BKAL 3063 INTEGRATED CASE STUDY

GROUP E (6)

(CASE REPORT ANALYSIS OF CHOOSING A CHARITABLE GIVING FOR

VEHICLE)

GROUP MEMBERS:

Ummi Fadhilah Binti Mansor 221410

Siti Filzah Binti Muhamad Nadzri 221357

Nur Fatihah Binti Zainal Lim 221536

Norpadilah Binti Mohd Roslanudin 224031

LECTURER’S NAME:PN ROHANA @ NORLIZA BT YUSSUF

SUBMISSION DATE:12 OCTOBER 2015

Executive Summary:

Elaine White is a financial advisor for two couples; the Anne and William Carson was upper-

middle class client. Carson planned to save large portion of his additional income and also

interested in making charitable distribution. They also wanted to learn more about charitable

vehicles which would allow them to received tax deduction this year but delay distribution

decision until a later date. Second customer of White is Mary and Jack Bradley is a wealthy

couple with substantial assets, a more complex tax situation, and a desire to control the

timing and recipients of their charitable contributions. White must consider the objectives of

these families in the context of several charitable giving vehicles, including Public Charities,

1 | P a g e

Private Foundations, Charitable Remainder Trusts, Charitable Lead Trusts, Donor-Advised

Funds, and Pooled Income Funds.

Contents1.0 INTRODUCTION.............................................................................................................................3

2.0 STATEMENT OF PROBLEMS.......................................................................................................4

2.1 Anne and William Carson..............................................................................................................4

2.2 Mary and Jack Bradly……………………………………………………………………………4

3.0 CAUSES OF THE PROBLEM…………………………………………………………………….5

3.1 Anne and William Carson……………………………………………………………………….5

3.2 Mary and Jack Bradly…………………………………………………………………………...5

4.0 ALTERNATIVE SOLUTIONS……………………………………………………………………6

5.0 RECOMMENDATION…………………………………………………………………………….7

2 | P a g e

1.0 INTRODUCTION

Donation to charity can be deducted in calculation for tax payable for individual.

Donation can reduce taxable income and lower the tax bill. Not everyone can deduct their

charitable contribution, but they can itemize the tax deduction in order to claim any charity

however, charitable for qualified organization only can be itemize in deduction. There are

type of organization that qualify for deduction; churches, temples, mosques and other

religious organization, federal, state, and local government, contribution for public purpose,

non-profit school , hospitals, public park and recreational facilities.

There are limit in donation that can be deduct. Not all donation made by tax payer can

be count for tax deduction. Contribution for public charities, collage and religious groups

cannot be exceeding 50 percent of Adjusted Gross Income (AGI). When it comes to donation

of property, the limit is 30 percent of AGI. If contribution of capital gains the limit is 20

percent of AGI. There are different between public charities and private foundation. Public

charities is generally support to the public for the example is government and engage in grant

making activities but for private foundation, the foundation is for individual, family or

corporation. A private foundation does not solicit funds from the public.

A charitable remainder trust is a trust that provides for a specified distribution, at least

annually, to one or more beneficiaries, at least one of which is not a charity. 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.

Charitable lead trust not force to name a specific charitable recipient in the trust who would

receive the remainder. Donor-advised fund is a charitable giving vehicle administered by a

public charity created to manage charitable donations on behalf of organizations, families, or

individuals. To participate in a donor-advised fund, a donating individual or organization

opens an account in the fund and deposits cash, securities, or other financial instruments.

3 | P a g e

A pooled income fund is a charitable mutual fund that from securities or cash donated by an

individual, a family or a corporation to a charity, and then invested to provide dividends for

both the donor and charity. The donations are irrevocable and tax-deductible and must be

from personal assets.

2.0 ANALYSIS OF PROBLEM

2.1 Statement of problems

Elaine White is financial advisor advising two couples, the Carsons and the Bradleys,

regarding their charitable giving options and related tax strategies. The Carsons are an upper-

middle class family with $295,000 in income, a moderate amount of deductions, and

straightforward charitable giving objectives. They were open to making significantly larger

charitable donation of $15,000, but were weighting this option against investing the extra

income and continuing to make their typical annual donations. Besides that, they were had

conflict as to which charity they wanted to donate. They wanted to learn more about

charitable vehicle which would allow them to receive a tax deduction this year but delay

distribution decisions until a later date.

Meanwhile, The Bradleys are a wealthy couple owned substantial assets, involve in a

lot of complex taxation, and desire to control the timing and recipients of their charitable

contributions. They were concerned that a lump sum donation might not be the best way to

ensure that their funds were most impactful. Jack’s biotechnology background made him

more interested in research-oriented causes, whereas Mary preferred charities which focused

on improving the lives of cancer patients and their families. So they seek for Elaine White to

learn more about the options which existed for them.

4 | P a g e

White must consider the objectives of these families in the context of several

charitable giving vehicles, including Public Charities, Private Foundations, Charitable

Remainder Trusts, Charitable Lead Trusts, Donor-Advised Funds, and Pooled Income Funds.

Elaine noted that her clients were trying to solve the same problems which are hoping to

make a charitable contribution this year but trying to determine the best charitable vehicle to

use.

2.2 Cause of problems

Anne and William Carson want to know which options is the best between options

existed in charitable vehicles. The main reason Anne and William Carson problem is to

determine the best charitable they want to donate because they only have $15,000 for

charitable donation which is not a substantial amount. They did not have large income but

they have to bear tax bracket 33% which is too high. They want to learn more about

charitable vehicle which would allow them to receive tax a deduction for this year but delay

with distribution until a later date.

Meanwhile, the main reason Mary and Jack Bradley want to determine the best

charitable is because they were not totally aligned on which cause they would most like to

support. Jack’s biotechnology background made him more interested in research-oriented

causes, whereas Mary preferred charities which focused on improving their lives of cancer

patients and their families. They also concerned about the possibility that their daughter’s

cancer could both contribute to a charitable cause and provide an income stream for their

daughter and her families.

5 | P a g e

4.0 ALTERNATIVE SOLUTIONS

When charitable giving is an integral part of a total wealth plan, donors enjoy

significant tax savings while supporting a worthy cause. In order to maximize the value of the

charitable donations, as well as the value of any assets that we wish to transfer to your heirs

or other beneficiaries, we must choose the correct vehicle for your charitable giving. There

are several charitable vehicle that given from the article Choosing a Charitable Giving

Vehicle that may one of them are suitable for Elaine White’s clients, Anne and William

Carson, Mary and Jack Bradley, which is Public Charities and Private Foundations, Split

Interest Trust and charitable vehicles for upper-middle class: (1) Pooled Income Funds, (2)

Donor-Advised Funds

The Internal Revenue Service (IRS) has allowed for the creation of tax-exempt

charitable organizations. The simplest and most popular charitable vehicle was a direct

donation to a tax-exempt, non-profit organization organized under S501(c) (3) of the IRC. It

could be divided into two groups which are public charities and private foundations.

Public Charities

Public charities generally derive their funding or support primarily from the general

public, receiving grants from individuals, government, and private foundations. Although

some public charities engage in grant making activities, most conduct direct service or tax-

exempt activities. Those starting a new organization usually prefer public charity status, not

just because it better describe the organization’s purpose. Public charities also enjoy some

advantages such as higher donor tax-deductible giving limits and the ability to attract support

from other public charities and private foundations. Basically, a Public Charity is a charitable

6 | P a g e

organization that has broad public support, actively functions to support another public

charity, or is devoted exclusively to testing for public safety. Public Charities are the

organizations people usually think of when they hear the word charity. These non-profits’

missions range from helping the poor to easing community tensions to advancing religion,

education, or science.

Private Foundations

A private foundation is a form of tax-exempt organization that must be organized and

operated exclusively for charitable purposes. The charitable activities of a private foundation

generally concentrate on receiving charitable contributions, managing its charitable assets,

and making grants to other charitable organizations to support its charitable activities.

Foundations are overseen by directors and trustees, generally called the “board” – often

family members, friends, or advisors. This board is responsible for determining, with the help

of professional advisors, the affairs of the foundation, including how foundation assets are

invested, where and when grants are distributes, and how large these grants should be.

The most successful foundations are founded with a clear charitable purpose.

Typically, this is expressed in a two-to-three-sentence mission statement created by the role

of the mission statement is to create a clear sense of direction for the foundation, to focus

grant making activities and improve the overall impact of grants, and to foster a shred

understanding of the foundation’s purpose.

Split Interest Trust are another type of charitable vehicle. These types of trusts

allowed a donor to subdivide a given set of assets into claims on income and claims on the

principal. There are two primary forms depending on which claims is provided to the charity

which is Charitable Remainder Trust and Charitable Lead Trust.

7 | P a g e

Charitable Remainder Trust

Charitable Remainder Trust (CRT) is an irrevocable trust typically funded with highly

appreciated property. The CRT is structured so that there is a current beneficiary who is

either the donor or a named individual and a remainder beneficiary, which is a qualified

charity, such as a private foundation. The CRT can provide that the named beneficiary

receive either a fixed amount each year or a percentage of the value of the trust each year, for

a period not to exceed 20 years. Since the designated charitable beneficiary could be a private

foundation while preserving the additional benefits provided by a CRT.

How the CRT works?

1. The donor transfer cash, securities or other property to the trust.

2. The donor receives an income tax charitable contribution deduction and saves capital

gains tax. During its term, the trust makes payments to you and/or another

beneficiary.

8 | P a g e

3. The remainder goes to the charitable organization after your lifetime.

Benefits of CRT

CRT is an immediate potential income and gift tax deduction for a charitable

contribution for the present value of the ending balance of the trust’s assets designated

for the charity.

CRT is exempt from tax on its investment income. Thus, a trustee of the CRT can sell

the appreciated assets and reinvest the full proceeds. The donor is able to diversify

from a concentrated position in a tax-efficient manner. When distributions are made

to the donor or beneficiary must report a portion of the income and gains in respect to

the property distributed. However, as the tax burden is spread out over time, more

money is available for reinvestment within the CRT, benefiting both the lifetime

beneficiary and charitable remainder beneficiary.

A contribution to a CRT made at death under a Will can produce an estate tax

deduction, not subject to any percentage limitations, with the value of the remainder

interest passing to the private foundation.

A CRT can be an effective strategy for planning for retirement as the tryst can provide

that income distribution do not commence immediately.

Charitable Lead Trust

Charitable Lead Trust (CLT) are 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

9 | P a g e

either the grantor or to one or more non-charitable beneficiaries named in the trust

instrument.

In theory, CLT can be thought of as the inverse of CRT. In practice, however, many of

the rules that govern the operation and taxation of CLT differ significantly from those for

CRT. For example, CLTs are not tax-exempt entities as are CRT. The rules governing CRT

are designed to protect the charitable remainder interest, whereas the rules governing CLT

protect the charitable income interest. During the term of the CLT, a charitable beneficiary

retains an income interest, known as the lead interest. At the completion of the trust term, a

non-charitable beneficiary receives the remaining trust assets.

How the CLT works?

1. The donor transfer property or others to a trust and receive an estate tax deduction

2. During its term, the trust pays a fixed amount each year to the charity chosen

10 | P a g e

3. When the trust ends, the remaining principal passes to their family or other heirs they

name.

If a CLT’s remainder interest does not revert to the donor or the donor’s spouse, but passes to

other non-charitable beneficiaries, there will be transfer tax consequences.

Gift tax – If the remainder interest passes to other non-charitable beneficiaries during

the donor’s life, the transfer will subject to gift tax, but the net present value of the

gift can be reduced (discounted) by the value of the income stream granted to the

charity. Because the transfer is a gift, the non-charitable beneficiaries will receive a

carryover basis in the trust assets.

Estate tax – If the remainder interest passes to the other non-charitable beneficiaries

after the donor’s death, the transfer may be subject to estate tax, but at the date of

transfer value. Any appreciation in the trust assets value will be entirely estate tax

free. And, if there are payments still owed to the charity at the donor’s death, the

donor’s estate can deduct the net present value of those payments. If the transfer is

subject to estate tax, the non-charitable beneficiaries will receive trust assets with a

step up in basis. If not, they may receive a carryover or modified carryover basis

instead.

The other solutions that can be used in determining the charitable giving vehicle to the

clients of Elaine White glanced are by using the Charitable Vehicles for the Upper-Middle

Class. In this options of charitable giving vehicle, there have two type charitable vehicles

which are Pooled Income Funds and Donor-Advised Funds.

1) Pooled Income Funds (PIF)

11 | P a g e

A pooled income fund is a charitable trust established and maintained by a qualifying

nonprofit organization, providing a lifetime stream of income based on each donor's share of

the income earned by the fund. Donors may be eligible to take an immediate partial tax

deduction, based on their life expectancy and the anticipated income stream, but must pay

income tax on the income they receive from the pooled income fund each year. Pooled

income funds offer professional investment management and a way to convert appreciated

assets into income without incurring capital gains tax. Donors recommend charitable

beneficiaries to receive the balance in the fund after the death of the last beneficiary

A PIF can be used by individuals who own appreciated securities and are looking for

more income, often during retirement, but do not want to pay capital-gains taxes when

repositioning those assets to produce income. Assets contributed to the PIF are irrevocable

and allocated into diversified income-producing pools. No capital-gains taxes are paid so the

entire value of contributed assets is used to generate income to clients for life. The clients

also will receive a current-year tax deduction based on the size of the gift, the age and

number of income beneficiaries and the rate of return of the Fund. The income may vary, it is

taxable, and any tax deduction is subject to AGI. The PIF can make grants to charities only

after the death of the last beneficiary and in some cases, there may be an additional waiting

period after that.

12 | P a g e

How the Pooled Income Funds ( PIF) works?

1. Client will transfer cash, securities or other property to the pooled income fund. A

minimum initial donation of $20,000 is required, after which subsequent minimum

donations of $5,000 may be made. Contributions of restricted and/or privately held

stock have a $100,000 minimum and are accepted on a case-by-case basis.

2. Client will received an income tax deduction and pay no capital gains tax

3. The fund will pay clients’ share of its income each year to the clients or to the anyone

that they named as beneficiary for life

4. When the gift term ends or after the death of the last beneficiary, client share of the

fund’s principal passes to the charitable trust

Example:

13 | P a g e

Clients contributes $10,000 to a pooled income fund. Assume his participation represents 1

percent of the fund. If the fund's net annual earnings are $40,000, clients becomes entitled to

1 percent of $40,000, or $400. When clients include a pooled income fund gift as an itemized

deduction on their federal tax return in the year of the gift, they also benefit from significant

tax savings. But according to this fund donor client has contract or signing document about

term of the PIF

Benefits of Pooled Income Funds (PIF)

Potential immediate partial tax deduction, based on your life expectancy and the

anticipated income stream

May eliminate capital gains tax for gifts of long-term appreciated securities

Income stream is taxable to the income beneficiaries and the donor or beneficiary is

assured of an income for life.

Offers clients grant-making direction, education, and guidance

Professional investment management

2) Donor-Advised Fund (DAF)

A donor-advised fund is a program of a public charity that allows donors to make

contributions to the charity, become eligible to take an immediate tax deduction, and then

make recommendations for distributing the funds to qualified nonprofit organizations on their

own timetable.

A donor-advised fund offers benefits such as flexibility in grant recommending,

including the ability to remain anonymous. Since the donors are eligible to take the maximum

tax deduction available once they have made their irrevocable contribution, the charity owns

and controls the assets, allowing the donor to have only advisory privileges over the

14 | P a g e

distribution of charitable grants. This is why the grants are recommended by donors, not

made by them.

The charity also will generally perform due diligence to verify that each organization

to which a grant is recommended is an IRS-qualified public charity, among other restrictions

as specified by the policies of each sponsoring organization with a donor-advised fund

program.

As far as tax considerations, donors may be eligible to take a tax deduction of up to 30% of

their adjusted gross income for contributions of securities, and up to 50% for cash

contributions.

How Donor-Advised Fund ( DAF) works?

1. Client can transfer cash or appreciated asset to the donor advised funds. A minimum

initial donation of $10,000 is required, after which subsequent minimum donations of

$1,000 may be made. Contributions other than cash, stocks or mutual funds may have

different minimums, may require prequalification, involve longer processing time and

are accepted on a case-by-case basis. 

15 | P a g e

2. Clients will get benefit of tax deduction and avoidance from capital gains tax for gifts

of long-term appreciated securities. The immediate tax deduction, up to 50% of

adjusted gross income for cash, 30% for appreciated assets

3. The DAF can often accept many types of assets and will engaged in professional

investment management

4. Clients can decide when and how much to gift to the charities that they recommended.

5. The client’s grants can be anonymous

Example:

If clients itemize deductions on their 2013 tax return, they can write off the amount of their

grant, up to 50 percent of their adjusted gross income for cash or 30 percent of income for

appreciated investments. Clients can even delay a decision on which organization will

ultimately get the money. If they will be donating stocks or mutual funds that have

appreciated in value, they can get the full write-off on the donation, but avoid the capital

gains tax by transferring the investment to their DAF, which will then sell and grant it. For

example, if they sell $15,000 worth of stock and have a $5,000 capital gain, they can claim

$15,000 as a deduction and won't owe taxes on their $5,000 profit so for the current year

they will get the tax deduction and about which charity they want to choose to give grants

can be decided later on.

Benefits of Donor-Advised Funds

Client’s contribution qualifies for an immediate income-tax deduction based on the

full value of the contribution, as no capital-gains taxes are paid on any unrealized

gains of long-term appreciates securities.

While clients take the tax deduction in the year that they make their contribution to

the fund, the money does not have to be granted to charities in the same year. They

16 | P a g e

can recommend grants according to clients own timetable, and clients grants can even

remain anonymous if they wish.

DAF contributions are invested with the potential for tax-free growth, possibly

allowing clients to give more over time.

Clients have the ability to select successors who can continue their charitable legacy

by recommending grants beyond their lifetime

Immediate income-tax deductions, tax-free growth potential, avoiding capital-gains

tax on long-term appreciated securities, and reduced estate taxes are all potential tax

benefits for clients when they contribute to a DAF.

17 | P a g e

4.0 RECOMMENDATIONS

In this case, we recommended that Anne and William Carson for using the Charitable

Vehicles for the Upper- Middle Class for their best tax implication. We are choosing the

vehicle charitable of Donor Advised Funds rather than Pooled-Income Funds for Anne and

William Carson because it suit with the condition and their desired. Here are some

calculation for both type of charitable giving:

i. POOLED INCOME FUNDS (PIF)

Current Situation

Income Recipient Age : 45

Give Amount : *$20,000.00

Gift Date: 28/12/2013

IRS Discount Rate 2.2%

Benefits

Charitable deduction : $4,538.40

Payment Rate: 5.00%

First Year Income: $1,000.00

18 | P a g e

*Notes: A minimum initial donation of $20,000 is required, after which subsequent

minimum donations of $5,000 may be made. Contributions of restricted and/or privately held

stock have a $100,000 minimum and are accepted on a case-by-case basis.

CHARITABLE DEDUCTION: $4,538.40

INCOME TAX SAVINGS (33%): $1, 4978

ESTIMATED INCOME FIRST YEAR: $1,000.00

ii. DONOR –ADVISED FUNDS (DAF)

Sell Appreciated stock and

donate proceeds (cash) to charity

Donated appreciated stock

directly to donor-advised

fund

Fair market value $15,000 $15,000

Capital gains tax paid $15,000 x 15% = $2,250 $0

Total donated to

charity

$15,000- $2250 =$12,750 $15,000

Charitable tax

deduction

$$12,750 x 33% = 4,208 $15,000 x 33% =4950

Net tax savings $4,208-$2,250 = $1958 $4950

*Tax benefit of donating cash VS stock. A minimum initial donation of $10,000 is required,

after which subsequent minimum donations of $1,000 may be made.

19 | P a g e

Pros and Cons of Pooled Income Funds versus Donor Advised Funds:

ADVANTAGES

Pooled Income Funds(PIF) Donor-Advised Funds(DAF)

Minimum Donations. $20,000 for initial

amount, subsequent $5,000

Charitable income tax deduction. The

donor will receive a charitable income

tax deduction equal to the present value

of the charity’s remainder interest

Avoidance of capital gain. Donation of

highly appreciated asset are ideal because

the donor does not realized capital gains

upon the fund’s sale of the contribution

assets.

Realization of life time income. The

donor or beneficiary will received a

payment of income at least annually for

the remainder of their life

Reduction of the gross estate. Assets

contributed to the fund will be effectively

removed from the donor’s estate, thereby

Minimum Donation. $10,000 for initial

amount, subsequent $1,000

Professional management. The

account is administered by the nonprofit

organization, not the donor. The

financial advisor can manage the find

and complete due diligence to confirm

tax-exempt status of all organizations,

making the donation process simple for

clients.

Tax Advantages. Clients receives an

immediate tax deduction for each

contribution. For the clients that make

contributions to DAF, they will receive

tax deduction on that year and can

decide which charities will benefit later

on

20 | P a g e

reducing the estate taxes payable upon

the donor’s death

Minimal fees. Donor does not have to pay

up-front legal fees to establish the fund or

perform ongoing administration

Charity support. The remaining share of

the donor’s contribution upon the death

of the income beneficiary is passed to

donor-recommended qualifying charities

Flexibility. The client does not need to

identify up front exactly which charities

will ultimately benefit from the gift.

This can be managed and decided by the

financial advisor. If a client donate to

multiple organizations each grant can be

completed differently for example client

may request anonymity with one

donation and not for another

DISADVANTAGES

Pooled Income Funds Donor Advised Fund

Unpredictable Income. The income

generated year to year may not be

consistent

Contribution limitation. Many funds

limit acceptable contributions to cash,

publicly traded stock, mutual fund shares

or publicly traded bonds. A number of

funds accept whole and partial interests

in real estate, but not all

Income taxed as ordinary income. Some

clients may wish to pursue a giving

Possible limited decision power. With

this type of fund, the donor not have

absolute control. In most cases, the

sponsoring charity of the DAF follows

the client’s wishes, but clients may prefer

a giving strategy that allows them to

make final decisions regarding the

designated charities.

Less flexibility than a private

foundation. For high-net-worth clients

with extensive philanthropic goals, a

21 | P a g e

strategy that offers other tax benefits family foundation may offer more

flexibility and control, including greater

investment choices and the option to put

family members on the foundation’s

payroll.

In this case, we know that the situation of the William Carson had faced the situation

where actually his normal income is about $60,000 per year but he experiences fortuitous

earned amounted $170,000. Given his current wealth, William Carson wants to donate

$15,000 to charities in this years but he’s not ready to choose where to donate that much

money all at once, but is concerned that after his income reverts back to ‘normal’ so DAF

would be the best strategies for them to applied. Anne and William Carson are advisable to

choose this charitable giving vehicle because it match their desire whereby the minimum of

donation can be made is $10,000 for initial compared to the Pooled Income Funds required

minimum donation amounted of $20,000.

By taking all the consideration, we think the most suitable and beneficial charitable

vehicle for Anne and William Carson are using Donor Advised Funds. In this case, Anne and

William Carson was mentioned earlier that they want receive a tax deduction in this year

2013 but delay distribution decisions until a later date. So the DAF is a good fit any time

there’s a desire to contribute now and get the tax deduction, but make the actual grant to the

final charity at some later date. In fact, the whole point of a donor-advised fund is to separate

the timing of when the tax deduction occurs from when the charity ultimately receives the

money. In addition DAF may be the ideal solution for clients who want to secure a tax

deduction today and benefit from professional management of their charitable donations.

22 | P a g e

Besides, it can give benefit to clients such as allows them to donate assets for charity

today and receive a tax deduction now even though the actual funds may not be granted to the

final charity until some point in the future. The clients may be eligible to take a tax deduction

of up to 30% of their adjusted gross income for contributions of securities, and up to 50% for

cash contributions.

In other words, the donor-advised fund essentially functions as a conduit, where the

donor receives a tax deduction when the money goes into the DAF, but has discretion about

when the assets will finally leave the DAF and actually go to the charity and in the meantime,

assets inside a donor-advised fund grow tax-free. Through this DAF, clients can teach their

children about charitable giving while alive and also funds as a legacy family giving vehicle

after death. The virtue of doing so is that all funds that are inside the donor-advised fund can

grow and compound tax-free indefinitely to support future family charitable giving which are

the good ethics in the community.

The reasons why the pooled income is not recommended to the Anne and William

Carson is because it required them to donates more than what they want. Based on the pooled

income fund requirements, the initial minimum of the amount donation is $20,000 so this

charitable vehicle is against with Anne and William Carson because does not full filled their

desired whereby the just want to make contribution amounted of $15,000 for that year.

Besides the pooled income funds is more suitable for the people who wish to meet charitable

goals while addressing issues such as tax planning and retirement income may benefit from a

pooled income fund.

For the conclusions, in this case Anne and William Carson is kind hearted person who

always allocate the donation for the charity purpose previously which give donation to church

and local community, so by using DAF their money will go directly to the charity and can be

23 | P a g e

used by charity to help other who entitle to get it and in the same time they can gain benefit

on tax deduction on that year.

Extraction of income tax Calculation:

$ $

Income :

William

Anne

170,000

125,000

Adjusted Gross Income 295,000

*deduction to DAF (50% x 295,000) 147,500

Taxable Income 147,500

Tax Payable (33%) 48,675

*cash donation to DAF amounted $15,000 will get tax deduction immediate 50% from

Adjusted Gross Income.

The best charitable vehicle for Mary and Jack Bradley is Charitable Remainder

Trust (CRT). This is because A CRT is tax-exempt, so appreciated assets contributed to and

sold within the trust will not result in tax liability to the donor. Besides that, an income tax

deduction is available to the donor for assets contributed to a CRT. The deduction is equal to

the present value of the charitable beneficiary’s remainder interest. Contributions to a CRT

are removed from the taxable estate of the donor and typically not result in gift taxes. Gift

taxes liability may be present if the income beneficiary is an individual other than the donor

or the donor’s spouse. Other than that, a CRT can provide an income stream for the income

beneficiary’s life or for a term of years. If the income payment is not for life, then the trust

24 | P a g e

term is limited to a maximum of 20 years. CRT also allows clients to attain their charitable

goals by passing a significant amount of assets to charitable causes of their choice.

CRT was an attractive charitable vehicle to taxpayers who wished to provide a

dependable lifetime income for family members as well as future support for a specific

charitable organization. Because of Remainder Trust simultaneously created a charitable

deduction while providing a gift to a beneficiary, the vehicle would be especially attractive to

those looking to minimize estate taxes as the couples Mary and Bradley are particularly

interested in vehicles which could contribute to a charitable cause and provide income stream

for their daughter and her family.

Calculation:

Benefits

Charitable deduction : $1,090,728

Payment Rate: 5.00%

First Year Income: $150,000

Situation

Term of Years: 20

Gift Amount: 3,000,000

Gift Date: 20/10/2015

IRS Discount Rate 2.2%

25 | P a g e

5.0 EXTERNAL SOURCING

http://ordercasesolutions.blogspot.my/2015/08/choosing-charitable-giving-vehicle-

case.html

http://taxes.about.com/od/deductionscredits/a/CharityDonation.htm

https://www.legalzoom.com/articles/charitable-contributions-how-much-can-you-

write-off

http://grantspace.org/tools/knowledge-base/Funding-Resources/Foundations/private-

foundations-vs-public-charities

http://www.pgdc.com/pgdc/charitable-remainder-trusts

http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/ PracticeCenter/ForefieldAdvisor/DownloadableDocuments/FFCharitableLeadTrustCaseStudy.pdf

http://www.fidelitycharitable.org/giving-strategies/give/charitable-lead-trusts.shtml

26 | P a g e

27 | P a g e