Charitable gifts are gifts made by an individual or an organization to a nonprofit organization, charity, or private foundation.
Charitable gifts are commonly made in the form of cash, but can also take the form of real estate, motor vehicles, appreciated securities, clothing, or any other asset. Charitable gifts typically provide the donor with an income tax deduction, but the amount of that deduction will depend on the type of asset that is gifted and the type of organization receiving the asset.
Split-interest trusts include CRATs, CRUTs, CLATs and CLUTS (see below). They are irrevocable trusts in which the income is first dispersed to the beneficiaries of the trust for a specified period of time and then the remainder of the trust is donated to a designated charity. The beneficiaries receive the income and the charity receives the principal after the specified period of time. The trust is split into two interests; the present interest goes to the beneficiary and the remainder is given to charity. A split interest trust can be used to avoid or reduce capital gains taxes, increase income, and avoid or reduce federal estate taxes.
Charitable Remainder Trusts (CRATs, CRUTs)
A charitable remainder trust provides for a specified distribution at least annually to at least one noncharitable income recipient for a period specified in the trust instrument with the remainder interest paid to at least one charitable beneficiary. The distribution must be paid at least annually for life or for a term of years, with an irrevocable remainder interest to be held for the benefit of, or paid over to, one or more qualified charities. The specified distribution must be either a sum certain, which is not less than five percent and not more than fifty percent of the initial net fair market value of all property placed in trust (a charitable remainder annuity trust, or CRAT), or a fixed percentage, which is not less than five percent and not more than fifty percent, of the net fair market value of the trust assets, valued annually (a charitable remainder unitrust, or CRUT).
Charitable Lead Trusts (CLATs, CLUTs)
A charitable lead trust is the inverse of a charitable remainder trust. It is designed to provide income payments to at least one qualified charitable organization for a period measured by a fixed term of years, the lives of one or more individuals, or a combination of the two, after which trust assets are paid to either the grantor or to one or more noncharitable beneficiaries named in the trust instrument.
A conservation easement is the most traditional tool for conserving private land. A conservation easement is a legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in order to protect its conservation values. The grantor of a conservation easement to a land trust gives up some of the rights associated with the land. For example, the grantor might give up the right to build additional structures, while retaining the right to grow crops. Future owners also will be bound by the easement’s terms. The land trust is responsible for making sure the easement’s terms are followed.
A private foundation is a nonprofit organization which is usually created via a single primary donation from an individual, family, or corporation and whose funds and programs are managed by its own trustees or directors. Private foundations do not generally solicit funds from the public. They must distribute at least 5% of their principal annually. They must disclose all grantees and grant amounts annually on IRS Form 990-PF. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations. Every U.S. and foreign charity that qualifies under Section 501(c)(3) of the Internal Revenue Service Code as tax-exempt is a “private foundation” unless it demonstrates to the IRS that it has met the public support test. In most cases, organizations that are not private foundations are public charities as described in the Internal Revenue Service Code.
Public charities usually derive their funding or support from the general public. They receive donations and grants from individuals, government, and private foundations. Some public charities engage in grantmaking activities, while others conduct direct service or other tax-exempt activities.