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The second area of general consideration for planned giving is Estate taxes.
The estate tax is a tax on your right to transfer property at your death.
It consists of an accounting of everything you own or
have certain interest in at the date of death.
The fair market value of these items is used not necessarily
what you paid for them or what their values were when you acquired them.
The total of all of these items is your gross estate.
The property you may include consists of cash and securities, real estate,
insurance, trusts, annuities, business interests, and other assets.
Once you have accounted for the gross estate,
certain deductions and in special circumstances,
reductions to value are allowed in arriving at your taxable estate.
These deductions may include mortgages and other debts,
estate administration expenses, property that
passes to a surviving spouse, and qualified charities.
The value of some operating business interests
or farms may be reduced for estates that qualify.
After the net amount is computed,
the value of lifetime taxable gifts is added to this number and the tax is computed.
The tax is then reduced by the available unified credit.
You need to understand
the basic estate tax considerations to be
able to have an educated conversation with a donor.
As the estate tax exclusion has increased over the years,
fewer and fewer individuals are concerned with having a taxable estate.
Knowing the estate tax exclusion level will allow
you to know when a donor is concerned with estate tax or not.
Donors concerned with estate tax likely have done
more sophisticated planning to take allowable advantages to reduce estate tax.
This includes charitable requests.
It also allows you to recognize when a donor does not have a taxable estate.
This can cause a pitfall for these individuals because they may
let their guard down and not appropriately plan on taxes to their heir.
For example, even though a donor doesn't have a taxable estate,
they could own retirement assets or other assets
that will be taxable to the person that inherits them.
The third area is charitable gifts and taxes.
While estate state taxes levied on an individual's assets and estate after death,
gift taxes apply to funds given away while the tax payer is living.
Gift taxes prevent individuals with large estates to avoid
estate taxes by giving away all of their assets to their heirs during their lifetime.
The gift tax is a tax on the transfer of property by one individual
to another while receiving nothing or less than full value in return.
The tax applies whether the donor intends the transfer to be a gift or not.
The gift tax applies to the transfer by gift of any property.
You make a gift if you give property including money or the use of or
income from property without expecting to receive
something of at least equal value in return.
If you sell something at less than its full value,
or if you make an interest free or reduced interest loan,
you may be making a gift.
However, the IRS offers generous gift exclusions
both annual and lifetime to eliminate or reduce the tax on gifts.
Having a general understanding of gift tax is valuable because many
of your conversations with donors will include
the donors interest to make gifts to family members.
Knowing the implications of a donor making gifts to individuals would be
beneficial and you helping them structure their charitable gift to your organization.
In this example, you can see that
using your knowledge about gift taxes can be beneficial.
The donor has given the maximum lifetime amount available to their children.
They want to make a gift to their parents but it will be taxable.
They are disappointed because they wish they could do something but don't see how.
You know that even though they've used their lifetime exclusion,
they still can take advantage of the annual exclusion.
So, you recommend they fund
two charitable remainder trust to provide income to each parent.
The annual income produced each year is under the annual exclusion.
So no gift taxes do,
and they have the added benefit of making a charitable gift to your organization.
In each of these scenarios,
you can see how understanding general tax considerations matter
to the donor and organizations to which they were giving.
This general understanding is important for anyone working in the development field
because it will allow you to better understand the situation the donor's in,
and provide better solutions to assist them in
solving their problem or accomplishing a goal.
Therefore, you will be more effective in advising them on how to structure their gift.
Before we move on, let's recap.
After completing this lesson,
you should now be able to explain general tax considerations in a plan giving context,
discuss why general tax considerations are important,
describe tax considerations related to income taxes,
gift taxes, and estate taxes.
In the next lesson,
we will look at various types of charitable organizations.
Brian CaseyAssistant Vice Chancellor for Planned Giving
