full report - choosing a charitble giving vehicle
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Case StudyTRANSCRIPT
BKAL 3063 INTEGRATED CASE STUDY
GROUP E (6)
(CASE REPORT ANALYSIS OF CHOOSING A CHARITABLE GIVING FOR
VEHICLE)
GROUP MEMBERS:
Ummi Fadhilah Binti Mansor 221410
Siti Filzah Binti Muhamad Nadzri 221357
Nur Fatihah Binti Zainal Lim 221536
Norpadilah Binti Mohd Roslanudin 224031
LECTURER’S NAME:PN ROHANA @ NORLIZA BT YUSSUF
SUBMISSION DATE:12 OCTOBER 2015
Executive Summary:
Elaine White is a financial advisor for two couples; the Anne and William Carson was upper-
middle class client. Carson planned to save large portion of his additional income and also
interested in making charitable distribution. They also wanted to learn more about charitable
vehicles which would allow them to received tax deduction this year but delay distribution
decision until a later date. Second customer of White is Mary and Jack Bradley is a wealthy
couple with substantial assets, a more complex tax situation, and a desire to control the
timing and recipients of their charitable contributions. White must consider the objectives of
these families in the context of several charitable giving vehicles, including Public Charities,
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Private Foundations, Charitable Remainder Trusts, Charitable Lead Trusts, Donor-Advised
Funds, and Pooled Income Funds.
Contents1.0 INTRODUCTION.............................................................................................................................3
2.0 STATEMENT OF PROBLEMS.......................................................................................................4
2.1 Anne and William Carson..............................................................................................................4
2.2 Mary and Jack Bradly……………………………………………………………………………4
3.0 CAUSES OF THE PROBLEM…………………………………………………………………….5
3.1 Anne and William Carson……………………………………………………………………….5
3.2 Mary and Jack Bradly…………………………………………………………………………...5
4.0 ALTERNATIVE SOLUTIONS……………………………………………………………………6
5.0 RECOMMENDATION…………………………………………………………………………….7
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1.0 INTRODUCTION
Donation to charity can be deducted in calculation for tax payable for individual.
Donation can reduce taxable income and lower the tax bill. Not everyone can deduct their
charitable contribution, but they can itemize the tax deduction in order to claim any charity
however, charitable for qualified organization only can be itemize in deduction. There are
type of organization that qualify for deduction; churches, temples, mosques and other
religious organization, federal, state, and local government, contribution for public purpose,
non-profit school , hospitals, public park and recreational facilities.
There are limit in donation that can be deduct. Not all donation made by tax payer can
be count for tax deduction. Contribution for public charities, collage and religious groups
cannot be exceeding 50 percent of Adjusted Gross Income (AGI). When it comes to donation
of property, the limit is 30 percent of AGI. If contribution of capital gains the limit is 20
percent of AGI. There are different between public charities and private foundation. Public
charities is generally support to the public for the example is government and engage in grant
making activities but for private foundation, the foundation is for individual, family or
corporation. A private foundation does not solicit funds from the public.
A charitable remainder trust is a trust that provides for a specified distribution, at least
annually, to one or more beneficiaries, at least one of which is not a charity. The distribution
must be paid at least annually for life or for a term of years, with an irrevocable remainder
interest to be held for the benefit of, or paid over to, one or more qualified charities.
Charitable lead trust not force to name a specific charitable recipient in the trust who would
receive the remainder. Donor-advised fund is a charitable giving vehicle administered by a
public charity created to manage charitable donations on behalf of organizations, families, or
individuals. To participate in a donor-advised fund, a donating individual or organization
opens an account in the fund and deposits cash, securities, or other financial instruments.
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A pooled income fund is a charitable mutual fund that from securities or cash donated by an
individual, a family or a corporation to a charity, and then invested to provide dividends for
both the donor and charity. The donations are irrevocable and tax-deductible and must be
from personal assets.
2.0 ANALYSIS OF PROBLEM
2.1 Statement of problems
Elaine White is financial advisor advising two couples, the Carsons and the Bradleys,
regarding their charitable giving options and related tax strategies. The Carsons are an upper-
middle class family with $295,000 in income, a moderate amount of deductions, and
straightforward charitable giving objectives. They were open to making significantly larger
charitable donation of $15,000, but were weighting this option against investing the extra
income and continuing to make their typical annual donations. Besides that, they were had
conflict as to which charity they wanted to donate. They wanted to learn more about
charitable vehicle which would allow them to receive a tax deduction this year but delay
distribution decisions until a later date.
Meanwhile, The Bradleys are a wealthy couple owned substantial assets, involve in a
lot of complex taxation, and desire to control the timing and recipients of their charitable
contributions. They were concerned that a lump sum donation might not be the best way to
ensure that their funds were most impactful. Jack’s biotechnology background made him
more interested in research-oriented causes, whereas Mary preferred charities which focused
on improving the lives of cancer patients and their families. So they seek for Elaine White to
learn more about the options which existed for them.
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White must consider the objectives of these families in the context of several
charitable giving vehicles, including Public Charities, Private Foundations, Charitable
Remainder Trusts, Charitable Lead Trusts, Donor-Advised Funds, and Pooled Income Funds.
Elaine noted that her clients were trying to solve the same problems which are hoping to
make a charitable contribution this year but trying to determine the best charitable vehicle to
use.
2.2 Cause of problems
Anne and William Carson want to know which options is the best between options
existed in charitable vehicles. The main reason Anne and William Carson problem is to
determine the best charitable they want to donate because they only have $15,000 for
charitable donation which is not a substantial amount. They did not have large income but
they have to bear tax bracket 33% which is too high. They want to learn more about
charitable vehicle which would allow them to receive tax a deduction for this year but delay
with distribution until a later date.
Meanwhile, the main reason Mary and Jack Bradley want to determine the best
charitable is because they were not totally aligned on which cause they would most like to
support. Jack’s biotechnology background made him more interested in research-oriented
causes, whereas Mary preferred charities which focused on improving their lives of cancer
patients and their families. They also concerned about the possibility that their daughter’s
cancer could both contribute to a charitable cause and provide an income stream for their
daughter and her families.
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4.0 ALTERNATIVE SOLUTIONS
When charitable giving is an integral part of a total wealth plan, donors enjoy
significant tax savings while supporting a worthy cause. In order to maximize the value of the
charitable donations, as well as the value of any assets that we wish to transfer to your heirs
or other beneficiaries, we must choose the correct vehicle for your charitable giving. There
are several charitable vehicle that given from the article Choosing a Charitable Giving
Vehicle that may one of them are suitable for Elaine White’s clients, Anne and William
Carson, Mary and Jack Bradley, which is Public Charities and Private Foundations, Split
Interest Trust and charitable vehicles for upper-middle class: (1) Pooled Income Funds, (2)
Donor-Advised Funds
The Internal Revenue Service (IRS) has allowed for the creation of tax-exempt
charitable organizations. The simplest and most popular charitable vehicle was a direct
donation to a tax-exempt, non-profit organization organized under S501(c) (3) of the IRC. It
could be divided into two groups which are public charities and private foundations.
Public Charities
Public charities generally derive their funding or support primarily from the general
public, receiving grants from individuals, government, and private foundations. Although
some public charities engage in grant making activities, most conduct direct service or tax-
exempt activities. Those starting a new organization usually prefer public charity status, not
just because it better describe the organization’s purpose. Public charities also enjoy some
advantages such as higher donor tax-deductible giving limits and the ability to attract support
from other public charities and private foundations. Basically, a Public Charity is a charitable
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organization that has broad public support, actively functions to support another public
charity, or is devoted exclusively to testing for public safety. Public Charities are the
organizations people usually think of when they hear the word charity. These non-profits’
missions range from helping the poor to easing community tensions to advancing religion,
education, or science.
Private Foundations
A private foundation is a form of tax-exempt organization that must be organized and
operated exclusively for charitable purposes. The charitable activities of a private foundation
generally concentrate on receiving charitable contributions, managing its charitable assets,
and making grants to other charitable organizations to support its charitable activities.
Foundations are overseen by directors and trustees, generally called the “board” – often
family members, friends, or advisors. This board is responsible for determining, with the help
of professional advisors, the affairs of the foundation, including how foundation assets are
invested, where and when grants are distributes, and how large these grants should be.
The most successful foundations are founded with a clear charitable purpose.
Typically, this is expressed in a two-to-three-sentence mission statement created by the role
of the mission statement is to create a clear sense of direction for the foundation, to focus
grant making activities and improve the overall impact of grants, and to foster a shred
understanding of the foundation’s purpose.
Split Interest Trust are another type of charitable vehicle. These types of trusts
allowed a donor to subdivide a given set of assets into claims on income and claims on the
principal. There are two primary forms depending on which claims is provided to the charity
which is Charitable Remainder Trust and Charitable Lead Trust.
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Charitable Remainder Trust
Charitable Remainder Trust (CRT) is an irrevocable trust typically funded with highly
appreciated property. The CRT is structured so that there is a current beneficiary who is
either the donor or a named individual and a remainder beneficiary, which is a qualified
charity, such as a private foundation. The CRT can provide that the named beneficiary
receive either a fixed amount each year or a percentage of the value of the trust each year, for
a period not to exceed 20 years. Since the designated charitable beneficiary could be a private
foundation while preserving the additional benefits provided by a CRT.
How the CRT works?
1. The donor transfer cash, securities or other property to the trust.
2. The donor receives an income tax charitable contribution deduction and saves capital
gains tax. During its term, the trust makes payments to you and/or another
beneficiary.
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3. The remainder goes to the charitable organization after your lifetime.
Benefits of CRT
CRT is an immediate potential income and gift tax deduction for a charitable
contribution for the present value of the ending balance of the trust’s assets designated
for the charity.
CRT is exempt from tax on its investment income. Thus, a trustee of the CRT can sell
the appreciated assets and reinvest the full proceeds. The donor is able to diversify
from a concentrated position in a tax-efficient manner. When distributions are made
to the donor or beneficiary must report a portion of the income and gains in respect to
the property distributed. However, as the tax burden is spread out over time, more
money is available for reinvestment within the CRT, benefiting both the lifetime
beneficiary and charitable remainder beneficiary.
A contribution to a CRT made at death under a Will can produce an estate tax
deduction, not subject to any percentage limitations, with the value of the remainder
interest passing to the private foundation.
A CRT can be an effective strategy for planning for retirement as the tryst can provide
that income distribution do not commence immediately.
Charitable Lead Trust
Charitable Lead Trust (CLT) are designed to provide income payments to at least one
qualified charitable organization for a period measured by a fixed term of years, the lives of
one or more individuals, or a combination of the two; after which, trust assets are paid to
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either the grantor or to one or more non-charitable beneficiaries named in the trust
instrument.
In theory, CLT can be thought of as the inverse of CRT. In practice, however, many of
the rules that govern the operation and taxation of CLT differ significantly from those for
CRT. For example, CLTs are not tax-exempt entities as are CRT. The rules governing CRT
are designed to protect the charitable remainder interest, whereas the rules governing CLT
protect the charitable income interest. During the term of the CLT, a charitable beneficiary
retains an income interest, known as the lead interest. At the completion of the trust term, a
non-charitable beneficiary receives the remaining trust assets.
How the CLT works?
1. The donor transfer property or others to a trust and receive an estate tax deduction
2. During its term, the trust pays a fixed amount each year to the charity chosen
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3. When the trust ends, the remaining principal passes to their family or other heirs they
name.
If a CLT’s remainder interest does not revert to the donor or the donor’s spouse, but passes to
other non-charitable beneficiaries, there will be transfer tax consequences.
Gift tax – If the remainder interest passes to other non-charitable beneficiaries during
the donor’s life, the transfer will subject to gift tax, but the net present value of the
gift can be reduced (discounted) by the value of the income stream granted to the
charity. Because the transfer is a gift, the non-charitable beneficiaries will receive a
carryover basis in the trust assets.
Estate tax – If the remainder interest passes to the other non-charitable beneficiaries
after the donor’s death, the transfer may be subject to estate tax, but at the date of
transfer value. Any appreciation in the trust assets value will be entirely estate tax
free. And, if there are payments still owed to the charity at the donor’s death, the
donor’s estate can deduct the net present value of those payments. If the transfer is
subject to estate tax, the non-charitable beneficiaries will receive trust assets with a
step up in basis. If not, they may receive a carryover or modified carryover basis
instead.
The other solutions that can be used in determining the charitable giving vehicle to the
clients of Elaine White glanced are by using the Charitable Vehicles for the Upper-Middle
Class. In this options of charitable giving vehicle, there have two type charitable vehicles
which are Pooled Income Funds and Donor-Advised Funds.
1) Pooled Income Funds (PIF)
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A pooled income fund is a charitable trust established and maintained by a qualifying
nonprofit organization, providing a lifetime stream of income based on each donor's share of
the income earned by the fund. Donors may be eligible to take an immediate partial tax
deduction, based on their life expectancy and the anticipated income stream, but must pay
income tax on the income they receive from the pooled income fund each year. Pooled
income funds offer professional investment management and a way to convert appreciated
assets into income without incurring capital gains tax. Donors recommend charitable
beneficiaries to receive the balance in the fund after the death of the last beneficiary
A PIF can be used by individuals who own appreciated securities and are looking for
more income, often during retirement, but do not want to pay capital-gains taxes when
repositioning those assets to produce income. Assets contributed to the PIF are irrevocable
and allocated into diversified income-producing pools. No capital-gains taxes are paid so the
entire value of contributed assets is used to generate income to clients for life. The clients
also will receive a current-year tax deduction based on the size of the gift, the age and
number of income beneficiaries and the rate of return of the Fund. The income may vary, it is
taxable, and any tax deduction is subject to AGI. The PIF can make grants to charities only
after the death of the last beneficiary and in some cases, there may be an additional waiting
period after that.
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How the Pooled Income Funds ( PIF) works?
1. Client will transfer cash, securities or other property to the pooled income fund. A
minimum initial donation of $20,000 is required, after which subsequent minimum
donations of $5,000 may be made. Contributions of restricted and/or privately held
stock have a $100,000 minimum and are accepted on a case-by-case basis.
2. Client will received an income tax deduction and pay no capital gains tax
3. The fund will pay clients’ share of its income each year to the clients or to the anyone
that they named as beneficiary for life
4. When the gift term ends or after the death of the last beneficiary, client share of the
fund’s principal passes to the charitable trust
Example:
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Clients contributes $10,000 to a pooled income fund. Assume his participation represents 1
percent of the fund. If the fund's net annual earnings are $40,000, clients becomes entitled to
1 percent of $40,000, or $400. When clients include a pooled income fund gift as an itemized
deduction on their federal tax return in the year of the gift, they also benefit from significant
tax savings. But according to this fund donor client has contract or signing document about
term of the PIF
Benefits of Pooled Income Funds (PIF)
Potential immediate partial tax deduction, based on your life expectancy and the
anticipated income stream
May eliminate capital gains tax for gifts of long-term appreciated securities
Income stream is taxable to the income beneficiaries and the donor or beneficiary is
assured of an income for life.
Offers clients grant-making direction, education, and guidance
Professional investment management
2) Donor-Advised Fund (DAF)
A donor-advised fund is a program of a public charity that allows donors to make
contributions to the charity, become eligible to take an immediate tax deduction, and then
make recommendations for distributing the funds to qualified nonprofit organizations on their
own timetable.
A donor-advised fund offers benefits such as flexibility in grant recommending,
including the ability to remain anonymous. Since the donors are eligible to take the maximum
tax deduction available once they have made their irrevocable contribution, the charity owns
and controls the assets, allowing the donor to have only advisory privileges over the
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distribution of charitable grants. This is why the grants are recommended by donors, not
made by them.
The charity also will generally perform due diligence to verify that each organization
to which a grant is recommended is an IRS-qualified public charity, among other restrictions
as specified by the policies of each sponsoring organization with a donor-advised fund
program.
As far as tax considerations, donors may be eligible to take a tax deduction of up to 30% of
their adjusted gross income for contributions of securities, and up to 50% for cash
contributions.
How Donor-Advised Fund ( DAF) works?
1. Client can transfer cash or appreciated asset to the donor advised funds. A minimum
initial donation of $10,000 is required, after which subsequent minimum donations of
$1,000 may be made. Contributions other than cash, stocks or mutual funds may have
different minimums, may require prequalification, involve longer processing time and
are accepted on a case-by-case basis.
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2. Clients will get benefit of tax deduction and avoidance from capital gains tax for gifts
of long-term appreciated securities. The immediate tax deduction, up to 50% of
adjusted gross income for cash, 30% for appreciated assets
3. The DAF can often accept many types of assets and will engaged in professional
investment management
4. Clients can decide when and how much to gift to the charities that they recommended.
5. The client’s grants can be anonymous
Example:
If clients itemize deductions on their 2013 tax return, they can write off the amount of their
grant, up to 50 percent of their adjusted gross income for cash or 30 percent of income for
appreciated investments. Clients can even delay a decision on which organization will
ultimately get the money. If they will be donating stocks or mutual funds that have
appreciated in value, they can get the full write-off on the donation, but avoid the capital
gains tax by transferring the investment to their DAF, which will then sell and grant it. For
example, if they sell $15,000 worth of stock and have a $5,000 capital gain, they can claim
$15,000 as a deduction and won't owe taxes on their $5,000 profit so for the current year
they will get the tax deduction and about which charity they want to choose to give grants
can be decided later on.
Benefits of Donor-Advised Funds
Client’s contribution qualifies for an immediate income-tax deduction based on the
full value of the contribution, as no capital-gains taxes are paid on any unrealized
gains of long-term appreciates securities.
While clients take the tax deduction in the year that they make their contribution to
the fund, the money does not have to be granted to charities in the same year. They
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can recommend grants according to clients own timetable, and clients grants can even
remain anonymous if they wish.
DAF contributions are invested with the potential for tax-free growth, possibly
allowing clients to give more over time.
Clients have the ability to select successors who can continue their charitable legacy
by recommending grants beyond their lifetime
Immediate income-tax deductions, tax-free growth potential, avoiding capital-gains
tax on long-term appreciated securities, and reduced estate taxes are all potential tax
benefits for clients when they contribute to a DAF.
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4.0 RECOMMENDATIONS
In this case, we recommended that Anne and William Carson for using the Charitable
Vehicles for the Upper- Middle Class for their best tax implication. We are choosing the
vehicle charitable of Donor Advised Funds rather than Pooled-Income Funds for Anne and
William Carson because it suit with the condition and their desired. Here are some
calculation for both type of charitable giving:
i. POOLED INCOME FUNDS (PIF)
Current Situation
Income Recipient Age : 45
Give Amount : *$20,000.00
Gift Date: 28/12/2013
IRS Discount Rate 2.2%
Benefits
Charitable deduction : $4,538.40
Payment Rate: 5.00%
First Year Income: $1,000.00
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*Notes: A minimum initial donation of $20,000 is required, after which subsequent
minimum donations of $5,000 may be made. Contributions of restricted and/or privately held
stock have a $100,000 minimum and are accepted on a case-by-case basis.
CHARITABLE DEDUCTION: $4,538.40
INCOME TAX SAVINGS (33%): $1, 4978
ESTIMATED INCOME FIRST YEAR: $1,000.00
ii. DONOR –ADVISED FUNDS (DAF)
Sell Appreciated stock and
donate proceeds (cash) to charity
Donated appreciated stock
directly to donor-advised
fund
Fair market value $15,000 $15,000
Capital gains tax paid $15,000 x 15% = $2,250 $0
Total donated to
charity
$15,000- $2250 =$12,750 $15,000
Charitable tax
deduction
$$12,750 x 33% = 4,208 $15,000 x 33% =4950
Net tax savings $4,208-$2,250 = $1958 $4950
*Tax benefit of donating cash VS stock. A minimum initial donation of $10,000 is required,
after which subsequent minimum donations of $1,000 may be made.
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Pros and Cons of Pooled Income Funds versus Donor Advised Funds:
ADVANTAGES
Pooled Income Funds(PIF) Donor-Advised Funds(DAF)
Minimum Donations. $20,000 for initial
amount, subsequent $5,000
Charitable income tax deduction. The
donor will receive a charitable income
tax deduction equal to the present value
of the charity’s remainder interest
Avoidance of capital gain. Donation of
highly appreciated asset are ideal because
the donor does not realized capital gains
upon the fund’s sale of the contribution
assets.
Realization of life time income. The
donor or beneficiary will received a
payment of income at least annually for
the remainder of their life
Reduction of the gross estate. Assets
contributed to the fund will be effectively
removed from the donor’s estate, thereby
Minimum Donation. $10,000 for initial
amount, subsequent $1,000
Professional management. The
account is administered by the nonprofit
organization, not the donor. The
financial advisor can manage the find
and complete due diligence to confirm
tax-exempt status of all organizations,
making the donation process simple for
clients.
Tax Advantages. Clients receives an
immediate tax deduction for each
contribution. For the clients that make
contributions to DAF, they will receive
tax deduction on that year and can
decide which charities will benefit later
on
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reducing the estate taxes payable upon
the donor’s death
Minimal fees. Donor does not have to pay
up-front legal fees to establish the fund or
perform ongoing administration
Charity support. The remaining share of
the donor’s contribution upon the death
of the income beneficiary is passed to
donor-recommended qualifying charities
Flexibility. The client does not need to
identify up front exactly which charities
will ultimately benefit from the gift.
This can be managed and decided by the
financial advisor. If a client donate to
multiple organizations each grant can be
completed differently for example client
may request anonymity with one
donation and not for another
DISADVANTAGES
Pooled Income Funds Donor Advised Fund
Unpredictable Income. The income
generated year to year may not be
consistent
Contribution limitation. Many funds
limit acceptable contributions to cash,
publicly traded stock, mutual fund shares
or publicly traded bonds. A number of
funds accept whole and partial interests
in real estate, but not all
Income taxed as ordinary income. Some
clients may wish to pursue a giving
Possible limited decision power. With
this type of fund, the donor not have
absolute control. In most cases, the
sponsoring charity of the DAF follows
the client’s wishes, but clients may prefer
a giving strategy that allows them to
make final decisions regarding the
designated charities.
Less flexibility than a private
foundation. For high-net-worth clients
with extensive philanthropic goals, a
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strategy that offers other tax benefits family foundation may offer more
flexibility and control, including greater
investment choices and the option to put
family members on the foundation’s
payroll.
In this case, we know that the situation of the William Carson had faced the situation
where actually his normal income is about $60,000 per year but he experiences fortuitous
earned amounted $170,000. Given his current wealth, William Carson wants to donate
$15,000 to charities in this years but he’s not ready to choose where to donate that much
money all at once, but is concerned that after his income reverts back to ‘normal’ so DAF
would be the best strategies for them to applied. Anne and William Carson are advisable to
choose this charitable giving vehicle because it match their desire whereby the minimum of
donation can be made is $10,000 for initial compared to the Pooled Income Funds required
minimum donation amounted of $20,000.
By taking all the consideration, we think the most suitable and beneficial charitable
vehicle for Anne and William Carson are using Donor Advised Funds. In this case, Anne and
William Carson was mentioned earlier that they want receive a tax deduction in this year
2013 but delay distribution decisions until a later date. So the DAF is a good fit any time
there’s a desire to contribute now and get the tax deduction, but make the actual grant to the
final charity at some later date. In fact, the whole point of a donor-advised fund is to separate
the timing of when the tax deduction occurs from when the charity ultimately receives the
money. In addition DAF may be the ideal solution for clients who want to secure a tax
deduction today and benefit from professional management of their charitable donations.
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Besides, it can give benefit to clients such as allows them to donate assets for charity
today and receive a tax deduction now even though the actual funds may not be granted to the
final charity until some point in the future. The clients may be eligible to take a tax deduction
of up to 30% of their adjusted gross income for contributions of securities, and up to 50% for
cash contributions.
In other words, the donor-advised fund essentially functions as a conduit, where the
donor receives a tax deduction when the money goes into the DAF, but has discretion about
when the assets will finally leave the DAF and actually go to the charity and in the meantime,
assets inside a donor-advised fund grow tax-free. Through this DAF, clients can teach their
children about charitable giving while alive and also funds as a legacy family giving vehicle
after death. The virtue of doing so is that all funds that are inside the donor-advised fund can
grow and compound tax-free indefinitely to support future family charitable giving which are
the good ethics in the community.
The reasons why the pooled income is not recommended to the Anne and William
Carson is because it required them to donates more than what they want. Based on the pooled
income fund requirements, the initial minimum of the amount donation is $20,000 so this
charitable vehicle is against with Anne and William Carson because does not full filled their
desired whereby the just want to make contribution amounted of $15,000 for that year.
Besides the pooled income funds is more suitable for the people who wish to meet charitable
goals while addressing issues such as tax planning and retirement income may benefit from a
pooled income fund.
For the conclusions, in this case Anne and William Carson is kind hearted person who
always allocate the donation for the charity purpose previously which give donation to church
and local community, so by using DAF their money will go directly to the charity and can be
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used by charity to help other who entitle to get it and in the same time they can gain benefit
on tax deduction on that year.
Extraction of income tax Calculation:
$ $
Income :
William
Anne
170,000
125,000
Adjusted Gross Income 295,000
*deduction to DAF (50% x 295,000) 147,500
Taxable Income 147,500
Tax Payable (33%) 48,675
*cash donation to DAF amounted $15,000 will get tax deduction immediate 50% from
Adjusted Gross Income.
The best charitable vehicle for Mary and Jack Bradley is Charitable Remainder
Trust (CRT). This is because A CRT is tax-exempt, so appreciated assets contributed to and
sold within the trust will not result in tax liability to the donor. Besides that, an income tax
deduction is available to the donor for assets contributed to a CRT. The deduction is equal to
the present value of the charitable beneficiary’s remainder interest. Contributions to a CRT
are removed from the taxable estate of the donor and typically not result in gift taxes. Gift
taxes liability may be present if the income beneficiary is an individual other than the donor
or the donor’s spouse. Other than that, a CRT can provide an income stream for the income
beneficiary’s life or for a term of years. If the income payment is not for life, then the trust
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term is limited to a maximum of 20 years. CRT also allows clients to attain their charitable
goals by passing a significant amount of assets to charitable causes of their choice.
CRT was an attractive charitable vehicle to taxpayers who wished to provide a
dependable lifetime income for family members as well as future support for a specific
charitable organization. Because of Remainder Trust simultaneously created a charitable
deduction while providing a gift to a beneficiary, the vehicle would be especially attractive to
those looking to minimize estate taxes as the couples Mary and Bradley are particularly
interested in vehicles which could contribute to a charitable cause and provide income stream
for their daughter and her family.
Calculation:
Benefits
Charitable deduction : $1,090,728
Payment Rate: 5.00%
First Year Income: $150,000
Situation
Term of Years: 20
Gift Amount: 3,000,000
Gift Date: 20/10/2015
IRS Discount Rate 2.2%
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5.0 EXTERNAL SOURCING
http://ordercasesolutions.blogspot.my/2015/08/choosing-charitable-giving-vehicle-
case.html
http://taxes.about.com/od/deductionscredits/a/CharityDonation.htm
https://www.legalzoom.com/articles/charitable-contributions-how-much-can-you-
write-off
http://grantspace.org/tools/knowledge-base/Funding-Resources/Foundations/private-
foundations-vs-public-charities
http://www.pgdc.com/pgdc/charitable-remainder-trusts
http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/ PracticeCenter/ForefieldAdvisor/DownloadableDocuments/FFCharitableLeadTrustCaseStudy.pdf
http://www.fidelitycharitable.org/giving-strategies/give/charitable-lead-trusts.shtml
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