

• Special Considerations
Lead trusts help donors who wish to stretch the protection of the gift or estate tax credits, or the exemption for generation skipping transfer tax. Intentionally defective grantor trusts can provide donors with both transfer tax and income tax charitable deductions.

• Summary of Gift Plan
The donor deeds a personal residence or agricultural property to a charity and retains a life estate for one or more individuals or for a fixed term of years. A residence need not be the donor's primary residence. The transfer is not made in trust and may not include personal property.

• Income Tax Deduction
A donor may deduct the present value of the charity's remainder interest in depreciable and nondepreciable portions of property, using the remainder interest factors for one or two lives or a term of years, based on the §7520 rate, and taking into account the estimated useful life of depreciable property and "salvage value."

• Capital Gains Consequences
Capital gains taxes are avoided unless the property is subject to indebtedness, which brings bargain sale rules into play. For principal residences, the $250,000 exclusion may offset gain from a bargain sale.

• Federal Taxation
There is no change in taxation of the life tenant following the contribution on income realized from property.

• Transfer Taxes
The value of the property is included in the donor's gross estate, but a 100% estate tax charitable deduction avoids tax. Gift tax and estate tax marital deductions shelter transfers to a spouse; other transfers are subject to gift tax or estate tax.

• Tax Returns
Donors file gift tax returns in all cases. Form 8283 must be filed with the donor's tax return for the year of the gift.

• Best Funding Assets
Any residence occupied by the donor: principal residence, vacation property, condominium, etc. Farm property includes land and improvements used for the production of crops, fruits, or livestock. Donors may give remainders in undivided fractional interests.

• Special Considerations
If the owner of the life estate can no longer use the property, it can be sold to a third party, with a division of the proceeds between charity and the life tenant, or the donor can give remaining life estate to charity outright or for a charitable gift annuity.

• Summary of Gift Plan
The donor designates a charity to receive a specific, general, percentage or residuary bequest from his or her will or revocable living trust, or names a charity to receive part or all of life insurance proceeds or remaining principal in his or her retirement, brokerage or financial accounts.

• Income Tax Deduction
There is none for the donor, but estates and trusts may deduct income distributed to charities under Code §642(c), including income in respect of a decedent (IRD), if authorized under the donor's will or trust.

• Capital Gains Consequences
Capital gains taxes are avoided 100%.

• Federal Taxation
There is no change in taxation of the donor on income from assets revocably designated for charity. But bequests of income in respect of a decedent (IRD), such as US savings bonds and retirement accounts, avoid income taxes for the donor's estate or heirs.

• Transfer Taxes
The value of the property is included in the donor's gross estate, but a 100% estate tax charitable deduction shelters bequests of any amount.

• Tax Returns
Form 706 must be filed for estates subject to federal estate tax.

• Best Funding Assets
Any assets, including cash or property will work, but ideally one should leave taxable assets such as IRAs and other retirement accounts, savings bonds, accounts receivable, renewal commissions of insurance agents, deferred compensation, stock options, and installment obligations.

• Special Considerations
Testamentary transfers can be shared between charity and family members through any of the gift techniques described above. Partial estate tax deductions reduce taxes on the estate.