Charitable
GIFT FINANCING
Charitable
Gift Financing
$500K Average Amount of Gift
$170K In Tax Savings
Enhance Your Gift 10X
How does Charitable Gift Financing work?
Charitable Gift Financing Blueprint is a strategy that enables charitably inclined high-net-worth individuals to use a third-party loan to make a tax-deductible contribution to charitable organizations.
The IRS has ruled that when debt to a third party is used to make a charitable contribution, the taxpayer is entitled to a charitable contribution deduction under IRC §170(a) in the year the gift was made, and the deduction may not be postponed until the taxpayer pays the indebtedness – Rev. Rul. 78-38, 1978-1C.B.67, Granan v. Comm. 55 T.C. 753 (1971).
CLIENTS
LOAN PROVIDERS
NON-PROFIT ORGANIZATIONS
I. Ability to make larger size private charitable gift with minimum cash outflow
II. Ability to minimize income & capital gain tax liabilities
III. Ability to access rolling line of credit with low interest rate & no personal guarantee*
I. Ability to increase gift capacity designed to benefit small-size charitable organizations
II. Ability to create ongoing relationship with borrower-donors
III. Ability to receive larger annual budgets
I. Ability to add new generation of donors
II. Ability to continue creating public benefits
III. Ability to impact local communities
IV. Ability to receive larger donations
CLIENTS
I. Ability to make larger size private charitable gift with minimum cash outflow
II. Ability to minimize income & capital gain tax liabilities
III. Ability to access rolling line of credit with low interest rate & no personal guarantee*
LOAN PROVIDERS
I. Ability to increase gift capacity designed to benefit small-size charitable organizations
II. Ability to create ongoing relationship with borrower-donors
III. Ability to receive larger annual budgets
NON-PROFIT ORGANIZATIONS
I. Ability to add new generation of donors
II. Ability to continue creating public benefits
III. Ability to impact local communities
IV. Ability to receive larger donations
What is IRS rule for using a loan to make a charitable gift?
The IRS has ruled that when debt to a third party is used to make a charitable contribution the taxpayer is entitled to a charitable contribution deduction under IRC §170(a) in the year the gift was made, and the deduction may not be postponed until the taxpayer pays the indebtedness. Rev.Rul.78-38,1978-1 C.B. 67, Granan v. Comm. 55 T.C. 753 (1971).
How do I get a personal deduction if I use a grant or trust?
According to the IRS, a grantor trust is one in which the grantor, i.e., the person establishing the trust, retains control over trust’s income, assets, and debt IRC§ 673. As a result, the deductions and income of a grantor trust are passed to the grantor personally IRC§ 671, Treas. Reg. §1.671-2. Furthermore, the trust is not required to file a separate tax return.
What is the interest rate for the loan?
The interest rate is set at the IRS applicable federal rate (AFR) for a demand note. The rate changes all the time; however, over the past 30 years has average 3%.
How much can I claim as a tax deduction?
You can claim up to 60% of your income after adjusting for other deductions. A donor may deduct up to 60% of his or her Adjusted Gross Income (AGI) in one year. A gift or cash may be transferred and deducted in that year. If the donor’s contribution exceed 60% limit, the excess is carried forward and may be deducted over the next five years. Reg. 1.170A-10(b)
Who provides the capital for the loan?
The capital for the loan is provided by endowment funds, donor advised funds, private foundations and various charitably inclined private organizations, etc. They have yearly budgets, wish to increase overall charitable giving in local communities and accomplish this by giving loans.
How do I pay the interest and repay the loan?
You will prepay three years of interest up-front in the first year. In the 4th year, the interest will be rolled up into the loan. The loan plus any unpaid interest will be repaid out of your estate after you pass away. The executor of your estate will use the proceeds of life insurance to repay the loan.