Wouldn’t I do just as well selling my property and giving my charity cash?
That would depend a lot on your specific Exit Strategy, but here is how you can calculate the total benefits to you and your estate. If you sell and pay all the State and Federal taxes and pay all the costs of sale, and then wrote a check for 20% of the value of the building to your charity, you would have about 40% cash remaining.
By using the Charitable Exchange, you receive an annuity for life for two people equal to 100% of the value of your property. You also receive a tax deduction equal to about 60% of the value of your property and you generate an immediate cash gift to your chosen charity of about 10%-15% of the value of the property. Yes, you have created a value of more than 150% of your property’s market value by giving part of it away.
It pays to be generous.
How can this Exchange help my heirs settle my estate?
If you convert most of your real estate holdings into annuities, it will have several beneficial aspects for your heirs. First, you spouse will not have to learn how to manage the real estate assets, as she only has to receive the monthly check.
One of the most contentious issues facing heirs is the conversion of the real estate assets into cash for distribution to the heirs. Many a lawsuit has been filed by brother against brother or sister over this issue. Who should decided the sales price, who decides who gets how much of each property and who should be the broker to receive the commission.
All of this can be settled by your conversion to an Irrevocable Life Insurance Trust. The premiums can be paid by the annuity income and the tax benefits received. The proceeds of the trust are tax free to the beneficiaries and you get to decide exactly who gets how much of the cash.
Will this tax deduction cover all of my withdrawals from individual accounts?
This tax deduction is allowed to be used by you to shelter up to 30% of your adjusted gross income. That means that with careful planning, you could withdraw a substantial amount from your funds tax free. This tax deduction also carries forward the unused portion for five years after the completion of our process.
How much will this process costs me out of pocket?
There are no costs at all to the Property owner. You are given credit for the full market value of your property, you pay nothing for escrow and title and you pay no broker fees.
What is an Exit Strategy?
This is a plan you will create with your financial advisors to exit your position in real estate with the maximum benefit to you and your estate. Charitable giving should always be a consideration when creating a plan. This plan should apply to all small business owners as well.
What is a “Charitable Exchange”?
A Charitable Exchange is the name we have given to this process so the general public could more readily understand the concept. The IRS views this process as a Bargain Sale from you to the Foundation. This is where you transfer your property to a charity at a price below the market value with the intent that the charity will sell the property and keep the difference. That is accomplished by your acceptance of the Charitable Gift Annuity.
Isn’t my income from my IRA and 401-K tax free?
Sorry, but all your withdrawals from your individual retirement accounts will be taxed as ordinary income to you.
How can I use my tax deductions?
You can use it to deduct up to 30% of your AGI each year until it is used up. The carry forward of the tax loss is for five years after you file your taxes with the deduction for the first time. It will be especially useful to people who have well funded IRAs or 401-ks, as all of the income withdrawn from these accounts are taxed as ordinary income.
How much of my money will actually go to my charity?
If you take the maximum amount of an annuity, your charity should receive 12% to 15% of the market value of you property immediately at the close of escrow.
My charity is too small to accept real estate or write an annuity. Can I still donate to them?
Absolutely, this program is designed to help the smaller charities in America. Our foundation will do all the work and still give your charity the majority of cash created from the transaction.
What is the risk that my annuity will not last my lifetime?
Your annuity will be insured by one of the major insurance companies in this country. Your annuity will be paid during your life and that of your spouse and will not be at risk.
How can I eliminate the capital gains and recapture taxes due on my property and get a tax deduction by transferring my property to charity?
The IRS has ruled that if you transfer your property to charity, all accumulated taxes are forgiven. In our process, you are allowed to deduct the full market value of the property, less the current market value of your gift annuity, because you accepted a Charitable Gift Annuity instead of cash for the sale.
What kind of property can I give?
Our foundation will accept any kind of property that can be re-sold quickly. We have buyers for almost any kind of property anywhere in the U.S. It must be worth a minimum of $100,000.
How can the annuity pay more than my property does right now?
That is because the annuity is based on the market value of your property, not the rental value or the rental income. Ranch land may rent for $10 per acre per year, but have a market value of $3000 per acre. The annuity may pay up to $120 per year for the same acre.
This sounds too good to be true. Is this something new and untested?
No, in 2011 people donated over $5 BILLION of real estate to charity. Charities have been writing annuities for donations for years and years. This program just married the two existing concepts into one program.
How can this help my estate planning?
Instead of leaving several parcels of real estate for the heirs to fight over and have to sell at a fire sale, you can enjoy guaranteed income for the rest of your life and use the tax loss and annuity income to purchase a Life insurance policy to replace the net proceeds the heirs would receive after the sale of the property. You can also use it to reduce the size of the total estate, if it exceeds the IRS limits.
Can I use the donation process to reduce the size of my estate, yet keep most of my current income?
Yes, you can reduce the size of your overall estate, to less than $5.4 million, but using our process. The annuity you receive should generate almost an equal amount as the donated property, but does not count toward you inheritable estate, since it ends upon your death.
Will this process let me watch my donation work for my charity?
Absolutely! Your charity will receive their cash portion of your gift before you receive your first annuity payment. Whatever you earmarked your gift to do, you will be there to watch it come true.
Can my real estate broker help in this transaction and be paid for it?
Yes, simply list them on the Request for Proposal form.
What is a CRT (Charitable Remainder Trust?)
A CRT is created by a property owner and his attorney in order to avoid taxes on the donated property. The donated property is liquidated so the trust only has cash to invest. All investments must be in liquid assets: i.e. stocks and bonds. A part of the trust cash is supposed to go to a charity either annually or at the time of your death.
Are there costs involved in creating a CRT?
There will be substantial costs to start, just in your attorney fees. You must be sure to hire an experienced Trust attorney, as this is a very important move on the part of the property owner. Fees can run between $10,000 to $50,000 or more, depending on the size of your trust and your estate.
You must also have an accountant for the trust and file separate tax returns every year.
You will also have to pay broker fees every time you or your trustee buys or sells in the stock market. You also face the potential of losses in the stock market, as God has not yet created the broker who can predict all winners.
Are there risks with the IRS over a CRT?
Yes, because of the opportunity for abuse, the IRS has hundreds of pages of rules directed at Charities and Trusts. You have just created a trust naming a charity as the beneficiary and must adhere to all the rules and regulations regarding all of these. If your attorney is not very well versed in this process, find another attorney.
The IRS can disallow your tax exempt status, keep your assets in the now taxable trust and force you to repay all taxes that were forgiven at the initiation of the Trust.
Why is the Charitable Exchange better than a CRT?
The Charitable Exchange is a contract of sale between the property owner and the Public Charity. That is how the IRS views this process.
The view of the IRS is a CRT is a private charity and a private trust created by you for your own benefit.
Which do charities prefer, the CRT or the Charitable Exchange?
Your specified charity will receive an immediate cash gift from your use of the Charitable Exchange of about 12% to 15% of the total value of your property.
Your charity will receive about the same from the CRT, but only after you die, if your heirs allow it to be paid.