At a latest Trusts & Estates webinar, philanthropy skilled Jonathan Tidd mentioned the pitfalls and secure havens concerned in widespread present planning conditions. It’s necessary for practitioners to pay attention to these points or their shoppers might undergo the implications. Listed below are a number of of the questions from the viewers and Tidd’s responses:
Self Dealing
Trusts & Estates: Why is the fee thought-about self dealing if a donor makes an enforceable pledge and subsequently, the donor’s personal basis pays the pledge?
Jonathan Tidd: The reply lies within the Treasury Laws. Treas. Regs. Part 53.4941(d)-2(f)(1) supplies partly:
As well as, if a non-public basis makes a grant or different fee which satisfies the authorized obligation of a disqualified individual, such grant or fee shall ordinarily represent an act of self-dealing to which this subparagraph applies. Nonetheless, if a non-public basis makes a grant or fee which satisfies a pledge, enforceable beneath native legislation, to a corporation described in part 501(c)(3), which pledge is made on or earlier than April 16, 1973, such grant or fee shall not represent an act of self-dealing to which this subparagraph applies as long as the disqualified individual obtains no substantial profit, apart from the satisfaction of his obligation, from such grant or fee. As well as, a donor is a disqualified individual with respect to their PF pursuant to Treas. Regs. Part 53.4946-1(1)(i).
Pledge Fee
TE: Can a pledge be written so it is going to be paid by both the person or the PF?
JT: Sure, if the pledge is unenforceable beneath native legislation. However doing that is harmful if the pledge is enforceable, and the donor who made the pledge is a disqualified individual with respect to the PF. It’s harmful as a result of, as famous above, the fee by the PF can be self-dealing.
Mortgage Debt
TE: How does mortgage debt trigger issues in charitable present planning?
JT: Listed below are three issues.
- If the property topic to the debt is appreciated, and the property is given to a charity, the present can be a cut price sale for federal tax functions pursuant to Treas. Regs. Part 1.1011-2(a)(3), and the donor will understand acquire.
- If the donor is personally liable on the debt, and the property is transferred to a charitable the rest belief as outlined in Inside Income Code Part 664, the belief’s fee of the debt can be self-dealing beneath IRC Part 4941 and have to be prevented. See Treas. Regs. Part 53.4941(d)-2(f)(1). Charitable the rest trusts are topic to the identical self-dealing prohibition as PFs.
- If the debt-encumbered property is transferred to a charity for a present annuity, the debt have to be greater than 5 years outdated, pursuant to Treas. Regs. Section1.514(c)-1(b)(3), and sure different necessities of that part have to be met, or the annuity can be industrial insurance coverage beneath IRC Part 501(m).
Bequests
TE: What are the most important challenges with bequests to a charity?
JT: The largest problem, usually talking, is coping with onerous donor-imposed restrictions on the bequest. For instance, if a donor makes a large bequest to determine a scholarship fund for members of a selected racial group, such a restriction would contravene federal legislation. There are methods to realize such an goal, however finesse is required.
