Charitable Gifts that Thrive on Low Interest Rates

Charitable remainder trusts, gift annuities, lead trusts and gifts of remainder interests in homes and farms generate deductions that are calculated using §7520 rates, which have been stuck in the 2% range for the past year.  Some charitable deductions are lower when interest rates are down, but others go up, which may open the door to gift opportunities.

Gifts of income interests in charitable remainder trusts and gift annuities — Donors who decide they have no need of income from life income gift arrangements may find their best contribution asset is their remaining income stream.  They can assign income interests in charitable remainder trusts to the charitable remainderman and receive significant deductions, especially when interest rates are low.  The same strategy works with charitable gift annuities.

Charitable lead trusts — Low §7520 rates make 2016 the perfect time for lead trusts.  Deductions are higher with low rates, and clients may own stock that has dropped in value recently.  Stock values will eventually rise far above today’s levels, meaning more for heirs, free of transfer tax, when the trusts end.  Charitable lead trusts can enable donors to stretch the $5.45 million of gift tax shelter to $10 million, $20 million or more, depending on the length of the trust term, the amount paid to charity and current interest rates.

Gifts of remainder interests in personal residences and farms — A donor can take a deduction for the contribution of a remainder interest in a farm or personal residence [Code §170(f)(3)(B)(i)].  A residence need not be the donor’s primary residence, so a remainder interest in a vacation home, condo or stock in a cooperative housing corporation are deductible for income tax purposes.  Agricultural land may provide particularly attractive deductions, allowing the owner to continue farming the land or receiving income from leasing the farm to another farmer.


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