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Recent Commentary

Visual Planned Giving - Chapter 1 - Introduction: The Secret to Understanding Planned Giving

Wednesday, January 23, 2019

Russell James is truly a bright light in the charitable world. Not only is he a leading researcher and thinker in the area of charitable giving, but he is one of the most generous. He repeatedly offers the fruits of his efforts to our industry, for free. We are honored to present his book, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, to our readers.

In his first chapter, Russell emphasizes the complexity of planned giving. He identifies multiple issues that contribute to this complexity, including several different tax regimes, state law, federal law, appraisals, business entities, arcane documentation requirements, and more. However, at its core, planned giving can do two things; it can lower taxes and trade a gift for income. Financial advisors and fundraisers should keep these basic principles in mind when considering what planned giving can accomplish.

Due to the plethora of possibilities for trading a gift for income, the issues quickly become cluttered. A donor seeking to reduce taxes and/or trade a gift for income could utilize a CGA, CRUT, CRAT, Flip-CRUT, NIMCRUT, NICRUT, or PIF. However, the core concepts remain the same. Each one of these vehicles allows a donor to lower taxes and trade a gift for income. The advisor or fundraiser should view these structures as options available to meet the donor's needs. In addition to meeting donors' income needs, planned giving can lower taxes. Lower taxes benefit the client since gifts are cheaper; the advisor, because it provides value to the client while maximizing the assets under management; and charity, because it makes large gifts more affordable.

Fundraisers should have a basic understanding of these gift vehicles. This may seem counterintuitive since outright, cash gifts provide instant value to the charity, while the charity may have to wait many years to fully realize the donor's gift in a planned giving arrangement. However, only a small portion of a donor's assets consists of cash. Fundraisers who shun the complexities of planned giving in favor of cash gifts are asking for money out of the smallest bucket since only a small fraction of assets consist of cash.

Planned giving is also an important tool for the financial advisor. Understanding these issues may help the financial advisor attract high net-worth clients since those clients tend to do the most charitable giving. A variety of planning techniques, such as family foundations, donor advised funds, and CRTs, allow the advisor to continue to manage the funds. Moreover, because these entities are not subject to tax, the advisor has more assets under management than if the donor sold the asset and reinvested the cash.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series" to help his readers understand Chapter 1 and the entire book.

Sale of Farm Equipment

Thursday, November 30, 2023

A CRT defers taxes upon the sale of farm equipment and provides cash flow to donors.

Charitable Remainder Trusts and the "Simplified Method" for Reporting the Section 1411 Net Investment Income Tax

Tuesday, March 4, 2014

In 2010, Congress enacted the Health Care and Education Reconciliation Act of 2010, creating new IRC § 1411, which imposes a 3.8% surtax on the net investment income of individuals, estates, and trusts. In December 2012, the IRS issued proposed regulations that included a method (the Simplified Method) for charitable remainder trust (CRT) trustees to capture and report net investment income to the trust's non-charitable income beneficiaries. Final regulations issued in December 2013 took a different approach, but in new proposed regulations issued at the same time, the Simplified Method was retained as an alternative election.

The Simplified Method works as a complement to the pre-existing "four-tier" structure used by CRTs for income tax reporting. Under the Simplified Method, all net investment income (NII) received after December 31, 2012, is aggregated on a cumulative basis and distributed before excluded income. A trustee should consider electing the Simplified Method when the trust's income beneficiaries do not meet the applicable modified adjusted gross income threshold or when the trust has realized or realizable capital losses coupled with a short expected remaining term.

Investment in Foreign Currency

Thursday, November 23, 2023

Once the revaluation occurs, Harry should consider contributing the dinars to a CRT, of which Harry and Wanda are income beneficiaries, before he sells the dinars. Gain on the sale of dinars by the CRT is not recognized for tax purposes because the CRT is a tax-exempt entity. Thus, Harry could defer the tax consequences of the sale, and pay income taxes only when he and Wanda receive payments from the CRT. Further, certain types of CRTs may provide greater opportunity to regulate the timing and flow of income to our donors and to grow assets tax-free.