Life Income Gifts Rebecca E. Dupras, Esq. Vice President of Development Silicon Valley Community Foundation How a Life Income Gift Works Gift Donor Life Income Gift Remainder to Charity Income tax deduction Capital gains tax advantages Income 1
What Motivates Donors Larger gift to charity Possible life income Lowers cost of gift Possible tax advantages Creates a Legacy Gifts that Give Back (to the donor, that is) Charitable Bequest Remainder Gifts Trusts (CRT) Charitable Gift Annuities (CGA) 2
Charitable Gift Annuity Measurements $15BILLION 78 14 years $60THOUSAND $5-10THOUSAND Annuities in total Average annuities age Average duration Average size Minimum size 3
CGA Example Donor, age 55 gives $100,000 in stock and the charity pays $4,000 per year for life INITIAL GIFT 2 1 ANNUAL PAYMENTS *Assume basis of $50,000 4
Charitable Gift Annuity DONOR GETS: Tax deduction of $24,664 $4,000 a year for life with $1,322 tax-free for 28.5 years Charity receives remainder Charitable Remainder Trusts Donor sets up a trust Donor or others can be income beneficiary 5% minimum payout Term: Lifetime or term of years (20 max) Property is transferred irrevocably to trust Payout must begin right away (with exceptions) 5
Charitable Remainder Trusts ANNUITY (CRAT) UNITRUST (CRUT) Charitable Remainder Annuity Trusts FIXED AMOUNT CRAT POTENTIAL TO EXHAUST CANNOT MAKE ADDITIONS 6
Charitable Remainder UniTrusts PAYOUT CAN CHANGE ANNUITY (CRAT) CRUT UNITRUST (CURT) LESS LIKELY TO EXHAUST CAN MAKE ADDITIONS CRTs Can be Funded With CASH SECURITIES REAL ESTATE OTHER ILLIQUID ASSETS 7
We want to control our own assets and spend about 5% of our assets per year. We would also like to make a gift to charity from our estate. Using a 5% Charitable Unitrust as an Option Assumptions Measuring lives age 72, 76. Original principal is $1,000,000. Cost basis is $500,000 Growth Assumption: Income 2%, Capital Appreciation 2.5% Gross Principal $1,000,000 Average Annual Payment $ 48,049 Charitable Deduction $ 472,450 Income Tax Savings $ 187,090 Cost of Gift $ 812,910 Total Before-Tax Benefit $ 816,835 Benefit to Charity $ 918,316 Total Benefit $1,501,210 8
We need $50,000 to live on every year and would like to make a gift to our favorite charities. Using a 5% Charitable Annuity Trust as an Option Measuring lives age 72, 76. Original principal is $1,000,000. Cost basis is $500,000. Growth Assumptions: Income 2%, Capital Appreciation 2.5% Gross Principal $1,000,000 Annual Payment $ 50,000 Charitable Deduction $ 351,690 Income Tax Savings $ 139,269 Cost of Gift $ 860,731 Total Before-Tax Benefit $ 850,000 Benefit to Charity $ 876,291 Total Benefit $1,487,084 9
I have property I am not using and want to convert it to an income stream. After death I want to benefit charity. FLIP UniTrust with a 5% Payout to Beneficiary Assumptions Donor is in highest tax bracket Property has been fully depreciated Gross Principal $1,500,000 Average Annual Payout 73,521 Charitable Deduction 466,785 Income Tax Savings 184,847 Total Benefit to Charity 1,457,854 Total After-tax Benefit to Beneficiaries 1,521,679 10
Should the charity act as a trustee? There are several general rights and duties for which a trustee is responsible: valuation of trust assets selling contributed assets establishing annual annuity or unitrust amounts receiving and disbursing revenues accounting under the four-tier system filing fiduciary tax and information returns maintaining the trust's tax-exempt status following private foundation rules holding and managing trust assets, and communicating and reporting to recipients Taxation of Life Income Gifts Four tiers of taxation Ordinary Income Capital Gains Tax exempt Trust Principal (CRTs only) 11
CGA vs CRT REMAINDER TRUSTS Donor may have more control over how assets are invested Donor has more control over the payout rate as long as 5% or more Donor can select multiple income beneficiaries Trust assets could be exhausted Requires a separate trust document and tax reporting structure GIFT ANNUITIES Charity invests the assets Charity sets the payout rate Donor is limited to two annuitants Charity must pay for life even if underlying assets are exhausted Simple contract with charity and charity handles state and tax reporting Thank You For more information, please contact: REBECCA E. DURPAS, ESQ. Vice President of Development Silicon Valley Community Foundation rdupras@siliconvalleycf.org @redrupas 650-450-5519 2016 SILICON VALLEY COMMUNITY FOUNDATION 12