At the Planned Giving Days conference in Arlington, Virginia on May 26, Jeff Lydenberg, Esq., Vice President of Consulting for PG Calc (email@example.com) gave an excellent presentation on Transforming Planned Gifts into Current Gifts.
Some of the highlights of his presentation are included below:
Most planned gifts are “deferred gifts” meaning that the arrangement is made now, but the charity’s use of the funds is delayed until a future date. Converting a future gift to a present gift can be both emotionally satisfying to the donor and obviously very financially satisfying to the charity.
Some of the options to achieve this are:
- The donor making a current gift of all or a portion of the amount that would otherwise go to the charity via a bequest or dispository language in a living trust. A donor who believes they have enough income and other assets for contingencies may be willing to do this to be able to see their gift in action and to also get a current income tax deduction not available if given upon demise.
- If the donor needs current cash flow might they consider contributing some or all of the amount they were planning to leave as a bequest into a charitable remainder trust or gift annuity funded currently. While this does not result in the charity’s having immediately usable dollars today, it does convert a revocable arrangement into an irrevocable one and allows for the accounting recording of the arrangement.
- Current gifts of IRA assets (as well as assets in a qualified retirement plan) that may achieve current giving goals of the donor. Obviously, if the donor is over 70½ an IRA charitable rollover of up to $100,000 would be possible to meet minimum distribution requirements. There may also be ways to achieve comparable results for the donor aside from the charitable rollover option. Provided AGI limits were not an issue for the donor over age 59½ (so no early withdrawal penalty), the donor could simply withdraw an amount from the IRA and gift it to your charity. The donor could also donate appreciated stock and use the deduction from that contribution to offset the tax on withdrawal of cash from the IRA or qualified plan.
- Outright Gift of all or part of the income interest in a charitable remainder trust – All or a portion of the assets reserved for the non-charitable beneficiary in the CRT instead become available for the immediate use of the charity. The tax rules can be a little tricky here but the assignment of the income interest is treated as the gift of a capital asset with no basis. Provided the beneficiary held the income interest exceeds one year, the deduction will be for the present value of the interest contributed, rather than cost basis, and the reportable deduction will be limited to 30% of the donor’s adjusted gross income.
- Outright gift of all or part of the annuity interest in a charitable gift annuity to the issuing charity – In this scenario, the charity is relieved of its obligation to make future payments and is therefore free to use currently the amount being held in reserve to cover the obligation. The amount of the gift is the present value of the remaining annuity payments computed as of the date of the assignment. Although there are no revenue or private letter rulings specifically on point, it seems reasonable to conclude that the assignment will not result in taxable gain and that the income tax charitable deduction would be limited to the investment in the contract (the remaining capital that would have been returned tax-free over the remaining life expectancy if the annuity interest had not been assigned.) This gift should be subject to a 50% AGI limitation.
- Termination of a charitable remainder trust or a gift annuity resulting in cash distributions to the charitable and non-charitable beneficiaries –Upon the early termination of a CRT, the charity receives cash equal to the present value of the remainder interest and the income beneficiary receives cash equal to the present value of the income interest. Upon the termination of a CGA, the annuitant receives from the charity cash equal to the present value of the annuity interest and the charity is relieved of any further payment obligation. Even though part of the donor’s motivation in terminating a CRT or CGA may be to release money to the charity sooner than would be the case, no deduction is allowed, because the charity is only receiving its income interest.
- Conversion of an income interest in a charitable remainder trust to a gift annuity – Provides additional money for the long-term use of the charity that would have gone to the non-charitable beneficiary. The donor will be allowed an income tax deduction for the amount by which the date-of-gift present value of the income interest of the CRT exceeds the present value of the annuity interest.
Some very good ideas of potentially generating more current cash from deferred gift donors.