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Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.Rebecca E. Dupras, Esq.

Vice President of DevelopmentSilicon Valley Community Foundation

Gifts that Give BackGifts that Give BackGifts that Give BackGifts that Give Back

Planned Giving: any gift given for any charitable purpose which is considered by the

donor as part of an overall financial and/or estate plan

What is Planned Giving?What is Planned Giving?What is Planned Giving?What is Planned Giving?

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What mankind fears is not so much extinction, but

extinction with insignificance. Man wants to know that

his life has somehow counted, if not for himself, then

at least in the larger scheme of things. That it has left

a trace, a trace that has meaning.

-Ernest Becker

But It Is Hard to Talk About…But It Is Hard to Talk About…But It Is Hard to Talk About…But It Is Hard to Talk About…

What Motivates Donors?What Motivates Donors?What Motivates Donors?What Motivates Donors?

Creates a Legacy

Lowers cost of gift

Possible tax advantages

Possible life income

Larger Gift to Charity

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Charitable

Gift

Annuities

Charitable

Remainder

Trusts

Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)Gifts that Give Back (to the donor, that is)

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How a Life Income Gift WorksHow a Life Income Gift WorksHow a Life Income Gift WorksHow a Life Income Gift Works

Remainder

to Charity

Gift

Income tax deduction

Capital gains tax advantages

Income

Donor

Life

Income

Gift

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Donor wants to make a large gift, but is afraid to outlive his assets

Donor is leaving an estate gift but also wants an immediate tax deduction and income

Donor wants an income stream from a trusted source

Donor wants a simple way to give a small amount and still get income and a tax deduction

Charitable Gift Annuity ExampleCharitable Gift Annuity ExampleCharitable Gift Annuity ExampleCharitable Gift Annuity Example

* Assume basis of $50,000

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Donor gets:

• Tax deduction of $24,664

• $4,000 a year for life with $1,322 tax-free for 28.5 years

• Charity receives remainder

Charitable Gift AnnuityCharitable Gift AnnuityCharitable Gift AnnuityCharitable Gift Annuity

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Donor sets up the CRT naming

charity as remainder beneficiary

Donor can be income

beneficiary or can name

another person

Donor must select payout of

at least 5% at setup

Donor can elect lifetime or term

of years (20 year max)

Donor transfers property to trust (cash,

securities, etc.)

Payout must begin right away

Charitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder Trusts

Charitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder TrustsCharitable Remainder Trusts

Annuity

(CRAT)

Unitrust

(CRUT)

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CRAT

Fixed amount

Cannot make

additions

Potential to

exhaust

Charitable Remainder Annuity TrustsCharitable Remainder Annuity TrustsCharitable Remainder Annuity TrustsCharitable Remainder Annuity Trusts

CRUT

Payout can

change

Can make

additions

Less likely to exhaust

Charitable Remainder Charitable Remainder Charitable Remainder Charitable Remainder UniTrustsUniTrustsUniTrustsUniTrusts

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Cash

Securities

Real Estate

Other illiquid assets

CRTs can be funded with:CRTs can be funded with:CRTs can be funded with:CRTs can be funded with:

Four Tiers of Taxation

•Ordinary Income

•Capital Gains

•Tax Exempt

•Trust Principal

Taxation of CRTsTaxation of CRTsTaxation of CRTsTaxation of CRTs

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Taxation of CRTsTaxation of CRTsTaxation of CRTsTaxation of CRTs

Income tax deduction = present value of

remainder interest

50% AGI Limitation for cash

30% AGI Limitation for long-term appreciated

assets

5 Year Carryover

CRTs usually need to start paying out right away

By combining a Net Income CRT with a CRUT, donor can get best of both worlds

CRTs with CRTs with CRTs with CRTs with IIIIlliquid lliquid lliquid lliquid AAAAssetsssetsssetsssets

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Before Sale:

Trust treated as Net

Income Trust

After Sale:

Trust flips to a CRUT

Pays out the set payout

rate

Pays out only income up to payout rate

CRTs funded with Illiquid AssetsCRTs funded with Illiquid AssetsCRTs funded with Illiquid AssetsCRTs funded with Illiquid Assets

We want to control my own assets and spend about 5% of my assets per year. I would also like to make a gift to charity from our estate.

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Using a 5% Charitable Using a 5% Charitable Using a 5% Charitable Using a 5% Charitable UnitrustUnitrustUnitrustUnitrust as an option:as an option:as an option:as an option:

ASSUMPTIONS:

Measuring lives age 72, 76.

Original principal is $1,000,000. Cost basis is $500,000

Growth Assumption: Income 2%, Capital Appreciation 2.5%

Gross Principal $1,000,000

Average Annual Payment $ 48,049

Charitable Deduction $ 472,450

Income Tax Savings $ 187,090

Cost of Gift $ 812,910

Total Before-Tax Benefit $ 816,835

Benefit Benefit Benefit Benefit to Charityto Charityto Charityto Charity $ 918,316 $ 918,316 $ 918,316 $ 918,316

Total Total Total Total BenefitBenefitBenefitBenefit $1,501,210 $1,501,210 $1,501,210 $1,501,210

We need $50,000 to live on every year and would like to make a gift to our favorite charities.

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Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:Using a 5% Charitable Annuity Trust as an option:

Measuring lives age 72, 76.

Original principal is $1,000,000. Cost basis is $500,000.

Growth Assumptions: Income 2%, Capital Appreciation 2.5%

Gross Principal $1,000,000

Annual Payment $ 50,000

Charitable Deduction $ 351,690

Income Tax Savings $ 139,269

Cost of Gift $ 860,731

Total Before-Tax Benefit $ 850,000

Benefit Benefit Benefit Benefit to to to to CharityCharityCharityCharity $ 876,291 $ 876,291 $ 876,291 $ 876,291

Total Total Total Total BenefitBenefitBenefitBenefit $$$$1,487,084 1,487,084 1,487,084 1,487,084

I have property I am

not using and want

to convert it to an

income stream.

After death I want to

benefit charity.

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Assumptions:

Donor is in highest tax bracket

Property has been fully depreciated

Gross Principal $1,500,000

Average Annual Payout 73,521

Charitable Deduction 466,785

Income Tax Savings 184,847

Total Benefit to Charity 1,457,854

Total After-tax Benefit to Beneficiaries 1,521,679

FLIP UniTrust with a 5% Payout to Beneficiary

• valuation of trust assets

• selling contributed assets

• establishing annual annuity or unitrust amounts

• receiving and disbursing revenues

• accounting under the four-tier system

• filing fiduciary tax and information returns

• maintaining the trust's tax-exempt status

• following private foundation rules

• holding and managing trust assets, and

• communicating and reporting to recipients

There are several general

rights and duties for which a

trustee is responsible:

Should the charity act as Trustee?Should the charity act as Trustee?Should the charity act as Trustee?Should the charity act as Trustee?

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If charity wants to be trustee before

illiquid asset is sold

Charity has more control over the

sale price

Charity has burden of taking title and selling

the property

If charity does not act as trustee before illiquid asset is sold

Charity runs risk that donor will

sell for less than original value

Charity would not have to take title

and liquidate

Should the Charity act as Trustee?Should the Charity act as Trustee?Should the Charity act as Trustee?Should the Charity act as Trustee?

CGA v. CRTCGA v. CRTCGA v. CRTCGA v. CRT

Remainder Trusts Gift Annuities

Donor retains control over how assets

are invested

Charity invests the assets

Donor can set the payout rate as long

as 5% or more

Charity sets the payout rate

Donor can select multiple income

beneficiaries

Donor is limited to two annuitants

Trust assets could be exhausted Charity must pay for life even if

underlying assets are exhausted

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Thank You

Rebecca E. Dupras, Esq.

Vice President of Development

rdupras@siliconvalleycf.org | 650.450.5519