make sense for a particular donor to consider a donation of a more complicated asset, such as privately held business interests, especially if the donation occurs in connection with the sale of the business and a substantial income (and consequent income tax) event to the donor. When illiquid business interests, or other long-term capital gain interests such as real estate, are donated to a (as distinguished here importantly from public charity a private foundation) in the optimal manner, the donor eliminates potential capital gain on the donated portion and generally is entitled to the full fair market value for charitable income tax deduction purposes. However, even if a public charity is sophisticated enough to accept such a complex asset, the donor may rather split that gifted asset among several charities—which is difficult if not impossible to do through the donation of one asset—unless that asset is donated to a donor advised fund. By utilizing a donor advised fund at sponsoring organization that accepts complicated assets (and which can be trusted to accept such gifts, such as the community foundation), the donor is able to benefit myriad charitable recipients through one gift and only one charity to work with in connection with the transfer. D. Use a Donor Advised Fund as the Charitable Recipient of CLTs, CRTs and CGAs To Take Advantage of Low Applicable Federal Rates or To Maximize Flexibility. Although rates are on the rise, we still are in the midst of historically low applicable federal rates. This is good news for the use of gift vehicles that benefit from lower interest rates, such as charitable lead trusts and charitable gift annuities. With the applicable federal rate for Section 7520 at a record low 1 percent not long ago, a charitable lead annuity trust (CLAT) making fixed payments to charity of just 5.3 percent for 21 years resulted in a 100 percent gift tax charitable deduction. Sharpe, R.F., Jr., Trusts & Estates (Sept. 2012). A donor advised Philanthropic “The ‘Meltdown,’” fund is a very flexible charitable recipient for a donor setting up a CLAT, since the donor can then recommend grants from the fund to a variety of charitable organizations, or can name family members to serve as the advisory committee of the fund.
make sense for a particular donor to consider a donation of a more complicated asset, such as privately held business interests, especially if the donation occurs in connection with the sale of the business and a substantial income (and consequent income tax) event to the donor. When illiquid business interests, or other long-term capital gain interests such as real estate, are donated to a public charity (as distinguished here importantly from a private foundation) in the optimal manner, the donor eliminates potential capital gain on the donated portion and generally is entitled to the full fair market value for charitable income tax deduction purposes. However, even if a public charity is sophisticated enough to accept such a complex asset, the donor may rather split that gifted asset among several charities—which is difficult if not impossible to do through the donation of one asset—unless that asset is donated to a donor advised fund. By utilizing a donor advised fund at sponsoring organization that accepts complicated assets (and which can be trusted to accept such gifts, such as the community foundation), the donor is able to benefit myriad charitable recipients through one gift and only one charity to work with in connection with the transfer. D. Use a Donor Advised Fund as the Charitable Recipient of CLTs, CRTs and CGAs To Take Advantage of Low Applicable Federal Rates or To Maximize Flexibility. Although rates are on the rise, we still are in the midst of historically low applicable federal rates. This is good news for the use of gift vehicles that benefit from lower interest rates, such as charitable lead trusts and charitable gift annuities. With the applicable federal rate for Section 7520 at a record low 1 percent not long ago, a charitable lead annuity trust (CLAT) making fixed payments to charity of just 5.3 percent for 21 years resulted in a 100 percent gift tax charitable deduction. Sharpe, R.F., Jr., “The Philanthropic ‘Meltdown,’” Trusts & Estates (Sept. 2012). A donor advised fund is a very flexible charitable recipient for a donor setting up a CLAT, since the donor can then recommend grants from the fund to a variety of charitable organizations, or can name family members to serve as the advisory committee of the fund.
Aug2013CEDay-Stanleypresentation-handouts.docx