1. Charitable Planning By Ward J. Wilsey, JD, LLM The Wilsey Law Firm 3655 Nobel Dr. Suite 345 San Diego, CA 92122 www.wilseylaw.com

2. Charitable Planning Questions What are client’s charitable intentions? Would the client rather have assets go to the IRS or Charity? How will a gift that goes to the charity affect what goes to the children? What type of planning are we doing Testamentary Lifetime

3. Zero Estate Tax Planning Assets left to charity will not be part of the taxable estate. IRC 2055 If you leave the taxable estate to charity, there will be no taxable estate, and thus no estate taxes. If you leave the entire taxable estate to charity less will pass to the children than had you just paid the estate taxes

4. Comparison on $10,000,000 Estate No Charitable Plan Taxable Estate to Charity $10,000,000 Estate ($3,500,000) Exemption $6,500,000 Taxable Estate 45% Estate Tax $2,925,000 Estate Tax $7,075,000 to Kids $10,000,000 Estate ($3,500,000) Exemption $6,500,000 Taxable Estate $6,500,000 to Charity $0 Taxable Estate $0 Estate Tax $3,500,000 to Kids

5. Zero Estate Tax Options Outright gift of taxable estate to charity Testamentary Charitable Lead Annuity Trust

6. Zero Tax Option: Outright Gift Gifts made to a qualifying charity are exempt from the Grantor’s estate IRC 2055(a) Qualifying Charities A gift to a governmental agency for public purposes. IRC 2522(a)(1) Corporation, trust, or fraternal organization operating for religious, charitable, scientific, literary, or educational purposes. Treas. Reg. 20.2055-1(a)(2).

7. Outright Gift Qualifying Transfers Bequest, legacy, devise, or transfer. Validity of transfer is determined under state law. Estate of Polster v. Commissioner, 274 F. 2d 358 (4th Cir. 1960) Properly executed beneficiary designation form will qualify. PLR 199939039 Qualified Disclaimers. Treas. Reg. 20.2055-2(c)(1) Irrevocable and Unqualified In writing No later than 9 months after date of death Disclaimer must be made prior to use by Disclaimant

8. Testamentary Charitable Lead Annuity Trust TCLAT is just a Charitable Lead Annuity Trust created after death Income stream for charity for term of years Possible to eliminate estate tax applied on assets transferred to the trust Transfer a substantial amount to family members at the termination of the trust with little or not gift or estate tax cost

9. TCLAT or TCLUT? Most planners will use a CLAT Annuity remains constant Unit-Trust adjusts upwards Assuming asset growth, an Annuity will lead to more going to the Grantor’s family

10. TCLAT Zeroed Out Language Formula Clause should be used to zero-out estate taxes. Amount resulting in a charitable deduction that reduces the estate tax to zero PLR 9631021, 9128051, 8946022 This will depend on the 7520 rate at death Big wildcard Less , or maybe nothing, will go to family if 7520 rate is fairly high at the clients death TCLATs are very volatile

11. How does the TCLAT work? Annuity is paid out to charity for term of years A gift is made consisting of the present value of the remainder interest In a Zeroed Out TCLAT, everything passes at the end of the term to descendents free of estate tax. Structured as a normal CLAT, discussed later

12. When to Use TCLAT When client has significant charitable intent, but wants some to go to charity When client wants significant amount to go to Private Charitable Foundation When significant other estate planning measures have been used Family Limited Partnerships Sales to Intentionally Defective Trusts GRATs Etc.

13. Lifetime Charitable Gifting Reasons for Charitable Gifting during Lifetime Charitable Intent and Income Tax Driven Outright gifts Charitable Remainder Trusts Transfer Tax Driven Charitable Lead Annuity Trusts

14. Outright Gift Contributions to Charity Receive an income tax deduction IRC 170 Deductions limited to 50% of adjusted gross income. IRC 170(b)(1)(A) Deductions can be carried forward for 5 years and back for 2 years IRC 170(d)(1); Treas. Reg. 1.170A-10(b)

15. Gifts to Charity Charitable Deduction reductions 50% rule can be reduced as follows: Long Term Capital gains deductions are limited to 30%. IRC 170(e)(1) Short Term Capital Gains limited to basis, deductible to 50% of adjusted gross income. IRC 170(e)(1)(A) Gifts of ordinary income property can be deducted only to basis. IRC 170(e)(1)(A); Treas. Reg. 1.170A-4(a)(1)

16. Gifts to Charity Gifts to following are limited to a 30% deduction. IRC 170(b)(1)(B) Private Foundation. Veteran’s Organizations Domestic Fraternal Societies Non-Profit Cemeteries Gifts to such organizations are reduced to 20% if: Long Term Capital Gain Property. IRC 170(b)(1)(D)(i)

17. Charitable Remainder Trusts Benefits Forgiveness of capital gains Immediate charitable tax deduction Investment of sale proceeds in tax free environment Allows donor to control investment

18. Charitable Remainder Trust Client forms Charitable Remainder Trust Client takes back interest for life or term of years not to exceed 20 years Charity get remainder Client gets deduction equal to actuarial value of remainder Authorized by IRC 664(d)

19. Types of Charitable Remainder Trust Charitable Remainder Annuity Trust Pays annual annuity to grantor that remains the same every year IRC 664(d)(1)(A); Charitable Remainder Uni-trust Pays annual uni-trust amount to grantor each year based on beginning value IRC 664(d)(2)(A)

20. Charitable Remainder Trusts Types Charitable Remainder Annuity Trust (CRAT) (Straight) Charitable Remainder Unitrust (S-CRUT) Net Income Uni-Trusts (Ni-CRUT) Net Income Makeup Unitrust (Nim-CRUT) FLIP-CRUT

21. CRT Uses Conversion of Core Capital into Tax Free Investment Environment Eliminating Capital Gains on Appreciated Assets When TCLAT in place, a way to generate tax deductions on assets that will go to charity anyway

22. Charitable Lead Trust Benefits Create income stream for charities Reduce or eliminate federal gift and estate tax on assets transferred to trust and on subsequent appreciation Transfer of substantial amount to family members

23. Charitable Lead Trust Gift to CLT CLT pays charity for set number of years No income tax deduction Gift tax deduction for charitable interest IRC 7520(a) Can be designed to zero out gift tax