This fifth
article in a series on real estate gifting issues covers charitable remainder
trusts. The first four articles cover options when donating real estate, outright donations and bequests, bargain sales, and charitable gift annuities.
The
first three articles cover options when donating real estate, outright
donations and bequests, and bargain sales. - See more at:
http://www.ccim.com/cire-magazine/articles/311234/2013/05/real-estate-gifting-realized-charitable-gift-annuities#sthash.vkmuC6ba.dpuf
The
first three articles cover options when donating real estate, outright
donations and bequests, and bargain sales. - See more at:
http://www.ccim.com/cire-magazine/articles/311234/2013/05/real-estate-gifting-realized-charitable-gift-annuities#sthash.vkmuC6ba.dpuf
The
first three articles cover options when donating real estate, outright
donations and bequests, and bargain sales. - See more at:
http://www.ccim.com/cire-magazine/articles/311234/2013/05/real-estate-gifting-realized-charitable-gift-annuities#sthash.WNflXt4z.dpuf
The
first three articles cover options when donating real estate, outright
donations and bequests, and bargain sales. - See more at:
http://www.ccim.com/cire-magazine/articles/311234/2013/05/real-estate-gifting-realized-charitable-gift-annuities#sthash.WNflXt4z.dpuf
Commercial real estate
professionals and their clients should consider all options when discussing the
charitable donation of real property. Real Estate Gifting Realized, a new
program launched by the CCIM Foundation, facilitates the donation of real
estate to charitable organizations. A donation may be made directly to the CCIM
Foundation or the Foundation can assist with the donation to a chosen charity.
Charitable
Remainder Trusts
A charitable remainder trust is an irrevocable
trust that provides for and maintains two sets of beneficiaries. First is the income
beneficiary. This is typically the donor, and if married, his or her spouse.
The income beneficiary receives a set percentage of income from the trust for life
or a term of up to 20 years. The second is the charitable beneficiary named.
This could be one or more charitable organizations that receive the principal
of the trust after the income beneficiaries pass away.
Although the charitable remainder
trust is an irrevocable trust, the charitable beneficiaries named can be
changed at any time. Therefore, if you or a client have already established this
type of trust and named your alma mater or a medical charity as a beneficiary, the
list could be broadened to include the CCIM Foundation or other charitable
organizations. Funding this trust with highly appreciated assets, like real
estate, allows use of those assets within the trust without having to pay
capital gains taxes.
Since the first beneficiary is the income
beneficiary, the amount of income generated is of importance to the donor. The
amount of income depends upon the payout percentage chosen and the amount of
income generated within the trust. The remainder of the trust must be at least 10
percent of the fair market value of the assets transferred to the trust. That
market value is determined at the time of transfer and based on the original
amount of the appraised value. So, for example, if the property is appraised at
$100,000.00, 10 percent or $10,000must always remain in the trust for the
charitable beneficiary.
The amount paid out to the income
beneficiary can be 5 percent to 50 percent of the trust funds each year as long
as the appropriate amount remains in the trust for the charitable beneficiary.
A higher payout percentage will lower the charitable income tax deduction.
There are very specific Internal Revenue Service rules that must be complied
with in terms of percentage payouts and the net fair market value of the assets
so an attorney, CPA, or financial adviser should be involved in establishing the
trust. Thereafter, third-party fiduciaries can handle the ongoing
administration of the trust.
A charitable remainder trust is
outside of the estate and additional assets can be added after it is
established. The charitable deduction available depends on the type of property
contributed and the type of charity named as the charitable beneficiary. Any
deductions not used in the year of contribution can be carried forward five
years.
Since this type of trust is irrevocable,
decisions cannot be changed and naming a charity as the remainder beneficiary bypasses
other heirs. Before considering a charitable remainder trust, donors should
discuss the pros and cons with their advisers. The rules on charitable
deductions to qualified charities are very detailed and require review at the
time a charitable donation is contemplated as the rules may change or be
impacted by current tax court decisions and case law.
Mary Stark Hood, JD,
CFP, is president of the Hood Group, which provides consulting services to
business organizations and foundations. She currently serves as a consultant to
the CCIM Foundation’s Real Estate Gifting Realized Program. Contact her at maryshood@comcast.net. Learn more about the Foundation’s gifting
program at www.realestategifting.org.