Gift Planning Tips

Buy the Sports Car or Save for Retirement?

An estimated $59 trillion will pass from estates by 2061, according to a recent study by the Center on Wealth and Philanthropy at Boston College.  However, many parents and grandparents fear that an inheritance will be squandered, rather than used for college expenses, first home purchase or retirement security.  There are a number of options that allow the older generation to offer help that will achieve worthy goals for younger family members, while also benefitting charity.

Testamentary charitable remainder trusts – A grandparent’s estate plan could call for the funding of a charitable remainder trust that makes payments for life to grandchildren.  The trust could pay to an individual for life or could be structured to last up to 20 years, with an independent trustee sprinkling annual payments to the class of grandchildren as needed for college expenses or down payments on a home, for example.  If estate taxes are not an issue, a nonqualified charitable remainder trust could be used, giving the trustee the ability to invade corpus, defer payments in certain years, last longer than 20 years, make payments directly to a college on behalf of a beneficiary or distribute all the income in a year, not merely the stated trust percentage.  When the trust ends, assets would pass to charity.

Testamentary charitable gift annuities – Funds could be left to charity at death to arrange charitable gift annuities for family members.  If the annuitants are too young for immediate gift annuities under the charity’s guidelines, deferred gift annuities could be established.  If an IRA is used to fund the gift annuities, a portion of the income tax that would be owed is avoided.

Testamentary charitable lead trusts – A lead trust allows a client to satisfy philanthropic goals while also giving the family beneficiaries time to “grow up.”  Although lead trusts are commonly used to zero out transfer tax, even clients whose estate are not subject to estate tax might find lead trusts attractive.  The client can create incentives, directing that the remainder pass only to those family members who have finished college, started a business, worked for a number of years or some other benchmark indicating maturity.

When It’s Time to Part with Collectibles

Slightly more than half of wealthy Americans (those with at least $1 million in investible assets) engage in hobby investing, according to a study by BMO Private Bank released last year.  Coins, art and jewelry were the top three categories of collectibles.  A big decision awaits, however, when it’s time to divest.  The capital gains tax rate on collectibles is 28%, although if the assets are held until death, the stepped-up basis rules apply.  For the client who wants to get rid of a collection, there are charitable options, but also cautions:


An outright gift can generate a deduction equal to fair market value.


  • The income tax deduction for an inter vivos charitable gift of tangible personal property is limited to the donor’s basis (or the fair market value, if less) unless the property is put to a related use by the organization [Reg. §1.170A-4(b)(3)(i)].  For example, a painting given to an art museum may yield a deduction for fair market value, while the same painting given to a food pantry which will sell the artwork would be reduced.  The related use rule does not apply to property passing to charity at death.

  • A client giving tangible personal property valued at more than $500 must file Form 8283.  If the deduction is more than $5,000, the donor must also obtain a qualified appraisal.  In the case of collections, items of like kind (e.g., stamps, coins, rare books) are aggregated for purposes of determining whether the gift is valued at more than $5,000.  A charity receiving a gift of tangible personal property for which an appraisal was required must report a sale within three years on Form 8282 (tattletale form).

  • Special rules apply to gifts of artwork, which may be subject to review by the IRS’s Art Advisory Panel.


Donors can give partial interests in tangible personal property – for example, a 25% undivided interest in a painting.


  • Charity must have the right to possess the property for a proportional time each year.

  • No deduction is allowed unless all interest in the property is held immediately before the gift by the donor or the donor and charity.  If the donor later makes an additional gift of an undivided interest in the same asset, the deduction is limited to the lesser of the fair market value of the property at the time of the initial fractional interest gift or the fair market value at the time of the additional gift [Code §170(o)(2)].  For example, if the painting was originally appraised at $100,000 and the donor took a deduction of $25,000, a second gift of a 25% undivided interest would yield a deduction of only $25,000, even if the value of the painting had risen to $200,000.

  • The donor must contribute the remaining portion of the tangible personal property within ten years of the initial fractional gift (or at death, if sooner), or a portion of the initial deduction will be recaptured [Code §170(o)(3)].


Tangible personal property can be used to fund an inter vivos charitable remainder unitrust.


  • The related use rules still apply, so the donor’s deduction is calculated on basis, not fair market value, although the annual payments will be figured on the fair market value of the trust’s assets.

  • The donor’s deduction generally is postponed until the trustee sells the tangible personal property.

(Note: If tangible personal property is used to fund a testamentary charitable remainder trust, the above two cautions do not apply.)

Two Clauses for Every Will

Attorneys rely on boilerplate language for some sections of wills they draft (e.g., revoking all prior wills and codicils, signatures of witnesses), but there are two more options that attorneys should ask clients about including:

Contingent charitable bequests – Individuals might want bequests to pass to named charities if the primary beneficiary predeceases the testator.  This clause covers the possibility that all intended beneficiaries are predeceased or die in a common disaster and avoids the possibility that a client’s estate will pass to distant – perhaps unknown – relatives (or even escheat to the state) under intestacy laws.  If the client’s estate is subject to estate tax, anything passing to charity under a contingent bequest qualifies for a charitable deduction.

Disclaimer language – Estate assets passing to charity under a qualified disclaimer [Code §2518] entitle the estate to a deduction.  This allows a family member who feels he or she does not need all that a testator has provided to pass along all or part of a bequest to a worthwhile cause favored by the testator.


Not All Stepparents Are Wicked

With more and more blended families in the U.S., stepparents and stepchildren are a fact of life.  Anyone thinking of marrying someone with children from another marriage, or anyone with children who is getting remarried, should revisit their estate plans.

Depending on state law, stepchildren may not be included under intestate succession, so the only way they can inherit would be through a will, living trust or beneficiary designation.  If a stepparent wants to include stepchildren, it’s important to see an attorney about drafting or revising an estate plan.

Even existing estate plans may not include stepchildren under the umbrella language of “my children.”  One way to assure that stepchildren inherit is to name them individually in the will.  On the other hand, if clients don’t want to include stepchildren, it’s better to name them and indicate that they are being disinherited.  Otherwise, the lack of reference to a stepchild may be interpreted as a mistake.


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