A donor owns property that he rents to third parties — property that a charitable organization could use to house its offices or one of its programs. The donor would like to benefit a charity and claim a federal income- and gift-tax deduction for the donation but doesn’t want to part with the property. What options are available?
Lisa B. Petkun
As noted in an earlier column, a charitable remainder trust (CRT) is a valuable tax-planning tool. However, Revenue Procedure 2005-24, issued on March 30, adds new rules to CRTs to address the problem of spouses “electing against the will,” which can arise in certain states.
A basic tenet of a CRT is that only the unitrust or annuity trust payment may be made to a non-charitable recipient.
We have previously looked at charitable remainder trusts and their role in philanthropic giving. Now let’s look at the other side of the coin: charitable lead trusts. While a charitable remainder trust combines a present non-charitable interest with a remainder interest that passes to charity, a charitable lead trust is a charitable interest followed by a non-charitable remainder.
With a charitable lead trust, the organization doesn’t have to wait until the expiration of the non-charitable interest but rather receives the interest at the start. As with remainder trusts, there are requirements governing lead trusts.
As a general rule, inherited assets are not subject to federal income tax. But if a beneficiary receives a gift before the death of the donor, it is considered “Income in Respect of a Decedent” and will be subject to income tax in the hands of that beneficiary.
There are many of these IRD assets: savings bonds, lottery winnings, IRAs, etc. Since these assets carry income tax burdens, they’re excellent candidates for charitable giving.