This is Part 3 of a 3-part series.
This is Part 2 of a 3-Part series on Charitable Gifts of Life Insurance. (Catch-up with Part 1). In this post, we will focus on policy suitability and claiming the charitable deduction and then wrap up with a Case Study. Part 3 will describe a client who gave an existing policy and a client who gave cash to a charity, which then purchased a new life insurance policy.
The winds of change blow constantly across the philanthropic landscape. Legislation, donor transparency, even social media, have swept through the industry at different times to shake-up the status quo. Here at Renaissance we decided it was time to kick-up a little dust for a cause we strongly believe is not getting the attention it deserves: the hyphen.
- DAFs are easy to create (most DAFs are created by completing a brief application);
- DAFs are flexible;
- Most organizations that sponsor DAF programs accept contributions of not only cash, but also marketable securities and may accept real property and closely-held business interests;
- Many DAF programs offer an array of investment options and support a variety of grantmaking approaches;
- Unlike grants from private foundations, grants from a DAF can be truly anonymous;
- Donors frequently contribute appreciated assets because they are allowed a deduction for the full value of the gift while avoiding recognizing the capital gain when the Sponsor sells the contributed assets; and
- A gift to a DAF is a gift to a public charity, which qualifies for maximum deductibility.
Suitability Key to Utilizing a CRT to Sell a Business
In Part 1 of this two-part series, we met a business owner confronted with the need to reduce the tax bite arising from implementing an exit strategy from his family business. We introduced a CRT as a component of an overall strategy to avoid capital gains and net investment income tax, create a significant income tax deduction, provide the business owner with income for life, and fund a significant charitable gift at death. In Part 2, we will discuss four suitability considerations in creating a CRT and explore ways to avoid the two most common hazards encountered when using a CRT to sell a business.
One of the most misunderstood rules in the world of charitable remainder trusts (CRTs) is the so-called “10% remainder test.” For lawyers and accountants reading this blog post, the test is found at Internal Revenue Code Sec. 664(d)(1)(D) for charitable remainder annuity trusts (CRATs) and Sec. 664(d)(2)(D) for charitable remainder unitrusts (CRUTs).