1. Charitable Planning
By Ward J. Wilsey, JD, LLM
The Wilsey Law Firm
3655 Nobel Dr. Suite 345
San Diego, CA 92122
www.wilseylaw.com

2. Charitable Planning Questions
What are clients charitable intentions?
Would the client rather have assets go to the IRS or Charity?
How will a gift that goes to the charity affect what goes to the children?
What type of planning are we doing
Testamentary
Lifetime
3. Zero Estate Tax Planning
Assets left to charity will not be part of the taxable estate. IRC 2055
If you leave the taxable estate to charity, there will be no taxable estate, and thus no estate taxes.
If you leave the entire taxable estate to charity less will pass to the children than had you just paid the estate taxes
4. Comparison on $10,000,000 Estate
No Charitable Plan
Taxable Estate to Charity
$10,000,000 Estate
($3,500,000) Exemption
$6,500,000 Taxable Estate
45% Estate Tax
$2,925,000 Estate Tax
$7,075,000 to Kids
$10,000,000 Estate
($3,500,000) Exemption
$6,500,000 Taxable Estate
$6,500,000 to Charity
$0 Taxable Estate
$0 Estate Tax
$3,500,000 to Kids
5. Zero Estate Tax Options
Outright gift of taxable estate to charity
Testamentary Charitable Lead Annuity Trust
6. Zero Tax Option: Outright Gift
Gifts made to a qualifying charity are exempt from the Grantors estate
IRC 2055(a)
Qualifying Charities
A gift to a governmental agency for public purposes. IRC 2522(a)(1)
Corporation, trust, or fraternal organization operating for religious, charitable, scientific, literary, or educational purposes. Treas. Reg. 20.2055-1(a)(2).
7. Outright Gift
Qualifying Transfers
Bequest, legacy, devise, or transfer.
Validity of transfer is determined under state law. Estate of Polster v. Commissioner, 274 F. 2d 358 (4th Cir. 1960)
Properly executed beneficiary designation form will qualify. PLR 199939039
Qualified Disclaimers. Treas. Reg. 20.2055-2(c)(1)
Irrevocable and Unqualified
In writing
No later than 9 months after date of death
Disclaimer must be made prior to use by Disclaimant
8. Testamentary Charitable Lead Annuity Trust
TCLAT is just a Charitable Lead Annuity Trust created after death
Incomestream for charity for term of years
Possible to eliminate estate tax applied on assets transferred to the trust
Transfer a substantial amount to family members at the termination of the trust with little or not gift or estate tax cost
9. TCLAT or TCLUT?
Most planners will use a CLAT
Annuity remains constant
Unit-Trust adjusts upwards
Assuming asset growth, an Annuity will lead to more going to the Grantors family
10. TCLAT Zeroed Out Language
Formula Clause should be used to zero-out estate taxes.
Amount resulting in a charitable deduction that reduces the estate tax to zero
PLR 9631021, 9128051, 8946022
This will depend on the 7520 rate at death
Big wildcard
Less , or maybe nothing, will go to family if 7520 rate is fairly high at the clients death
TCLATs are very volatile
11. How does the TCLAT work?
Annuity is paid out to charity for term of years
A gift is made consisting of the present value of the remainder interest
In a Zeroed Out TCLAT, everything passes at the end of the term to descendents free of estate tax.
Structured as a normal CLAT, discussed later
12. When to Use TCLAT
When client has significant charitable intent, but wants some to go to charity
When client wants significant amount to go to Private Charitable Foundation
When significant other estate planning measures have been used
Family Limited Partnerships
Sales to Intentionally Defective Trusts
GRATs
Etc.
13. Lifetime Charitable Gifting
Reasons for Charitable Gifting during Lifetime
Charitable Intent and Income Tax Driven
Outright gifts
Charitable Remainder Trusts
Transfer Tax Driven
Charitable Lead Annuity Trusts
14. Outright Gift
Contributions to Charity Receive an income tax deduction
IRC 170
Deductions limited to 50% of adjusted gross income.
IRC 170(b)(1)(A)
Deductions can be carried forward for 5 years and back for 2 years
IRC 170(d)(1); Treas. Reg. 1.170A-10(b)
15. Gifts to Charity
Charitable Deduction reductions
50% rule can be reduced as follows:
Long Term Capital gains deductions are limited to 30%. IRC170(e)(1)
Short Term Capital Gains limited to basis, deductible to 50% of adjusted gross income. IRC 170(e)(1)(A)
Gifts of ordinary income property can be deducted only to basis. IRC 170(e)(1)(A); Treas. Reg. 1.170A-4(a)(1)
16. Gifts to Charity
Gifts to following are limited to a 30% deduction. IRC 170(b)(1)(B)
Private Foundation.
Veterans Organizations
Domestic Fraternal Societies
Non-Profit Cemeteries
Gifts to such organizations are reduced to 20% if:
Long Term Capital Gain Property. IRC 170(b)(1)(D)(i)
17. Charitable Remainder Trusts
Benefits
Forgiveness of capital gains
Immediate charitable tax deduction
Investment of sale proceeds in tax free environment
Allows donor to control investment
18. Charitable Remainder Trust
Client forms Charitable Remainder Trust
Client takes back interest for life or term of years not to exceed 20 years
Charity get remainder
Client gets deduction equal to actuarial value of remainder
Authorized by IRC 664(d)
19. Types of Charitable Remainder Trust
Charitable Remainder Annuity Trust
Pays annual annuity to grantor that remains the same every year
IRC 664(d)(1)(A);
Charitable Remainder Uni-trust
Pays annual uni-trust amount to grantor each year based on beginning value
IRC 664(d)(2)(A)
20. Charitable Remainder Trusts
Types
Charitable Remainder Annuity Trust (CRAT)
(Straight) Charitable Remainder Unitrust (S-CRUT)
Net Income Uni-Trusts (Ni-CRUT)
Net Income Makeup Unitrust (Nim-CRUT)
FLIP-CRUT
21. CRT Uses
Conversion of Core Capital into Tax Free Investment Environment
Eliminating Capital Gains on Appreciated Assets
When TCLAT in place, a way to generate tax deductions on assets that will go to charity anyway
22. Charitable Lead Trust
Benefits
Create income stream for charities
Reduce or eliminate federal gift and estate tax on assets transferred to trust and on subsequent appreciation
Transfer of substantial amount to family members
23. Charitable Lead Trust
Gift to CLT
CLT pays charity for set number of years
No income tax deduction
Gift tax deduction for charitable interest
IRC 7520(a)
Can be designed to zero out gift tax