Gift Planning Tips

When Clients Want to Give "Things"

Gifts of personal property require special planning to maximize the donor’s charitable deduction.  Not only do donors have to be concerned with accurately determining fair market value, they have to consider how the item will be used and special deduction limits that may apply.

Appraisals — A noncash gift valued at more than $5,000 generally requires a qualified appraisal.  Code §170(f)(11)(E) sets forth the requirements for qualified appraisals and appraisers.  The appraisal may be done no more than 60 days prior to the date of the gift and no later than the due date of the return on which the deduction is claimed, with extensions.  There are exceptions for gifts of publicly traded stock for which a value is easily ascertainable, and for gifts of closely held stock worth $10,000 or less.  The donor is entitled to a miscellaneous itemized deduction for the cost of the appraisal, subject to a floor of 2% of adjusted gross income.

Deduction limits — Generally, an individual may deduct up to 30% of adjusted gross income for gifts of appreciated property.  Excess deductions may be carried over for up to five years.

Related use — Deductions may be reduced for gifts that are not put to a related use by the charity [Reg. §1.170A-4(b)(3)(i)].  The deduction is generally limited to the donor’s basis.  The unrelated use rule does not apply to the estate tax charitable deduction for assets left in a will or trust.  Clients should discuss potential gifts of tangible personal property with the charity to determine if the assets can be used for a purpose related to the organization’s exempt mission.

Combining Marital, Charitable Deductions for Estate Tax Savings

A client with a surviving spouse really doesn’t need an estate tax charitable deduction to completely avoid estate taxes, but for philanthropic clients, it’s possible to create split-interest bequests that benefit the surviving spouse for life, with the property then passing to charity.  The combination of the marital and charitable deductions allows unlimited property to pass free of estate tax at both deaths.

  • The QTIP charitable remainder trust [Code §2056(b)(8)] pays either a qualifying unitrust or annuity amount for life to the surviving spouse, with the remainder passing to charity.  There can be no other noncharitable beneficiaries (children, for example) in this trust.

  • A regular QTIP trust that gives the surviving spouse all income for life and names charity as the remainderman qualifies under Code §2056(b)(7).  The estate of the first spouse to die avoids tax thanks to the marital deduction; the estate of the surviving spouse avoids tax thanks to the charitable deduction.  It’s also possible to establish a QTIP trust that, at the surviving spouse’s death, passes to a charitable remainder trust that pays income to children for life, then to charity (Ltr. Rul. 9122029).  The charitable deduction at the death of the surviving spouse is equal to the value of charity’s remainder interest in the charitable remainder trust.

  • A life estate can be created for the surviving spouse in a home left to charity at death [Code §170(f)(3)(B)(i)].  The surviving spouse must have the right to not only live in the home, but to rent it out and enjoy the income.

Coping with a Client’s Spendthrift Children

Parents sometimes express concern that their children might not be financially mature enough to handle a large inheritance.  One option, especially for clients who also have charitable interests, is a testamentary charitable lead trust that will pay income to charity for several years before the assets are eventually distributed to the children, when they are older and hopefully more mature.  The lead trust can save substantial estate taxes, as well, if the parents’ estates are subject to tax. 

If the parent doesn’t want to make the child wait for the entire estate, the lead trust can be used in conjunction with a remainder trust for a term of years.  The child can receive income from the remainder trust for up to 20 years, with assets then passing to charity.  The lead trust could also last for 20 years, or terminate sooner, to overlap with the remainder trust.

Planning for the S-L-O-W Rise in §7520 Rates

The §7520 rates used to value charitable deductions for charitable remainder trusts, charitable gift annuities, charitable lead trusts and gifts of homes or farms with a retained life interest have been above 2% all year.  Last year, the rates were less than 2% for all but January and February.  What difference does 1% make?  Compare the deductions between October 2016's 1.6% rate and April 2017's 2.6% rate for a single donor, age 70, who funds a gift with $100,000, assuming quarterly payments:




Charitable remainder annuity trust (5%)



Charitable remainder unitrust (5%)



Charitable gift annuity (5.1%)



No deduction is even available at 1.6% for the charitable remainder annuity trust, because it does not pass the 5% probability test.  Using the 1.6% §7520 rate, the minimum age for a one-life annuity trust is 74.  Using the 2.6% §7520 rate, the minimum age is 70.


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