Deferred Giving Trust Example    0019-02   ZZall

                                            - - - Rejoice in the Lord always ... again I say Rejoice !!! - - -

                               TO:  Interested Ministries                                                                                                      FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                                                                     FILE:  0019-02/all

                                RE:  Deferred Giving Trust Example                                                                                 Originated:  January 2001                               

          Below is a hypothetical Online Email thread (THRD) between   Jim@bcidot.org  and probably one of the these Ministry MFTeam members: PAT (Ministry Executive), LEE (Ministry Volunteer Treasurer), and FRAN (Ministry Computer Bookkeeper).  Click here and go to List of threads (THRDs) at www.bcidot.org

From:  Pat - 

        I have just read the Onliner Document - 0019, Jim --- about your thoughts on Deferred Giving Trusts.  But I have to admit, I am still unclear about a lot of this. Perhaps some type of hypothetical example of someone using a Deferred Giving Trust would help.

From:    Jim@bcidot.org 

            Good .... please follow the possible "Deferred Giving Trust Scenario" below.  Notice we refer to the people with the property as "Donor/Spouse" and the Ministry as "Charity" plus the trust handled by the Ministry as "Trust/Charity". The Ministry and the Trust are two separate legal entities.  
            Remember, such an arrangement usually is a part of a Donor/Spouse's overall estate planning effort.

  •    Let's say that Donor/Spouse has non-cash property worth $95,000 now but bought some time ago for $50,000 - this is called appreciated property. Or if they were to sell these assets now there would be a potential capital gain and related tax on $45,000.
  •    So Donor/Spouse decides to permanently transfer this property to a Deferred Giving Trust that ultimately benefits the tax-exempt organization named Charity.
  •    Since these assets are in a  trust, the Charity does NOT have current Board discretionary use of such assets.
  •    The Charity/Trust is to pay the Donor/Spouse $8,400 annually ($700.00 a month) for the lifetime of both Donor/Spouses.
  •    The Donor/Spouse is entitled to a current Income tax deduction as a charitable contribution ...... it is a percentage of the $95,000 depending on the type of Deferred Giving Trust plan and the ages of Donor/Spouse.
  •    Often a portion of the $8,400 received is annually reportable by the Donor/Spouse as taxable income.
  •    The Charity/Trust sells the property and ends up with $95,000 cash.
  •    Of course, the Charity/Trust does NOT report and pay any capital gain tax.
  •    The Charity/Trust invests it's assets for, let's say ---- $95,000 at 6% per annum, or $5,700 per annum
  •    Or the Charity/Trust receives some $5,700 annually and pays out some $8,400 to the Donor/Spouse etc. The $2,700 difference comes from the Charity/Trust's corpus .... beginning with the original $95,000, etc.
  •    The Charity/Trust could invest it's assets in something that, hopefully in the long run, increases in value beyond the original $95,000 plus the annual earnings therefrom, less the annual pay outs to the Donor/Spouse. 
  •    The Donor/Spouse has only the Charity/Trust's assets and net earnings to pay out the agreed $8,400 for their lifetime. Seldom do the Donor/Spouse outlive the trust's resources.
  •    At the death of both spouses, let's say that the Charity/Trust's assets are worth $100,000 and they now belong to the Charity only.
  •    This $100,000 is Charity Board discretionary income and is used to carry out it's exempt purpose.
  •    Hopefully, the $100,000 would NOT be used for Charity's current operating expenses.
  •    But rather to fund a Charity/Quasi-Endowment Fund with it's yield covering the costs of a specific Charity endeavor.

From: Pat --

        Very helpful, Jim.  I especially appreciate you making this clear that the Ministry's Board  (or Charity as you call it above) does NOT have access to these monies until the death of donors (or Donor/Spouse, as you say above).  
        Sounds a little like money coming to the Ministry from someone upon their death .... estate income, but under this arrangement the Ministry handles it on their behalf, as a trustee, until their deaths. I can see now why it is called a "Deferred Gift."
        Plus it sounds like the Donors would be good stewards by taking care of their Estate Planning while they are alive and save some taxes at the same time. 

From:  Jim

                Right, Pat.  but some Charities do not feel capable of handling this type of trusteeship and outsource it to a professional group who does this for a living.  Let me know if you want more information along these lines. 

    The bulk of this Publication originated in January 2001 and was  .   UPTD: May 02, 2008  

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      (1) An Onliner Document, or WRIT (Writing), may be applicable to all Ministries, or it may be designed for just groups like: Evangelical Church, School, Missionary Agency or Organization, Christian Camp / Conference, or other named group.
        (2) WRIT formats include the perspective of   Jim@bcidot.org  via IOMs (Inter-Office Memos) to the Ministry Finance Team (MFTeam); THRDs, a hypothetical Online conversation with members of the MFTeam; GLEANINGS, or Scripture within context of the MFTeam; FWIW; A periodic editorial (For What it is Worth); TRUISM, or believed Ministry Finance principles; and FAQ, response to Frequently Asked Questions