Charitable GivingSharing Your Legacy

TYPE OF PROPERTY DONATED or GIFTING STRATEGY PROs CONs

TAX BENEFITS TO DONOR PROCEDURE

Cash Immediate benefit to charity.

Annual giving dependent upon cash flow of donor; immediate transfer of property so there will be less money or property for other needs.

Total amount donated qualifies for immediate income tax deduction to donor.

Deliver cash or check directly to charity.

Ordinary Income Property (e.g., inventory, copyrights, annuity payments, depreciated or amortized property, partnership interests or short-term capital gains property)

Immediate benefit to charity.

Immediate transfer of property so there will be less money or property for other needs; generally, limitation of income tax deduction to lesser of fair market value or cost basis of property.

Immediate income tax deduction; no recognition of loss or gain to the donor on the transfer.

Formal transfer by title or deed.

Long-Term Capital Gains Property (e.g., real estate, securities, business interests or capital assets held longer than one year)

Immediate benefit to charity.

Immediate transfer of property so there will be less money or property for other needs.

Immediate income tax deduction; no recognition of loss or gain to the donor on the transfer.

Formal transfer by title or deed.

Donor Advised Fund (DAF) — donor makes gift into DAF, which invests money and distributes money to charity over time based upon “advice” of donor.

Allows for the accumulation of donations and the deferral of the distribution of those contributions to make a larger social impact; allows donor to advise DAF on investment of contributions in mutual fund- type accounts; allows donor to advise DAF as to which charities should receive distributions and when.

Immediate transfer of property so there will be less money or property for other needs; must rely upon the investment management skills of DAF and market conditions.

Avoids capital gains tax if highly appreciated assets are gifted to and sold by DAF; total amount donated qualifies for immediate income tax deduction to donor; no recognition of loss or gain to the donor on the transfer.

Donor gives the property or cash to the DAF; community organizations or financial institutions that sponsor DAFs have prepared forms.

Bequest at Death Retain lifetime use and control of cash or property.

Less money or property going to surviving family members as an inheritance; no current income tax deduction.

Estate tax charitable deduction offsets inclusion in gross estate.

Donor’s will must specify the charitable bequest, or beneficiary designation for account must name charity (e.g., beneficiary designation of qualified retirement plan names charity).

Charity as Beneficiary of Donor’s Life Insurance Policy

Continued lifetime access to policy cash values and dividends; avoids probate; ability to change mind or change recipient.

No current benefit for charity; no income tax deduction to donor.

Estate tax charitable deduction offsets inclusion in gross estate; no income tax deduction.

Complete insurance company’s beneficiary designation form.

Charity as Owner of Life Insurance Policy on Donor’s Life

Life insurance results in a greater gift because the death benefit greatly exceeds premiums paid; donor makes gifts of cash to pay premium so charity has no out-of-pocket expense.

Donor has no access to cash values and no control of policy; charity receives a deferred gift upon donor’s death; charity must have insurable interest on donor’s life.

Income tax deduction for premiums paid; no estate or gift taxes; policy not included in donor’s taxable estate.

Charity applies for policy as owner and beneficiary; donor gifts money to charity to pay premiums; charity pays premiums.

Gift Existing Life Insurance Policy to Charity

Life insurance which is no longer required to meet personal needs is removed from the donor’s estate; charity has access to cash values and dividends and controls policy.

Donor no longer has access to cash value or dividends and relinquishes control of policy; charity must have source of funds to pay premiums if they are still needed.

The income tax deduction is based upon the lower of the policy’s fair market value or cost basis; current income tax deduction is available for gifts of premium; policy not included in donor’s taxable estate.

Complete insurance company’s ownership change form to charity; donor gifts money to charity to pay premiums; charity makes premium payments.

Charitable Giving Techniques

TYPE OF PROPERTY DONATED or GIFTING STRATEGY PROs CONs

TAX BENEFITS TO DONOR PROCEDURE

Charitable Remainder Annuity Trust (CRAT) — an irrevocable trust that provides a fixed income stream to a non-charitable beneficiary (typically the donor) with the remainder going to a charity.

Allows asset to be used for current income needs and charitable purposes; income stream to non-charitable beneficiary for a period of years up to 20 or for lifetime with balance to charity at end of term.

Grantor must relinquish control of asset; less money or property going to surviving family members as an inheritance.

Capital gains tax is avoided if trust sells highly appreciated assets; immediate income tax deduction for present value of remainder interest; income stream to non-charitable beneficiary may result in taxable income.

Donor’s attorney drafts trust documents; property is transferred to the trust; when trust term ends, remainder of property goes to charity.

Charitable Remainder UniTrust (CRUT) — an irrevocable trust that provides an income stream as a percentage of trust assets to a non-charitable beneficiary (typically the donor) with the remainder going to a charity.

Allows asset to be used for current income needs and charitable purposes; income stream to non-charitable beneficiary for a period of years up to 20 or for lifetime with balance to charity at end of term; unlike CRAT, additional property can be added in later years.

Grantor must relinquish control of asset; less money or property going to surviving family members as an inheritance.

Capital gains tax is avoided if trust sells highly appreciated assets; immediate income tax deduction for present value of remainder interest; income stream to non-charitable beneficiary may result in taxable income.

Donor’s attorney drafts trust documents; property is transferred to the trust; when trust term ends, remainder of property goes to charity.

Charitable Lead Trust (CLT) — an irrevocable trust that provides an income stream to a charity with the remainder going to a non-charitable beneficiary (typically donor or donor’s family).

Allows asset to be used for charitable and personal purposes; income stream to charity; balance reverts to grantor or passes to heirs; may have favorable income, gift and estate tax consequences depending upon design.

Loss of access to current income generated by asset in trust.

May be entitled to an income tax deduction for present value of income interest depending upon trust design; if CLT is created at death, estate may be entitled to estate tax charitable deduction; remainder left to heirs may result in gift tax consequences.

Donor’s attorney drafts trust documents; property is transferred to the trust; when trust term ends, remainder of property goes back to donor or to non-charitable beneficiaries depending upon design.

Pooled Income Fund (PIF) — donor gives cash or property to a charity and receives a life annuity dependent upon investment results.

Easier to establish than CRAT or CRUT; allows asset to be used for current income needs and charitable purposes; income stream to donor for life or for joint lives of donor and spouse with balance to charity at death.

Immediate transfer of property; must rely upon investment management skills of charity’s investment managers and market conditions; less property going to surviving family members as an inheritance.

Avoids capital gains tax if highly appreciated assets are gifted to and sold by charity; immediate income tax deduction for present value of remainder interest; income stream to donor may result in taxable income.

Donor gives the property or cash to the charity in return for the annuity from the charity; charities that offer PIFs have prepared forms.

Charitable Gift Annuity (CGA) — donor gives cash or property to charity and receives a fixed rate life annuity in return.

Easier to establish than CRAT or CRUT; allows asset to be used for current income needs and charitable purposes; income stream to donor for life or for joint lives of donor and spouse with balance to charity at death.

Immediate transfer of property; must rely upon financial condition of charity for payment of annuity stream; less property going to surviving family members as an inheritance.

Immediate income tax deduction for the excess of the donated property’s fair market value over the present value of the annuity; income stream to donor may result in taxable income.

Donor gives the property or cash to the charity in return for the annuity from the charity; charities that offer CGAs have prepared forms.

Life Estate and Remainder Interest in Personal Residence or Farm — donor gifts remainder interest to charity.

Receive current income tax deduction; retain use and possession of property during lifetime.

Less property going to surviving family members as an inheritance.

Immediate income tax deduction of present value of remainder interest.

Donor’s tax and legal counsel work with charity to prepare appropriate form of deed.

Qualified Conservation Contribution or Easement — donor gives qualified real property interest solely for conservation purposes.

Donor retains use or possession while promoting future preservation and protection of land and preservation of open space; conservation use can be perpetual.

Donor loses certain property rights (e.g., right to develop land); may cause recapture of rehabilitation investment credits; less property going to surviving family members as an inheritance.

Immediate income tax deduction of value of the qualified contribution; value of asset may be partially excluded from taxable estate.

Donor’s tax and legal counsel works with conservation organization or governmental entity to effect transfer of property subject to easement.

Wealth Replacement Trust — strategy to restore family inheritance by replacing value of property gifted to charity.

Insurance proceeds replace gifted property for family inheritance.

Donor has no access to cash values and no control of policy in trust.

Life insurance death benefits are received by the trust income and estate tax-free.

Donor’s attorney drafts trust document; money is transferred to the trust as gifts; trustee purchases life insurance on donor’s life; death proceeds replace property gifted to charity.

The Guardian Life Insurance Company of America7 Hanover Square New York, NY 10004-4025 www.GuardianLife.com

Pub 3226 (12/13) 2013—14033