1. ©2015, College for Financial Planning, all rights reserved. Session 11 Charitable Transfer Techniques CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning

2. Session Details Modules3, 4, 5 Chapter(s)3, 2, 2 LOs3-6 Identify the nontax characteristics of testamentary transfer techniques. 3-8 Evaluate a situation to select the most appropriate testamentary estate transfer technique. 4-4 Analyze a situation to identify transfers included in total gifts, and/or deductions that are available in calculating taxable gifts. 5-4 Analyze a situation to identify the income tax implications of an estate transfer technique. 11-2

3. Types of Taxes 11-3 Tax Deductions Income & Gift During life When transferred Techniques Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution

4. Types of Taxes 11-4 Tax Deductions Income & Gift During life Estate At death When transferred Techniques Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution Remainder interest in farm or personal residence Charitable lead trust Charitable remainder trust Pooled income fund Remainder interest in farm or personal residence Charitable lead trust Charitable remainder trust Pooled income fund

5. Types of Taxes 11-5 Tax Deductions Income & Gift During life Estate Income & Gift Estate Income & Gift Estate At death During life & death When transferred Techniques Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution Charitable bargain sale Charitable stock bailout Charitable gift annuity Qualified charitable distribution Remainder interest in farm or personal residence Charitable lead trust Charitable remainder trust Pooled income fund Remainder interest in farm or personal residence Charitable lead trust Charitable remainder trust Pooled income fund All from above

6. Charitable Planning Techniques Remainder Interest in a Farm or Personal Residence Transferor leaves qualified charity a remainder interest in a farm or personal residence. Transferor names noncharitable beneficiary to hold life estate. If sole noncharitable beneficiary is transferor’s spouse, QTIP election can be made. Transferor or his estate will receive a charitable deduction for present value of remainder interest left to charity. 11-6

7. Charitable Planning Techniques Charitable Lead Trusts Transferor gives qualified charity an income interest in trust for a period of years or for life or lives in being. Income interest must be either an annuity or unitrust amount and must be paid annually. Transferor or his estate receives a charitable deduction for present value of the income interest. Transferor names noncharitable beneficiary to receive remainder. 11-7

8. Charitable Planning Techniques Charitable Remainder Trusts Qualified charity gets a vested remainder interest. Transferor names noncharitable beneficiary to receive income interest. o spouse o other Income interest must be either an annuity or unitrust amount [5% of initial FMV (CRAT) or net FMV of trust assets valued annually (CRUT)]. Term lasts for a period of years (20 years) or for life or lives in being. 11-8

9. Charitable Planning Techniques Pooled Income Fund Transferor transfers property to the fund, but retains a life income interest for one or more living individuals; a noncontingent remainder interest is given to the charity Fund managed by the charity Income beneficiary gets proportionate share of net income of the fund annually until death If income interest is given solely to transferor’s spouse, QTIP election can be made to gain marital deduction If income interest is given to someone other than transferor’s spouse, gift or estate tax will result 11-9

10. Charitable Planning Techniques Charitable Gift Annuity Cash or property to charity in exchange for charity’s promise to pay an annual annuity amount to transferor, or someone designated by transferor, during that person’s lifetime Transferor receives a charitable tax deduction for difference in value of property given to charity, and present value of annuity payments (less the annual exclusion only if immediate annuity) If annuity interest is given to anyone other than the transferor or the transferor’s spouse, gift or estate tax will usually result 11-10

11. Charitable Planning Techniques Charitable Stock Bailout Highly appreciated closely held stock is transferred to a charity Transferor receives charitable tax deduction for FMV of stock (less annual exclusion) Corporation redeems stock from charity (the corporation must not be under a legal obligation to redeem) Remaining corporate shareholders own larger share of corporation after redemption as redeemed shares are retired and not reissued 11-11

12. Charitable Planning Techniques Charitable Bargain Sale Donor sells asset to qualified charity for less than fair market value Donor receives charitable gift tax deduction for difference between the sale price and the asset’s fair market value (less the annual exclusion) Donor may recognize gain on sale portion Asset is removed from donor’s gross estate 11-12

13. Charitable Planning Techniques Qualified Charitable Distribution (QCD) Owners of traditional or Roth IRAs who are 70½ or older make a trustee-to-trustee transfer of up to $100,000 per year Do not recognize amount contributed in income No charitable income tax deduction; however, must meet requirements for this deduction Distribution is applied to owner’s RMD Distribution qualifies for AE and gift tax charitable deduction Deduction is allowed to non-itemizers May allow other deductions limited by AGI Legislation needed to be available after 2014 11-13

14. Question 1 Which of the following statements are correct regarding a charitable remainder annuity trust (CRAT)? I.The trust can last for one or more persons’ lifetimes or for a term certain not to exceed 20 years. II.A qualified charity must receive the remainder interest. III.The income interest is paid to a noncharitable beneficiary named by the grantor. a.I only b.I and III only c.II and III only d.I, II, and III 11-14

15. Question 2 Which one of the following statements regarding charitable remainder trusts that are qualified to receive the estate tax charitable deduction is not true? a.The charity must be given either an annuity or a unitrust interest. b.The charity must be qualified. c.The charity must be given the remainder interest in trust assets. d.The trust may last for one or more persons’ lifetimes. 11-15

16. Question 3 Which one of the following statements regarding charitable lead trusts that are qualified for the estate tax charitable deduction is not true? a.Charitable lead trusts are not subject to the same maximum annual payout (MAP) and minimum remainder interest (MRI) requirements as are charitable remainder trusts. b.The charity receives the income interest. c.A noncharitable beneficiary receives the remainder interest. d.The charity receives a right to all of the income from trust assets. 11-16

17. Question 4 The estate of a decedent who establishes a testamentary charitable lead trust with his spouse as the sole remainder beneficiary would be entitled to both a charitable and a marital estate tax deduction. True False 11-17

18. Charitable Transfers: Similarities and Differences Charitable remainder trust _______________ Charitable lead trust ___________________ 11-18

19. Charitable Transfers: Similarities and Differences Charitable bargain sale _______________ Charitable gift annuity _______________ 11-19

20. Charitable Transfers: Similarities and Differences Pooled income fund (PIF) _______________ Charitable remainder trust (CRT) _______________ 11-20

21. Charitable Transfers Charitable stock bailout ____________________________________ 11-21

22. Charitable Transfers Remainder interest in a farm or personal residence ____________________________________ 11-22

23. Charitable Transfers Qualified charitable distribution (QCD) ____________________________________ 11-23

24. ©2015, College for Financial Planning, all rights reserved. Session 11 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Estate Planning