Government encourages increased charitable giving

The Tax Reform Act of 1969 sought to further encourage increased charitable giving to charities by enacting the Internal Revenue Code § 664. IRC § 664 allows, what are called, split-interest exchanges, making it attractive for families to not only benefit charity, but also improve their own family’s financial circumstances. Split interest exchanges, where families are entitled to lifetime income interest and substantial tax relief, are accomplished by using Charitable Remainder Unitrust, Charitable Remainder Annuity Trust and Charitable Gift Annuities.

There is a rich historical tradition of using trust to create income and reduce the burdens of property ownership. Back in the 13th Century Franciscan friars took an oath of poverty. Although they took an oath of poverty they still needed to feed, clothe and provide shelter for themselves. They solved their problem by finding a trusted individual (our Trustee of today) to give the ownership of their property in exchange for a lifetime of income for themselves. This kind of arrangement, the concept of uses, deprived the King of his taxes and it took almost three centuries for the King to enact a law known as the Statute of Uses whereby he could start collecting taxes again.

Today the charitable trust arrangement and the charitable annuity have become the financial engines that allows individual families, corporate citizens and local charities to combine resources to build hospitals, museums, churches, day care centers, and provide the support for the multiple community organizations that bring relief to community problems. You can be a part of this community partnership no matter how little or how much you have. Not too long ago a widow gave property to her church. Her desire was for the church to use the earnings to send one teenager to a mission field and not to spend the principal. The first year, that church was able to send 19 young people to the mission field without touching the principal. She died before she could see her dream come true. Her imagination just was not big enough to visualize the true reality of her gift.

You also need to know about national corporations that donate multi-million dollar buildings to charity for tax deductions that create tax refund dollars that go right to their bottom line. It is difficult to imagine how much profit they would have to generate on sales to match the tax refund dollars they would receive from giving a non income producing building, at its appraised fair market value, to a 501 © (3) charity recognized by the IRS.

If you are interested in exploring how a relationship with The Caudill Foundation could benefit you and your family, or your corporation, please get in touch with one of the foundation’s Gift Planning Officers.

The following pages will show you how you can help your personal charitable works and The Caudill Foundation’s charitable works.

Is your family a candidate for ‘split interest’ property exchanges?
Do you need additional income, want to provide a legacy for your heirs and have a desire to do good for others?
• Do you have at-risk assets, which give you small returns, on which you would pay Capital Gains taxes, if you sold them?
• Do you have assets, the management of which takes up a considerable amount of your time, and would have already been sold if it were not for the Capital Gains taxation and selling fees?

The Caudill Foundation will work with your local bank to design an appropriate ‘split interest’ exchange for you and your family. Not all family situations are appropriate. These ‘split interest’ exchanges work well for families that need more personal income and have assets that produce no, or little, income. The asset could be a farm that was passed to you at the death of your parents. The asset could be low dividend stock that has a big Capital Gains. It could be income producing real estate that can no longer be depreciated or has become a problem to manage because of a change in your life’s circumstances. Please remember that ‘split interest’ means that this charitable transaction has your family’s best interest in mind as well as helping others through charity. Your local bank will be an essential part of your planning process. Your attorney, your financial advisor or your real estate professional may participate. We will take the time to create the best situation for your family’s financial and spiritual needs.

The old adage that charity starts at home is the very meaning of split interest giving. You can take care of your present income needs and you may not need to wait until you pass away to see the fruits of your gift. In some arrangements that use commercial insurance annuities to back your investment the Caudill Foundation can immediately donate 50% of the charitable gift to your charities right in your own community and 25% to the charitable interest of The Caudill Foundation. How is the charitable gift calculated? The charitable gift is the approximate value of your tax deduction. The tax deduction can be anywhere between 15% and 30% of the total transaction. You will always know all the details and options of your personal transaction before you make any commitment.

I would like to describe the different ‘split interest’ exchange options. Charitable Remainder Trusts can be a Charitable Remainder Annuity Trust or a Charitable Remainder Unitrust. IRC 664(d)(1) and 664 (d)(2) and (d)(3).

• Charitable Remainder Annuity Trust
A charitable remainder annuity trust pays a specific amount of money to the non-charitable beneficiary each year. The annuity may not be less than 5 percent of the original value. The payout does not vary from year to year. A 501©(3) charity receives the remainder interest.

Benefits: Fixed income for life
Eliminates all Capital Gains
Out of the estate when husband and wife are only beneficiaries
Produces a current income tax deduction

• Charitable Remainder Unitrust
The charitable remainder unitrust pays a fixed percentage, not less than 5 percent of the new fair market value of its assets valued annually. The payout will be different every year depending on what the trust assets earns for the year. Benefits: A variable income for life based on asset appreciation Eliminates all Capital Gains Out of the estate when husband and wife are only beneficiaries Produces a current income tax deduction Charitable Lead Trusts are also considered to be a ‘split interest’ gift.

• Charitable Lead Trust
A charitable lead trust pays the charity first. There is an annuity version and a unitrust version. The most popular version of the charitable lead trust is the annuity version that pays a fixed amount each year to the charity and the appreciation remains in the trust to benefit the family at a later date. The oldest and simplest charitable arrangement is the Charitable Gift Annuity.

• Charitable Gift Annuity
Charitable Gift Annuity pays a fixed percentage. If it is between a husband and wife it is out of their estate and probate. It eliminates part of the Capital Gains and allows the recaptured Capital Gains to be spread over the individual’s life expectancy. Benefits: Fixed income for life Eliminates part of the Capital Gains Out of the estate when husband and wife are only beneficiaries Produces a current income tax deduction Individuals, corporations and partnerships can make outright gifts of unproductive property and receive a 100% tax deduction for the appraised value. This is a profitable way to increase your financial position and eliminate exposure and risk.

• Outright Gifts and Donations
The Caudill Foundation specializes in real estate and its Gift Planning Officers have over fifty years of experience in real estate. They will be able to work with your own local bank Officers, Attorneys, Financial Planners and Realtors© to create a ‘split interest’ exchange that will fit your family’s financial and spiritual needs.