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Charitable Financial Planner 2003.10 User Manual

1. 7520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 7520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more 24 Calculation Models information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM if the rate for either month is used in the 7520 data input field For any dates prior to May 1 1999 the program will automatically use the S0CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 FMV of Trust Enter the initial net fair market value of the assets placed in the trust when established Percentage Payout Enter the projected payout percentage that should go to the beneficiary during the life of the trust Payment Period S
2. Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the Enter the number of lives up to five that will be used to determine the charitable deduction This data input field is only available when Life is chosen as the Calculation Type Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from O to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Income Tax The Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets in 2011 Indicate whether or not you wish to assume that the income tax provisions of that act will sunset Cost Basis Enter the amount of basis for the asset being placed in the trust Charity Type Choose 50 30 or 20 All qualified non profit organizations will fit within one of these types IRS Publication 78 Capital Gains Rate Enter the income tax rate that applies to capital gains property Summary Report When the annuity is annualized it must not be less than 5 of the initial fair market value of the trust therefore the Charitable Financial Planner does not allow the Percentage Payout input field to drop below 5 If the annuit
3. Charitable Deduction for Remainder Interest Valuation of a remainder interest in real property following one life is determined under IRS rules 25 2512 5 d for transfers after November 30 1983 The remainder interest is obtained from the following formula Depreciable Part Remainder Factor Adjustment Factor Remainder Factor x Nondepreciable Part Income Tax Report The trust provides an Income Tax Report See page 17 for more information on this report Tax Savings Report The Tax Savings report illustrates how a Charitable Deduction is distributed over a period of years The report shows the current year and the next five years which is the maximum period allowed for distributions Multiplying the Charity Type 50 30 or 20 and the Adjusted Gross Income calculate the amount of deduction taken annually from the trust The report shows how much of the charitable deduction is used each year as well as the annual tax savings generated from the charitable deduction The Capital Gain is derived from the following formula 34 Calculation Models FMV Cost Basis x Capital Gain Rate The bar graph shows an annual comparison of the income tax with and without the charitable trust Charitable Lead Annuity Trust A Charitable Lead Trust is created when a donor provides income producing property The trust then provides fixed periodic distributions to a charity followed by a non charitable remainder or reversio
4. 20 2031 7 b 3 1 the period adjustment factor is found in 20 2031 7 b 2 is used for transfers prior to May 1989 For transfer dates after April 1989 an adjustment factor from Table K for the appropriate interest rate is used If the annuity is payable at the beginning of the payment period a period adjustment factor is used for transfers prior to May 1989 or Table K is used with the product added to the first payment for transfers after April 1989 Payout Frequency Factor Adjusts the Present Value of the annuity This factor comes from Table K Present Value of Annuity The Amount of the Annuity times the Annuity Factors Gives the value of the money the beneficiary ies receive Charitable Remainder The Fair Market Value of the Trust minus the Present Value of Annuity In other words the fair market value of the remainder interest of a charitable remainder annuity trust is the net fair market value of the property placed in the trust minus the present value of the annuity Charitable Deduction for Remainder Interest The dollar amount that is not subject to taxation income tax Donor s Deduction as Percentage of Amount Transferred The percentage amount that is not subject to taxation income tax 7520 Report The 7520 Treasury Regulations Exhaustion Test calculates a limit in the valuation of annuities created a Charitable Remainder Annuity Trust The Charitable Financial Planner shows the steps used to c
5. Annual Mid term Applicable Federal Rate For split interest charitable transfers you are allowed to use the rate for the current month or for one of the previous two months This is why the program automatically displays three interest rates after you enter a Transfer Date For the 87520 Rate data input field the program automatically rounds the 120 Annual Mid term Applicable Federal Rate to the nearest two tenths of one percent When the announced rate falls exactly in the middle the program follows the IRS practice of rounding the rate up example 10 10 rounds to 10 20 The AFR Rates can be accessed from the Menu Bar select AFR Rates from the Tools menu or by clicking on the AFRs button under the Menu Bar You can also find the rates on the Brentmark Web site at http www brentmark com AFRs htm They are also published each month under Fed Interest Rates in the Money amp Investing section of The Wall Street Journal seven to ten days prior to the applicable month You may download the current AFR rate from Brentmark s web site See page 6 for more information about adding and downloading AFRs Life Expectancies The program includes the new life expectancies that went into effect on 5 1 89 as well as the old life expectancies that were in effect prior to that date The new life expectancies are effective for Transfer Dates after 5 1 89 but see the Transitional Rule The new life expectancies are built in to the calculations of
6. Principal Enter the fair market value of the assets placed in the trust Grantor s Current Age This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Second Age 0 if None This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Term of Trust Enter the number of years the trust will provide income to the grantor After Tax Growth Rate Enter the after tax growth rate of the trust assets 47 Charitable Financial Planner Combined Death Tax Bracket Enter a bracket which takes into account both the state and federal death taxes Summary Report The Summary Tab displays the taxable portion of a QPRT To calculate this value the calculation determines the value of the interest retained by the grantor income interest plus reversion It then subtracts the value of the grantor s retained interest from the principal placed into the trust The result is the taxable portion of the QPRT The Taxable Gift the Value of Property after three years and t
7. button located under the Menu Bar 3 Click the Take Data from Current Calculation button and on the first panel a bar graph will appear showing the FMV and the deduction of that trust This information will also appear on the second panel in the form of a description chart 4 In the description chart click the area under the Visible column until an X appears for the CRAT Be sure not to click the area under the Link column Leave it blank to disable the Link feature Click the Close button 6 Make the desired changes on the Charitable Remainder Annuity Trust calculation 1 e change the Percentage Payout to 5 7 Follow Steps 2 through 4 but this time activate the Link feature Now that this scenario is linked when you return to the CRAT calculation you can make other changes to alter the results This allows you to see how the original scenario looks compared to any new changes made to the calculation Nn NOTE To use the Link feature you must always Link the last scenario that is created Therefore if you are comparing five scenarios only link the fifth one otherwise you will delete the information from one of the other present scenarios Age Calculator This calculator assists in determining the age that will be used in the Ages data input field To access the Age Calculator select Age Calculator from the Tools menu 1 Enter the client s Date of Birth 2 Enter the Transfer Date A Calculated Age appears On
8. 6 Percent Involving One and Two Lives As set forth in Rev Rul 70 452 1970 2 C B 199 the charitable deduction is not allowable where the probability exceeds 5 percent that a non charitable beneficiary will survive the exhaustion of a fund in which charity has a remainder interest Any possibility in excess of 5 percent that the contingency will occur and defeat charity s interest is not considered so remote as to be negligible within the meaning of section 20 2055 2 b of the regulations In this connection see sections 2037 and 2042 of the Code which specify that 5 percent is the value at which a reversionary interest will be considered significant The charitable deduction was disallowed in Moffett v Commissioner 269 F 2d 738 4th Cir 1959 where the probability that the fund would be exhausted was 19 percent and United States v Dean 224 F 2d 26 1st Cir 1955 where the probability was 9 percent Section 2055 e 3 of the Code states only that a trust instrument can be amended if no deduction is allowed because the instrument fails to meet the requirements of section 2055 e 2 A which states that a charitable remainder trust must be in the form of an annuity trust a unitrust or a pooled income fund In neither an annuity 73 Charitable Financial Planner trust a unitrust nor a pooled income fund must the non charitable beneficiary receive an amount less than the amount that would deplete the trust prior to the death of th
9. 77 454 will often be higher In some cases where the Annual 50 Calculation Models Payment Growth value is negative the Rev Rul 77 454 Taxable Gift value may actually be lower For each Calculation Type the Optimize choices will produce the result which is most consistent with IRS regulations and rulings Note The U S Tax Court held Example 5 of Treas Reg Section 25 2702 3 e to be invalid in Walton v Commissioner 115 T C No 41 See http www ustaxcourt gov InOpHistoric walton TC WPD pdf 12 22 2000 There is now authority for the proposition that a GRAT can be created for a term of years with payments to the grantor s estate in the event of the death of the grantor during the term and the GRAT can be valued using the annuity factors for a term of years and not the shorter of a term or life If this decision is correct and not overturned on appeal it should be possible to create a GRAT that has a remainder with a value of zero or very close to zero To calculate the annuity percentage that will result in a near zero remainder make sure that the Trust Type is Term then click on the Optimize button and select Optimize for Taxable Gift of Residual Interest in Trust Ifa GRAT is required to pay an annuity that will exhaust the GRAT before the end of the stated term the literal application of Treas Reg Section 25 7520 3 b 2 1 might result in a small positive value for the remainder du
10. Ctrl Tab to move through the report tabs from left to right Press Ctrl Shift Tab to move through the report tabs from right to left Press the Page Up and Page Down keys to scroll up and down within any of the report tabs Press the Tab key to move from one data input field to another Or press Shift Tab to move backwards through the data input fields 10 Section 2 Calculation Models Common Criteria amp Reports Charitable Remainder Annuity Trust CRAT Charitable Remainder Unitrust Pooled Income Fund Charitable Remainder in Residence Farm Charitable Lead Annuity Trust CLAT Charitable Lead Unitrust Charitable Gift Annuity Qualified Personal Residence Trust QPRT Grantor Retained Annuity Trust GRAT Grantor Retained Unitrust GRUT Interrelated Estate Tax Calculation Models Common Criteria amp Reports There are areas in this program where the same information is used to perform calculations or to represent results Those areas are discussed in this section of the manual You may want to refer back to this section as a reminder as you work your way though the different calculation models Interest Rates Prior to May 1 1989 a 10 interest rate was used to generate IRS factors for annuities life estates remainders etc for valuing split interest charitable transfers For May 1 1989 or later transfers the applicable interest rate changes each month This floating rate is determined by reference to the 120
11. are then added together The total is the Value for Rev Rul 77 454 Test report When Rev Rul 77 454 may apply for a Shorter of Term or Life calculation the program includes a year by year Rev Rul 77 454 schedule As for the mechanics of the 77 454 test there are gray areas once you get beyond the simple case of an annual payment at the end of the period The program uses an approach long followed for the similar Rev Rul 77 374 test that is applied for Charitable Remainder Annuity Trust life cases See George H Moor Est 43 TCM 1982 299 for the proposition that annual payments are adjusted by a payout frequency factor Economic Schedule The GRAT and GRUT calculations include an Economic Schedule Its growth and income values are calculated on an average annual basis This schedule is available to show an assumed future value of the remainder of the trust if capital growth and income were to rise or fall from the assumed income rate It should be noted that the Annual Growth of Principal and Income Earned by Trust data input fields are only used for the Economic Schedule and are not used for any other part of the GRAT or GRUT calculations Graph This is a graphical pie graph view of how the principal is divided into two parts e Taxable Gift e Non taxable Portion 55 Charitable Financial Planner Grantor Retained Unitrust GRUT A Grantor Retained Unitrust GRUT provides the grantor with a fixed percentage of the value of
12. by telephone call 407 306 6160 between 9 00 AM and 6 00 PM eastern time Monday through Friday e For assistance by FAX send your FAX to 407 306 6107 e For assistance by mail send a sample printout to Brentmark Software 3505 Lake Lynda Dr Ste 212 Orlando FL 32817 8327 If your questions concern calculations please have a list of your exact input values available when you contact us We want the software to be as accurate as possible and we want you to be satisfied that it is accurate We would like to hear from you if you think there is a problem 85 Charitable Financial Planner 86 Index 1 10 Test 18 36 5 5 Probability Test 74 50 Test 18 36 A Additional Elderly Deduction 15 Adjusted Gross Income 14 Adjusted Itemized Deductions 15 Adjusted Personal Exemptions 14 AFR Rates 6 Age Calculator 8 Average Tax Rate 14 C Calculation Menu 5 Calculator 9 Charitable Deduction 15 Charitable Gift Annuity 41 Assumptions and Limitations 45 Calculation Type 41 Data Input Fields 41 Graphs 45 Section 7520 Report 44 Summary Report 43 Tax Savings Report 45 Charitable Lead Annuity Trust 35 Data Input Fields 35 Graphs 37 Section 7520 Report 37 Summary Report 36 Charitable Lead Unitrust 39 Data Input Fields 39 Graphs 41 Summary Report 40 Charitable Remainder Annuity Trust 17 Data Input Fields 18 Graphs 21 Rule 77 374 Report 21 Sect
13. current tables are moved to sections containing actuarial material for historical reference Table B Table D Tables F 4 2 through F 14 0 Table J and Table K which are not based on mortality experience are not changed Internal Revenue Service Publications 1457 Actuarial Values Book Aleph forthcoming 1999 1458 Actuarial Values Book Beth forthcoming 1999 and 1459 Actuarial Values Book Gimel forthcoming 1999 will contain a complete set of actuarial tables that include factors not contained in the regulations for example annuity and life interest factors Although not available on May 1 1999 IRS anticipates these publications will be available by July 1 1999 These publications will be available for purchase 79 Charitable Financial Planner from the Superintendent of Documents United States Government Printing Office Washington DC 20402 Text omitted here Effective Dates These regulations are applicable in the case of annuities interests for life or terms of years and remainder or reversionary interests created after April 30 1999 Transitional Rules The regulations provide certain transitional rules intended to alleviate any adverse consequences resulting from the proposed regulatory change For gift tax purposes if the valuation date of a transfer is after April 30 1999 but before July 1 1999 the donor may determine the value of the gift and or any applicable charitable deduction under tables based
14. determined by taxpayers prior to issuance of the publications Taxpayers who expect to make transfers after April 30 1989 of partial interests in property measured by a term of years may find applicable term certain factors in commercially available financial publications that contain present value tables computed to six significant figures Taxpayers may also compute the term certain valuation factors for valuing a remainder interest an income interest or an annuity interest These computations are illustrated by the following examples 1 5 Example 1 Computation of a Remainder Interest Assume that a donor makes a gift of an interest in a trust for an 8 year term certain after April 30 1989 and needs to value the remainder interest Assume also that 120 percent of the applicable federal midterm rate for the month is 10 8 percent The applicable factor for valuing a remainder interest based on a term of years may be determined by use of the following mathematical formula RemainderFactor here i equals 120 percent of the applicable federal midterm interest rate under section 7520 and the exponential power t equals the number of years in the term Based upon interest at 10 8 percent per annum the present worth of 1 00 due at the end of 8 years is 0 440232 Example 2 Computation of an Income Interest Assume the same facts as in Example 1 except that the donor needs to value the income interest The valuation factor for a t
15. document contains amendments to the regulations revising certain tables used for the valuation of partial interests in property under section 7520 of the Internal Revenue Code of 1986 Code to reflect the most recent mortality experience available In General Section 7520 effective for transfers for which the valuation date is after April 30 1989 provides that the value of an annuity an interest for life or a term of years and a remainder or reversionary interest is to be determined under tables published by the Internal Revenue Service based on a discount rate rounded to the nearest two tenths of one percent equal to 120 percent of the applicable Federal mid term rate in effect under section 1274 d 1 for the month in which the valuation date falls Section 7520 c 3 directed the Secretary to issue tables not later than December 31 1989 utilizing the then most recent mortality experience Thereafter the Secretary is directed to revise the tables used in valuing interests dependent on mortality experience not less frequently than once each 10 years to take into account the most recent mortality experience available as of the time of the revision These regulations incorporate revised Table S Single Life Remainder Factors and Table U 1 Unitrust Single Life Remainder Factors based on data compiled from the 1990 census as set forth in Life Table 90CM and make conforming amendments to various sections to reflect the revised tables The
16. for a fund to qualify as a Pooled Income Fund it must meet the following requirements e The property transferred by each donor must be combined with the property transferred by other donors The fund cannot be used to invest in tax exempt securities Neither the donors nor the income beneficiary can be a trustee The donor must maintain a life income interest The beneficiary ies is entitled to receive a pro rata share of the income annually based on the rate of return that is earned by the trust If these qualifications are met the donor will receive an income gift or estate tax deduction Data Input Fields Enter the appropriate values into the data input fields for this calculation model Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 Note For May or June of 1999 you have the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM For any dates prior to May 1 1999 the program will automatically use the 830CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 Value of Property Enter the fair market value of the property contributed by the donors Highest Rate of Retu
17. life of the donor s spouse as well And then the asset can then be sold by the trust and the proceeds of sale reinvested without payment of any federal income tax on capital gains The capital gains will be taxable to the donor or the donor s spouse only as they are distributed to the donor as part of the annual distributions from the trust A variation of the CRUT which pays a fixed percentage of the value of the trust assets regardless of income is the net income with makeup CRUT or NIMCRUT which pays either the fixed percentage or the income actually received by the trust whichever is less However if the income is less than the fixed percentage the deficiency can be paid in a future year as soon as the trust has income which exceeds the fixed percentage An additional variation is a flip unitrust which is a trust that changes from a NIMCRUT to a regular CRUT upon the occurrence of a specific event such as the sale of a specific asset that was contributed to the trust and was not expected to produce much income Data Input Fields Enter the appropriate values into the data input fields for this calculation model Calculation Type Select Life or Term For more information on calculation types see page 16 Transfer Date Enter to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990
18. o DO a 45 Assumptions and Limitations 0 ccccccccsseesseescessceescesecescesecesecseceaeceaecaaecaeeeaeeeaeeeaesesesereneeeseeeeeeaees 45 Qualified Personal Residence Trust OPRT j na pasa a usa 47 Datars Input Fields cst meses edo tato ese 47 SUMIMATY REPOLE td ed e nan o Sesi an data chest nt da Dado Do Da da ao Maus 48 actors Report le nes 48 Graphic del cd lured da e da De ld e e a ad lu 48 Grantor Retained Annuity Trust GRAT 0 c ccc ecccceseceseceeeeeeseecaeceeeeeeeeenseecsaeceeeneeeenneees 49 O Ree ee 49 Edit Payout Rates But a 51 Data Input Fiel ds at A a a 52 Summary Re tyiuni is ceerecssusessos leverage cuvobsenseusyevaceuedecusibusdavegslaustioys evcaus se mesa ma estrelas teias 53 Reversion Reports senior r a E aa O DOURO as 55 Rev RUTAS AR A eee 55 Economic cmd in 55 O 55 Grantor Retained Unitrust CRUDA dde 56 Data Input Fields i 56 Summary Repo airada Ta Weeds pda panda Un a ea pende 58 Economic Schedule muii dedic 58 Graph O 58 interrelated E sa ada tena mip O ad 59 Data Input Fields dilo are ites loss ce a o anti n et 59 Summary RO AAEE AET 60 Section 2 ID A A dates eia Das dedo dada dad dd dei ita 61 IRS Notice IO Ai ins 62 Charitable Financial Planner Te tof Notice ii o A eTa 63 Background ui a 63 Interest Rates and Source of Tables for Transfers after April 30 1989 64 Charitable Contributions Made after April 30 1989 00 ccceecceesseesceseceeeceecesecenecseecaeeeaeeeeeeeeeereees 64
19. of course assumes that the payments are made at the end of each year Annuities paid at the beginning of the period are treated in the same manner as annuities paid at the end of each period First the trust is reduced by the value of the first payment The above analysis is then performed for the annuity assuming payments occur at the end of each period Finally the first payment is added to the annuity value Treasury Decision 8819 The IRS has issued temporary and proposed regulations that revise the actuarial tables for valuing annuities interests for life or terms of years and remainder or reversionary interest to take into account the most recent mortality experience available 78 Reference Information Text of Treasury Decision 8819 This document contains regulations relating to the use of actuarial tables in valuing annuities interests for life or terms of years and remainder or reversionary interests These regulations are necessary because section 7520 c 3 directs the Secretary to update the actuarial tables to reflect the most recent mortality experience available These regulations will effect the valuation of inter vivos and testamentary transfers of interests dependent on one or more measuring lives The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject elsewhere in this issue of the Federal Register Background This
20. of the trust Annual Growth of Payments Enter the annual growth of annuity payments maximum 20 minimum 99 Annual Growth of Principal Enter the projected growth rate percentage for the principal This does not affect the Taxable Gift Value This value is only used for the Economic Schedule 57 Charitable Financial Planner Income Earned by Trust Enter the projected income earned by the trust percentage This value is only used for the Economic Schedule With Reversion Enter whether or not the assets should revert to the grantor s estate in the event of the grantor s death during the term of the trust Yes is the most common entry Trusts which have terms based solely on life expectancy do not include a reversion 2702 Applies Answer Yes to apply 2702 Typically the 82702 rules apply when both of these apply e The transfer is to or for the benefit of a member of the transferor s family e The transferor or applicable family member retains the interest in the trust Summary Report The Summary Tab includes computations of the economic values as well as the gift tax values if different because of the rules under 82702 of the component interests of the trust including the value of the remainder interest the reversionary interest if any and the amount of the taxable gift as a result of the transfer in trust In addition the calculation provides detailed analyses of the selected ty
21. on either Life Table 80CNSMT or Table 90CM at the donor s option Similarly for estate tax purposes if the decedent dies after April 30 1999 but before July 1 1999 the value of any interest and or any applicable charitable deduction may be determined under tables based on either Table SOCNSMT or Table 90CM at the option of the decedent s executor However the section 7520 interest rate utilized is the appropriate rate for the month in which the valuation date occurs In accordance with this transitional rule and those contained in sections 1 7520 2 a 2 20 7520 2 a 2 and 25 7520 2 a 2 in cases involving a charitable deduction if the valuation date occurs after April 30 1999 and before July 1 1999 and the executor or donor elects under section 7520 a to use the section 7520 interest rate for March 1999 or April 1999 then the mortality experience contained in 80CNSMT must be used If the executor or donor uses the section 7520 interest rate for May 1999 or for June 1999 then the tables based on either Table 80CNSMT or Table 90CM may be used However if the valuation date occurs after June 30 1999 the executor or donor must use the new mortality experience contained in Table 90CM even if a prior month interest rate election under section 7520 a is made In addition for estate tax purposes the estate of a mentally incompetent decedent may elect to value the property interest included in the gross estate under the mortality ta
22. or Shorter For more information on calculation types see page 16 Payment Period Select the payment schedule that should be followed for each year Annual Semiannual Quarterly Monthly and Weekly Payment Timing Select Begin or End to indicate when the payment should be made for the selected payment period This helps to determine what payout frequency factor is used in the calculation Percentage Payout Enter the projected payout percentage that should go to the beneficiary during the life of the trust Annual Growth of Principal Enter the projected growth rate percentage for the principal This does not affect the Taxable Gift Value This value is only used for the Economic Schedule Income Earned by Trust Enter the projected income earned by the trust percentage This value is only used for the Economic Schedule 52 Calculation Models Varying Annuity Payments Answer Yes if the payouts will vary from year to year This action will activate the Edit Payout Rates button Click the button and change the payout rates When you indicate that there are varying annuity payments which do not grow by a constant rate the program always uses the Exact Method for Rev Rul 77 454 Principal Enter the fair market value of the assets placed in the trust Grantor s Current Age This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate t
23. payments Once the term of the trust is known the term certain annuity factors are used to calculate the value of the final annuity 1 Calculate Term Certain Annuity Factors Factor for 16 years 4 x 9 5731 4 x 9 8999 9 7365 77 Charitable Financial Planner Factor for 16 years 4 x 9 5731 4 x 9 8999 9 8182 2 Adjust Annuity Factors for Frequency of Payments 9 7365 x 1 0252 9 9818598 9 8182 x 1 0252 10 06561864 3 Calculate the annuity which corresponds to the final payment Annuity 1 000 000 100 000 x 9 9818598 10 06561864 9 9818598 21 657 65 4 To transform this annuity into a single payment divide by the number of payments per year Final Payment 21 657 65 4 5 414 41 The Exact Method is an intuitive method of calculating the duration and final payment amount of the annuity This method assumes the annuity grows at a rate equal to the 7520 rate and calculates the real payments and growth that would occur each year The resulting schedule returns the exact amount payable in the final period The program defaults to using the IRS Annuity Factor Method If you select the Exact Method the program will include a schedule illustrating the exhaustion of the trust When looking at this schedule remember that the interest is compounded annually Using the above example the growth in the first year would equal 6 8 x 1 000 000 6 8 x 900 000 6 8 x 800 000 6 x 700 000 This
24. that time the capital gain would be reportable 45 Charitable Financial Planner over the donor s life expectancy using the expected return multiple in effect will be the current one If the donor is not the annuitant the capital gain must be reported in the year of the transfer When the Transfer Date the amount of the first payment is added to determine the Present Value of the Annuity If the first payment is not prorated and occurs before the normal interval the program increases the Present Value of the Annuity by the difference between the actual first payment and what would have been the prorated amount The expected return multiple is required to be adjusted in certain cases This adjustment factor is used when the payment is not monthly Teitell s material refers to this factor as the Table 9 value and the Committee on Gift Annuities materials refers to it as their Schedule 3A value These adjustment factors are the same as found in Treas Reg 1 72 5 a 2 i The regulations base the selection of the adjustment factor on number of whole months from the annuity starting date to the first payment date If this is read literally one might argue that a period from February 1 to April 1 is two full months but that a period from February 1 to March 31 is only one full month However in the gift annuities area the position taken is that both of these periods comprise two full months Therefore the program measures full months by
25. the Date of Gift Depreciable Part This number represents the dollar value of the part of the property which depreciates over time The result is obtained from the following equation n Date of Gift At End of Useful Life Non depreciable Part This number represents the dollar value of the part of the property which does not depreciate over time The result is obtained from the following equation Band Value At End of Useful Life 33 Charitable Financial Planner Remainder Factor This number is obtained from column 4 of Table A for transfer dates prior to May 1989 Use column 4 of Table S obtained from the IRS Publication 1457 Actuarial Values Alpha Volume for transfer dates after April 1989 It is applied to the non depreciable part of the property Adjustment Factor The adjustment factor is determined by dividing 1 by 11 1 is the difference between A the R factor in column 2 of Table C opposite the initial age of the life tenant in column 1 B the R factor in column 2 of such Table opposite the terminal age in column 1 11 1s the product of A the estimated useful life of the depreciable property B the D factor in column 3 of the Table opposite the initial age of the life tenant in column 1 This adjustment factor is carried to five decimal places Different R factors and D factors are used for transfers after April 1989 as opposed to those used for transfers prior to May 1989
26. the grantor s beneficiaries Data Input Fields Enter the appropriate values into the data input fields for this calculation model Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 87520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 87520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM For any dates prior to May 1 1999 the program will automatically use the S0OCNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99
27. the program determines whether or not the charitable deduction is allowable under the ruling The text of Rev Rul 77 454 is provided below Following the ruling is a discussion of how the Charitable Financial Planner applies this ruling to its calculations Text of Rev Rul 77 374 Advice has been requested whether a charitable deduction is allowable under section 2055 of the Internal Revenue Code of 1954 with respect to a remainder interest in a trust that was amended pursuant to the order of a local court under the circumstances described below The decedent died testate on June 15 1973 Under the terms of the will executed on September 15 1972 the decedent bequeathed the residue of the probate estate valued at 400 000 in trust The trustee was directed to pay to W a female aged 61 years 40 000 each year during W s lifetime The trust was to have terminated upon the death of W at which time the principal and any accumulated income would be paid to an organization considered charitable under sections 170 c 2055 a and 2522 a of the Code On March 15 1974 the executor of the decedent s estate filed the Federal estate tax return in which a charitable deduction was claimed in respect of the trust Six months thereafter the Internal Revenue Service disallowed the charitable deduction because in view of W s age and the size of W s annuity a distinct possibility existed that no trust assets would remain available to charity at W
28. to state Some states do not allow the exclusion of incidental or consequential damages or the limitation on how long an implied warranty lasts so some of the above may not apply to you Governing Law and General Provisions 90 Reference Information The License Statement and Limited Warranty shall be construed interpreted and governed by the laws of the State of Florida and any action hereunder shall be brought only in Florida If any provision is found void invalid or unenforceable it will not affect the validity of the balance of this License and Limited Warranty that shall remain valid and enforceable according to its terms If any remedy hereunder is determined to have failed of its essential purpose all limitations of liability and exclusion of damages set forth herein shall remain in full force and effect This License and Limited Warranty may only be modified in writing signed by you and a specifically authorized representative of Brentmark All rights not specifically granted in this statement are reserved by Brentmark 91
29. with the image of the world on it The following options are available Download Latest AFR Rates Click on this menu option to download the AFR rates from Brentmark s AFR Rates web site The Downloading AFR rates window will indicate that the downloading is in process It may take a moment to complete the download The new AFR rate s will appear on the table Note If you have internet access through a commercial proprietary service i e AOL Compuserve Prodigy you must establish a connection before selecting this option from the menu If you are connected through a network or a cable modem your internet connection is already established Go to AFR Web Page Click on this menu option and you will automatically connect to the AFR Rates page on Brentmark s web site You can view the rates from the web site or take the rates and manually enter them into the program Comparison Graph Using the Charitable Financial Planner Creates a graph to compare the FMV and the deduction of up to five trusts The comparison graph feature allows you to take a deduction from a particular calculation and insert it into the graph The advantage of using the comparison graph is that you can view up to five different calculations or up to five different scenarios of one calculation at the same time Click the Take Data from Current Calculation button to import the data from the current calculation When this is done the information is displayed as a
30. 18 year will consist of a partial payment of 32 712 Under section 7520 the standard life annuity factors are based on the assumption that any person may survive until age 110 This means that the standard life annuity factor for age 60 9 8585 takes into account the separate probabilities that a person age 60 may survive to receive each of 50 different annuity payments However in the present case because of the eroding corpus the person age 60 can be assumed to receive no more than 17 100 000 annuity payments regardless how long that person might survive Therefore the standard life annuity factor for a person age 60 9 8585 is not applicable in this case and special section 7520 annuity factors that take into account the 18 year limitation on the annuity payout must be used The special annuity factor for the present value of the right to receive 1 00 per year for 17 years or until the prior death of a person age 60 survives is 1836 The present value of the charitable annuity interest is 867 269 100 000 x 8 6121 plus 32 712 x 1836 Exhausting Annuities The value of an exhausting annuity can be calculated by breaking it down into two separate parts The first part is the portion of the annuity that does not exhaust The second part is the final payment made in the period that the annuity exhausts 25 7520 3 b 2 v example 5 describes a case where a donor age 60 sets up a 1 000 000 trust to pay a 10 annuity for the life
31. 5 Technical A sado R po RO orth as 85 ha fa ES EE E EEE ER PER STE MR SO ORNE ERA ee MR PA 87 License Aemet ltda 90 Charitable Financial Planner Section 1 Using the Charitable Financial Planner How to Use the Manual Menu Bar Tool Bar Function Keys Other Navigation Tools Charitable Financial Planner Using the Charitable Financial Planner How to Use the Manual Use this manual as a reference guide to the different calculation models The manual contains actual text and discussion of several IRS rulings It also has extensive help on the theory behind some of the calculations The first section of the manual Using the Charitable Financial Planner is filled with information on how to access the different functions of the program and a definition for all the functions The second section of the manual Calculation Reference has specific information about each calculation model It also provides a discussion on reports or background information which is used throughout most of the calculation models The last section Reference Information provides actual text and discussions of several IRS Rulings Review the sub section Common Criteria amp Reports on page 15 before starting to use the program Menu Bar The menu bar contains all of the program s features and functions It has six menus File Menu Inputs Menu Tools Menu Options Menu Help Menu File Menu The Charitable Financial Planner File Menu allows y
32. 9 I Income Tax Report 14 Inputs Menu 4 Interest Rates 12 Interrelated Estate Tax 59 Data Input Fields 59 Summary Report 60 IRS Annuity Factor Method 5 13 77 IRS Notice 89 24 63 IRS Notice 89 60 68 Transitional Rule 71 Itemized Deductions 15 L License Statement 90 Life 13 Life Expectancy 12 link 7 M Marginal Tax Rate 14 Menu Bar 3 N Navigation Tools 10 New 3 O Open 3 Open DOS CHAR File 4 Open EZ Gift File 4 88 Optimize 17 23 Optimize Button 49 Optimizing for Shorter or Life 49 Optimizing for Term 49 Options Menu 9 P Page Setup 4 Personal Exemption Phaseout 15 Personal Exemptions 15 Pooled Income Fund 27 Calculation Type 28 Requirements 28 Summary Report 29 Tax Savings Report 30 Pooled Income Funds Data Input Fields 28 Print 4 Q Qualified Personal Residence Trust Data Input Fields 47 Factors Report 48 Graph 48 Summary Report 48 R Reg 25 7520 3 b 2 v Example 5 76 Regular Standard Deduction 14 Rev Rul 77 374 71 S Save 3 Save As 4 Section 2702 62 Shorter 13 Standard Deduction 15 T Take Data from Current Calculation 7 Tax Assumptions 4 Tax Due 14 Tax Savings Report 34 Taxable Income 14 Technical Support 85 Term 13 Tool Bar 9 Reference Information Tools Menu 5 U Treasury Decision 8819 79 Effective Dates 80 Upd
33. Annuity Factors Remainder Factors Payment Period Adjustment Factors R factors D factors and Lx factors Exhaustion Text The Charitable Lead Annuity Trust Charitable Remainder Annuity Trust Grantor Retained Annuity Trust and Charitable Gift Annuity calculations all need to perform an exhaustion test This test can be performed using one of two different methods 12 Calculation Models e The IRS Annuity Factor Method This is the method which appears to have been used by the IRS in 25 7520 3 b 2 v example 5 It uses published annuity factors to determine when the trust exhausts and what the payment is in the last period of the trust e The Exact Method This method creates the schedule of payments based on the assumption that the trust will grow at a rate equal to the 7520 rate From the schedule it is able to determine exactly when the trust exhausts and how much the final payment is The program defaults to using the IRS Annuity Factor method to best reflect 25 7520 3 b 2 v example 5 See the Reference section for more information on this ruling Types of Calculations All of the trusts in the Charitable Financial Planner can be distributed for a term of years or for life The Charitable Financial Planner handles five lives but there is no statutory limitation on the number of income beneficiaries a charitable remainder trust may have The exceptions to the types of calculation the program performs is w
34. Charitable Financial Planner Software and User Manual Version 2003 10 Copyright O 1986 2003 Brentmark Software Inc All Rights Reserved July 9 2003 Brentmark Software Inc 3505 Lake Lynda Dr Suite 212 Orlando FL 32817 8327 Sales 1 800 879 6665 Technical Assistance 407 306 6160 Fax 407 306 6107 http www brentmark com sales brentmark com support brentmark com Table of Contents TABLE OF CONTENTS USING THE CHARITABLE FINANCIAL PLANNER cesseesseresecessersserssnecsme How to Usethe Manu a is A A A A A o aula ee 3 Menta A A Adi 3 Pile Mens A lata 3 Inputs MENU A aint see A ae a opel ad 4 Calculation Mea ideada ete 5 Tools Men A A E ae eed A e 5 Options Me abad 9 Help MESURA A aid 9 O iN ae 9 Other Navigation Tool iio 10 SEAL LA A A A A al 11 Calculation Models cita A E E asas e TAS 11 Common Criteria amp Reports a carla a a 12 IE Ra e a a o do e co o ade k oy 12 Lite o ida aa dia dg ea RE ate RU add e nd tea 12 AES COT Di bd 12 Types of Calculations adas i 13 Income TAX Report EEEE A E 14 Charitable Remainder Annuity TUS A ds 17 Charitable Remainder Annuity Trust Qualifications eee 17 Data Input Elda A A la 18 Summary Rep A o 19 E AN 20 Income TARRO cecilia suas 21 Rul 7 7 374 Report esses penas A ee nee ias 21 Tax Savings RE tooo o ld ld ine 21 o A eee ee ae ey Se Ee eee ee 21 Charitable Remainder Unit dio adas 23 Charitable Remainder Unitrust Q
35. Initial Guidance on New Valuation Factors ccccescssseesseessesseeesceesceseceseceseceaecaecaeecaeeeaeeeeeeeeeneeass 65 Administrative Pronouncement csccessecssessceesceesceeecesecesecaecsaecaecsaecaaecaeeeaeeeseeeneseeeeeeseeenseeeseenaees 67 Drafting Information ccccccecseesceesceesceseceseeesecesecseecseeeaeeenecseeseeseeeseeseceaecsaeeeeceaeceaeesaeeneeseeeenteees 67 IRS Notice 89 00 sato tals cath o 68 Background isd eae hits e do a A ee A ed 68 Interest Rates and Tables for Transfers after April 30 1989 eres 68 120 Percent of Applicable Federal Midterm Rate eee rereereereaeeareeaerenees 69 Effective Dates suspeitas await a 70 Administrative PronouncemMent sisses en a A ea 70 Drafting Information et a ces meme das eg A id 70 Transitional Rule A Geetha ae ae eaten Mabe ia 70 Rev Rak A cn eta A aes ad US 71 Text oP Rev Rubs 1723 74 A A dde ad 71 5 Probability Tetera 74 Calcula A Ba eh is Se ee en eee 74 Charitable Deduction Disallowance c cesccesceeseceseeseeeseeeseeeseeeesseeesecesecnseceaeceaecaeecaeeeaeeeneseneesenes 75 Alternative Method aa 75 Reg 023920 DIZMV L EXIMPIES AS A A rs 76 EXhaustide AQUI Lt Ad dE DA Bete Sons da Edo Cds St tote wastes E 76 Treasury Decisi n AA A 78 Text of Treasury Decision 8819 0 eccceeccesccssecsseeseeeseesseeeeceseceseeeeesseeesecnaecnaecsaecaaecaeecaeeeseseaeseeeenseees 79 LICENSEE INFORMATION esirisisincs instar iO Update Pola A REA ER 8
36. Rate In such cases the program will indicate the number of years to expiry of the trust and the probability of surviving to expiry or for two lives the probability of at least one survivor at expiry The program will indicate whether or not the charitable deduction is allowable under the ruling Charitable Deduction Disallowance You may wonder why the program only indicates the charitable deduction MAY BE DISALLOWED instead of stating that it will be disallowed This is because one may be able to use the argument that prevailed for the taxpayer in the Moor case In that case the court determined that a yield of 6 2 on trust assets could reasonably be anticipated Based on that assumption the probability percentages were less than 5 Based on a 6 yield the probability percentages had exceeded 5 Thus even if you fail the Rev Rul 77 374 probability test you may be able to use the Moor rationale to argue that an actual yield of greater than 10 on trust assets may qualify the trust The 6 tables were in effect for Moor Alternative Method Subscribers to Deferred Giving by Conrad Teitell will note that he applies the 5 probability test somewhat differently He uses an algebraic method where the initial corpus is divided by the annual payout with that result divided by the payment period factor This method appears to be functionally equivalent to the formula from Rev Rul 77 374 However Teitell then goes to a factor in Table B that i
37. Repeal in 2010 current law modified to remove sunset and make repeal permanent Assumes repeal becomes effective in 2010 and stays effective thereafter This is what was originally intended by the tax writers but ultimate repeal remains uncertain due to the inclusion of sunset provisions This may be a reasonable assumption if one believes that the sunset provisions will not be implemented and repeal will ultimately prevail 2009 Rates in 2009 current law modified to continue estate tax with no repeal Assumes repeal never occurs and last scheduled rates are used in future years This may be a reasonable assumption if one believes that repeal is unlikely to occur Summary Report These calculations results show the federal estate tax payable if a transfer at death is made All charitable deductions are subtracted from the gross estate to determine the taxable estate with its tentative tax base From these figures the net federal estate tax and the state death tax amounts are calculated Section 3 Reference Information 60 Reference Information 82702 IRS Notice 89 24 IRS Notice 89 60 Rev Rul 77 374 Reg 25 7520 3 b 2 v Example 5 Treasury Decision 8819 Section 2702 Section 2702 provides that all retained interests in trusts that are not qualified interests are valued at zero The amount of any gift is then determined by 61 Charitable Financial Planner subtracting from the value of the property th
38. Tax Report The program performs an exact tax calculation for the year referenced on the Tax Assumptions window For future years the program uses the entered inflation rate to estimate the income tax Each year Brentmark Software updates the program with more current tax brackets The following figures are used to calculate the tax due Adjusted Gross Income AGI The number represents the Gross Income minus any allowable adjustments The program automatically takes this value from the Tax Assumptions worksheet Deductions Includes any items that reduce income The program automatically adds the Itemized deductions from the Tax Assumptions and the Charitable deductions from the Summary Report tab and then displays them on the report Adjusted Personal Exemptions The program adds the Personal Exemptions and the Personal Exemptions Phaseout Taxable Income The net income after claiming all deductions The program takes the sum of the Deductions and the Adjusted Personal Exemptions and subtracts the total from the Adjusted Gross Income Tax Due The amount appears on the current Income Tax Table Average Tax Rate This is the percentage of the Adjusted Gross Income that is taxed Marginal Tax Rate The amount appears on the current Income Tax Table Regular Standard Deduction The program uses the designated deduction for the current year 14 Calculation Models Additional Elderly Deduction The program uses the designated
39. actors to determine when the trust exhausts and what the payment is in the last period of the trust e The Exact Method This method creates the schedule of payments based on the assumption that the trust will grow at a rate equal to the 7520 rate From the schedule it is able to determine exactly when the trust exhausts and how much the final payment is NOTE The program default is to use the IRS Annuity Factor method which best reflects the 25 7520 3 b 2 v Example 5 See the Reference Section for more information on this ruling Clear Inputs F7 Removes all inputs from the screen and returns to the default inputs Calculation Menu The Calculation Menu provides a link to each of the calculation screens The following calculation models are presented in the program Charitable Remainder Amnuity Trust Charitable Remainder Unitrust Pooled Income Fund Charitable Remainder in Residence Farm Charitable Lead Annuity Trust Charitable Lead Unitrust Charitable Gift Annuity Qualified Personal Residence Trust Grantor Retained Annuity Trust Grantor Retained Unitrust Interrelated Estate Tax Tools Menu The Tools Menu has four tools the AFR Rates table which stores AFR rates and then places them in the program the Comparison Graph which allows you to create different scenarios for one client using a calculation model or several different calculation models the Age Calculator which calculates the age of the client and a basic Windows
40. after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 FMV of Trust Enter the initial net fair market value of the assets placed in the trust when established Percentage Payout Annual Payout Enter the projected payout that will go to the beneficiary during the life of the trust The program treats numbers 1 100 as a Percentage Payout and numbers greater than 100 as an Annual Payout The program performs the 10 Test and the 50 Test on the dollar amount or percentage entered before allowing the amount to be used e The 10 Test does not allow the Charitable Remainder interest to be less than 10 of the Fair Market Value FMV of the trust In other words the charity cannot receive less than 10 of the FMV of the trust If the Charitable Remainder is less than 10 a message appears stating Does not Pass the 10 Test e The 50 Test does not allow the non charitable beneficiary to receive an annuity that exceeds 50 of the Fair Market Value of the trust 18 Calculation Models Payment Period Select the payment schedule that should be followed for each year Annual Semiannual Quarterly Monthly Payment Timing Select Begin or End to indicate when the payment should be made for the selected payment period This helps to determine what payout frequency factor is used in the calculation
41. alculate the value of the exhausted annuity by splitting the annuity into two smaller annuities 20 Calculation Models e An annuity that lasts up to but does not include the period when the original annuity exhausts e A single payment equal to the final partial payment of the original annuity The two parts are then added together The total is the Value for the 7520 Treasury Regulations Exhaustion Test report See the 25 7520 3 b 2 v Example 5 ruling in the Reference section for more information on the exhaustion test Income Tax Report The trust provides an Income Tax Report See page 17 for more information on this report Rule 77 374 Report The Charitable Financial Planner uses the 5 probability test of Revenue Ruling 77 374 1977 2 CB 329 in its calculations when the dollar payout is high enough for the ruling to apply In its calculation results the program determines whether or not the charitable deduction is allowable under the ruling See the Reference Section for the actual text and discussion of Rev Rul 77 374 Tax Savings Report The Tax Savings report illustrates how a Charitable Deduction is distributed over a period of years The report shows the current year and the next five years which is the maximum period allowed for distributions Multiplying the Charity Type 50 30 or 20 and the Adjusted Gross Income calculate the amount of deduction taken annually from the trust The report shows how muc
42. allowing one month less a day to qualify as a full month The program performs a deferred annuity calculation when the first payment date is more than one year after the transfer date It performs the immediate annuity calculation when the First Payment Date is no more than one normal interval as measured in full months after the Transfer Date This leaves a gray area where the program will not perform a calculation Therefore the program will not calculate in the following cases semiannual payments where the First Payment Date is not less than 7 full months after the Transfer Date quarterly payments where the First Payment Date is not less than 4 full months after the Transfer Date and monthly payments where the First Payment Date is not less than 2 full months after the Transfer Date Several calculations depend on the age of a person on some given date As per IRS rules the age is based on the age as of the nearest birthday The program uses the age of the birthday within 183 days If two birthdays fall within 183 days the program uses the later one In prorating the first payment for short interval periods the program bases the proration on actual days Other methods of proration are equally valid 46 Calculation Models Qualified Personal Residence Trust QPRT With the Qualified Personal Residence Trust QPRT the grantor retains an income interest in irrevocably transferred property and the remainder interest is passed on to
43. andles Term and Life Calculations See page 16 for more information on the different types of calculations Data Input Fields Enter the appropriate values into the data input fields for this calculation model Calculation Type Select Life or Term For more information on calculation types see page 16 Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 87520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 87520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM if the rate for either month is used in the 7520 data input field For any dates prior to May 1 1999 the program will au
44. ansfer date Depreciable Property Value on Date of Gift Enter the value of the depreciable part of the property as it is on the date of the gift The sum of the Land Value and the Depreciable Property Value on Date of Gift should equal the fair market value of the property Depreciable Property Value at End of Useful Life Enter the value that is expected at the end of the estimated useful life The program will not accept the entry of a value higher than the Depreciable Property Value on Date of Gift Income Tax The Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets in 2011 Indicate whether or not you wish to assume that the income tax provisions of that act will sunset Cost Basis Enter the amount of basis for the asset being placed in the trust Charity Type Choose 50 30 or 20 All qualified non profit organizations will fit within one of these types IRS Publication 78 Capital Gains Rate Enter the income tax rate that applies to capital gains property Summary for a Term Case The summary report shows the direct results from the values that are entered into the input fields Total Value of Property This number is the sum of the Land Value and the Depreciable Property Value on the Date of Gift 32 Calculation Models Depreciable Part DP Indicates the dollar value of the property that is depreciable Use the following formula to attain the value DP Value On Date of Gif
45. ar Therefore the trustee of the charitable remainder annuity trust would have been required to invade trust principal each year in order to provide W with the 40 000 annual payment originally provided in the decedent s will The principal of the trust must also be invaded but to a lesser extent to provide W with the reduced annuity of 28 000 that she is now entitled to receive under the amended trust The mathematical formula used to determine the number of years it will take to completely exhaust a fund with an initial value of 400 000 invested at 6 percent per annum that is subject to fixed annual payments of 40 000 out of both income and principal is 1 06 400 000 initial value of corpus 40 000 fixed annual payment 384 000 value of corpus at end of year after first invasion By a series of similar successive computations that is 1 06 384 000 value of corpus at end of first year 40 000 fixed annual payment 367 040 value of corpus after second invasion it was determined that the original fund of 400 000 would be completely exhausted in less than sixteen years Based on Table LN which is found in section 20 2031 10 e of the regulations the probability that a female aged 61 will be alive sixteen years hence or stated otherwise the probability that a female aged 61 will survive to age 77 is greater than 63 percent See example 12 contained in I R S Publication 723A 12 70 Actuarial Values II Factors at
46. at is published as 120 percent of the applicable federal midterm rate compounded annually for May 1989 is 11 68 percent That rate is then rounded to the nearest two tenths of one percent or 11 6 percent for purposes of section 7520 of the Code As stated in Notice 89 24 if an income estate or gift tax charitable contribution deduction is allowed for any part of the property transferred the taxpayer may use the federal midterm rate for the month of the transfer or for either of the two months preceding the month in which the valuation date falls For charitable contributions made in May or June 1989 if the taxpayer elects to use the federal midterm rate for either of the preceding two months which may include March and April the valuation factors for March and April for interests based on the lives of one or more individuals will be computed on the basis of Table 1 of United States Life Tables 1969 71 and interest at 120 percent of the applicable federal midterm rate for March or April Thus the March and April actuarial factors in the case of charitable contributions made in May or June 1989 will not be based on the new term certain factors and mortality experience 120 Percent of Applicable Federal Midterm Rate The rates equal to 120 percent of the applicable federal midterm rate for March April and May 1989 are Valuation Month Compounded Annually Rounded March 11 22 11 2 April 11 58 11 6 May 11 68 11 6 The following tables a
47. ate Policy 85 Table 80CNSMT 80 Table 90CM 80 Transitional Rules 80 V Types of Calculations 13 Visible 7 89 Charitable Financial Planner License Agreement This software is protected by both United States copyright law and international treaty provisions You must treat this software just like a book except that you may copy it onto a computer to be used and you may make archival copies of the software for the sole purpose of backing up our software and protecting your investment from loss You must also agree not to reverse engineer the software By saying just like a book Brentmark means for example that this software may be used by any number of people and may be freely moved from one computer location to another so long as there is no possibility of it being used at one location or on one computer while it is being used at another Just like a book cannot be read by two different people in two different places at the same time neither can the software be used by two different people in two different places at the same time unless of course Brentmark s copyright is being violated Limited Warranty Brentmark Software Inc warrants the physical diskette s and physical documentation enclosed herein to be free of defects in materials and workmanship for a period of sixty days from the purchase date If Brentmark receives notification within the warranty period of defects in materials or workmanship and such not
48. ate component For gifts made before May 1 1989 and for estates of decedents dying before that date the mortality component is computed on the basis of Table 1 of United States Life Tables 1969 71 and the interest rate component is assumed to be 10 percent per annum Actuarial factors used in the valuation of interests that are measured by one life can be found in sections 1 642 c 6 d 3 and 1 664 4 b 5 of the Income Tax Regulations section 20 2031 7 f of the Estate Tax Regulations and section 25 2512 5 f of the Gift Tax Regulations Actuarial factors used in the valuation of interests that are measured by two lives are contained in Internal Revenue Service Service Publication 723E 12 83 Actuarial Values II Factors at 10 Percent Involving One and Two Lives In addition actuarial factors used in the valuation of charitable remainder unitrust interests and pooled income fund interests that are measured by two lives are contained in I R S Publication 723C 9 84 Actuarial Values I Valuation of Last Survivor Charitable Remainders Part C and I R S Publication 723D 9 84 Actuarial Values I Valuation of Last Survivor Charitable Remainders Part D respectively The current method for determining actuarial factors as described in this paragraph is applicable to gifts made before May 1 1989 and estates of decedents dying before May 1 1989 Section 5031 of the Technical and Miscellaneous Revenue Act of 1988 P L 100 647 102 Sta
49. ayment than usual This is done to equalize the number of payments for the Shorter case with the Term case Term cases with a payment at the beginning are valued actuarially by the IRS by simply adjusting the Frequency Adjustment Factor For example a two year semiannual term valuation involves four payments at points 0 Y 1 and 1 However Shorter of Term or Life cases and for that matter all cases with life contingencies with a payment at the beginning of period are valued by the IRS by adding a payment to the normal end of the period valuation For example a two year semiannual shorter of term or life calculation involves five payments at points 0 2 1 1 and 2 Our revised Ex 5 calculations eliminate the last payment the one at point 2 in our example by using a pro rata valuation for a one year case and a two year case to eliminate the last payment This valuation approach is based on informal consultations with the National Office of the IRS For all three GRAT calculation types the program includes a Rev Rul 77 454 test also known as the exhaustion test The program also shows Taxable Gift if the value of Rev Rul 77 454 is ignored some commentators suggest Rev Rul 77 454 is incorrect although it is now part of the 7520 Regs It then shows the Taxable Gift limited by Rev Rul 77 454 Often the values are the same However if the Rate of Annuity is higher than the Sec 7520 rate the Taxable Gift under Rev Rul
50. bar graph in the top panel and it displayed in the second panel as a description chart For each calculation description that is imported into the comparison graph there are three features which can be performed to it e Applying the visible feature to a calculation description allows a specific bar graph to appear or disappear in the first panel Click within the area under the Visible column to activate or inactivate the feature e Applying the link feature to a calculation description enables it to be updated automatically as any changes are made to that particular calculation Turn off Link to compare several scenarios from the same calculation Click within the area under the Link column to activate or inactivate the feature e Click the name of the present scenario under the Calculation Description column to rename a scenario Double click the description When the cursor appears type the new name Hit Enter The new description appears in the first panel under the allotted bar graph and it replaces the old name The following examples will guide you in using the comparison graph to its fullest capacity How to Compare Different Calculations Use the comparison graph to view a comparison between deductions from different calculations For example to compare the deduction from a Charitable Remainder Annuity Trust a Charitable Gift Annuity and a Pooled Income Fund use your own values for the calculation or use the default settings c
51. ble and interest rate in effect at the time the decedent became mentally incompetent or the mortality table and interest rate in effect on the decedent s date of death if the decedent was under a mental incapacity that existed on May 1 1999 and continued uninterrupted until the decedent s death or the decedent died within 90 days of regaining competency after April 30 1999 Special Analysis It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866 Therefore a regulatory assessment is not required It also has been determined that section 553 b of the Administrative Procedure Act 80 Reference Information 5 U S C chapter 5 does not apply to these regulations and because these regulations do not impose a collection of information requirement on small entities the Regulatory Flexibility Act 5 U S C chapter 6 does not apply Therefore a Regulatory Flexibility Analysis is not required Pursuant to section 7805 f of the Internal Revenue Code these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business Drafting Information The principal author of these regulations is William L Blodgett Office of Assistant Chief Counsel Passthroughs and Special Industries IRS However other personnel from the IRS and Treasury Department participated in their development 81 Charitable Financial P
52. calculator Charitable Financial Planner AFR Rates Selecting AFR Rates from the Tools menu opens the Applicable Federal Mid Term 120 Annual Rates window which shows a list of available rates starting from January 1989 through the present month The rate changes monthly and is reported in The Wall Street Journal See the Federal Interest Rates in the Money and Investing section of the Journal generally between the 18 and 23 of the preceding month This rate can often be found earlier on Brentmark s web site at http www brentmark com AFRs htm Note If the 7520 Rate input field shows 30 the AFR table must be updated Thirty percent is the default value that appears when there is not a current AFR available for the chosen Transfer Date Download or manually update your AFR table You can manually enter the new rate into the table or you can download it into the program from the Brentmark s web site On the Applicable Federal Mid Term 120 Annual Rates window there are two ways to obtain AFR Rates 1 Click the Download Latest AFRs button A confirmation window appears Click Yes and the rates will download into the program Note If you have internet access through a commercial proprietary service i e AOL Compuserve Prodigy you must establish a connection before selecting this option from the menu If you are connected through a network or a cable modem your internet connection is already established 2 Click the button
53. ce the calculator has determined the Calculated Age you can transfer the information into the Ages data input field by clicking the Use Age button Note Before accessing the calculator you must remember to place the cursor within the Ages data input field Otherwise the Use Age button will not work Using the Charitable Financial Planner Calculator This is the basic on screen calculator that comes with Windows See your Windows manual for more information on this calculator Options Menu The Charitable Financial Planner Options Menu provides commands that allow customization of the program 16 Color Display Provides the option to view the screen with only 16 colors Delete Registry Settings Allows changes to the default settings of the program For further information on registry settings read your Windows manual Create Desktop Icon Create a shortcut on your desktop by selecting this feature This allows access to the program through the shortcut on the desktop rather than though the Start menu Help Menu The Charitable Financial Planner Help Menu provides ways to find information about the program and its functionality This menu can browse the contents of the online help system or it can give information for a specific calculation It also contains company and product information screens Tool Bar The Charitable Financial Planner uses the following buttons located in the Tool Bar to access some of the most common features o
54. charity 17 Charitable Financial Planner Data Input Fields Enter the appropriate values into the data input fields for this calculation model Calculation Type Select Life or Term For more information on calculation types see page 16 Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 7520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 7520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table 80CNSMT or the Mortality Table 90CM if the rate for either month is used in the 7520 data input field For any dates prior to May 1 1999 the program will automatically use the 80CNSMT mortality table For any dates
55. ctor which may be found in Table G in the column listing factors for the yearly rate of return of 11 4 percent is 06828 This is the present worth of 1 00 due at the death of a person aged 40 based on an interest rate of 11 4 percent Taxpayers who plan to make contributions of certain partial interests in property to charity after April 30 1989 and who wish to value remainder interests that are measured by two lives may obtain the applicable factors for the months of March and April 1989 from Table G 2 cited above Administrative Pronouncement This document serves as an administrative pronouncement as that term is described in section 1 6661 3 b 2 of the regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure Drafting Information The principal author of this notice is William L Blodgett of the Office of the Assistant Chief Counsel Passthroughs and Special Industries For further information about this notice call Mr Blodgett at 202 377 9666 67 Charitable Financial Planner IRS Notice 89 60 In Notice 89 60 1989 1 CB 700 the IRS provides guidance in applying tables containing actuarial factors to be used in determining the present value of an annuity an interest for life or for a term of years or a remainder or reversionary interest In accordance with section 7520 of the Internal Revenue Code this notice provides tables containing actuarial factors to be used in determinin
56. d Interest Rates in the Money amp Investing section generally between the 18th and 23rd of the preceding month You can also obtain this rate by visiting Brentmark s web site at http www brentmark com AFRs htm If family members are involved the gift tax valuation rules of IRC 2702 may apply Under these rules certain types of retained interests such as the right to have trust assets revert to the transferor s estate in the event of the transferor s premature death may be valued at zero when computing the gift tax value of the transfer As a general rule every retained interest but a qualified interest is assigned a value of zero for gift tax valuation purposes In the case ofa GRAT a qualified interest is the right to receive fixed amounts payable annually more frequently a fixed annuity or a qualified remainder interest That is any non contingent remainder interest if all other interests in the trust consist of qualified retained interests qualified annuities The right to receive a fixed amount means the annuity must be a specified fixed dollar amount or a fixed percentage of the initial value of the trust payable each year rather than merely the income produced by the assets in the trust Although fixed payments throughout the term of the trust are the norm final regulations define the term fixed amount more liberally They would permit the annuity payments to increase or decrease in a systematic manner each year with
57. deduction for the current year Standard Deduction The program adds the Regular Standard Deduction and the Additional Elderly Deduction Itemized Deductions Includes items such as interest state and local taxes charitable contributions and medical deductions Charitable Deduction The program takes this number from the Summary Report Tab Deduction Phaseout The program enters the deduction that is given to high income tax payers Adjusted Itemized Deductions The program adds the Itemized Deductions the Charitable Deduction and the Deduction Phaseout Personal Exemptions The program automatically enters the exemption that is given to every taxpayer that is not considered a dependent Personal Exemption Phaseout The program automatically enters the exemption that is given to high income tax payers Calculation Models Charitable Remainder Annuity Trust A Charitable Remainder Annuity Trust provides fixed periodic distributions to one or more beneficiaries with an irrevocable remainder interest going to charity Most gifts made as a charitable remainder annuity trust qualify for income and gift tax charitable deductions or in some cases as an estate tax charitable deduction A charitable deduction is permitted for the remainder interest gift only if the trust meets certain criteria This calculation also provides an Optimize button which calculates the best scenario The Optimize button calculates the highest payout rate tha
58. e Code provides with certain exceptions that where interests in the same property pass from the decedent to charity and to persons or for uses not qualified as charitable the charitable deduction is disallowed unless in the case of a charitable remainder interest that interest is in a charitable remainder annuity trust or charitable remainder unitrust described in section 664 or in a pooled income fund described in section 642 c 5 The above requirement with respect to charitable remainder interests is set forth in section 2055 e 2 A If however a deduction is not allowable because of the requirements of section 2055 e 2 A a deduction may nevertheless be allowable in certain cases pursuant to section 2055 e 3 Section 2055 e 3 of the Code provides in pertinent part as follows In the case of a will executed before December 31 1977 or a trust created before such date if a deduction is not allowable at the time of the decedent s death because of the failure to meet the requirements of subparagraph A of paragraph 2 of this subsection and if the governing instrument is amended or conformed on or before December 31 1977 or if later on or before the 30th day after the date on which judicial proceedings begun on or before December 31 1977 become final so that the interest is in a trust which is a charitable remainder annuity trust a deduction shall nevertheless be allowed Section 20 2055 2 a of the Estate Tax Regulat
59. e applicable federal midterm rate for March or April Thus the March and April actuarial factors in the case of contributions made in May or June will not be based on the new mortality component Charitable contribution transfers and other transfers of partial interests in property actually made in March or April 1989 will continue to be valued with actuarial factors based solely on Table 1 of United States Life Tables 1969 71 and an assumed interest rate of 10 percent per annum In the case of gifts made after April 30 1989 and estates of decedents dying after that date if no charitable deduction is allowable for any portion of the property 64 Reference Information transferred then all interests therein must be valued on the basis of 120 percent of the applicable federal midterm rate for the month in which the transfer is made Initial Guidance on New Valuation Factors The following choices explain how certain factors remainder interest income interest annuity interest are computed under different Calculation Types Term or Life e Valuation of Interests Measured by a Term Certain After April 30 1989 e Valuation of Interests Measured by One or More Lives in the Case of Charitable Contributions Made in May and June 1989 Valuation of Interests Measured by a Term Certain After April 30 1989 Although the Service publications setting forth the new tables of valuation factors are not yet available many of these factors may be
60. e donor and the donor s spouse can be the beneficiaries the remainder interest in the property passes to the charity the donor has specified The principal difference between a charitable remainder unitrust and a charitable remainder annuity trust is that a unitrust pays a varying annuity In other words the amount paid is likely to change each year The payable amount is based on annual fluctuation in the value of the trust s property As it goes up so does the annuity paid each year If it drops in value so will the annuity This calculation also provides an Optimize button which calculates the best scenario The Optimize button calculates the highest payout rate that will still pass all the tests such as the 10 test and the exhaustion test It also yields a non zero deduction This trust handles Term and Life Calculations See page 16 for more information on the different types of calculations Charitable Remainder Unitrust Qualifications A gift to a Charitable Remainder Unitrust will qualify for income and gift tax charitable deductions or an estate tax charitable deduction only if the following conditions are met e A fixed percentage not less than 5 nor more than 50 of the net fair market value of the assets is paid to one or more non charitable beneficiaries who are living when the unitrust is established The charity s actuarial interest must be at least 10 of any assets transferred to the trust e The unitrust as
61. e entirely to rounding in the calculation Finally please note that the program cannot accurately value the GRAT created by the taxpayer in Walton In order to comply with Treas Reg 25 2702 3 b 3 as it existed before amendment by T D 8899 65 F R 53587 the Walton GRAT required payments shortly after December 31 of each year The trust instrument required an annuity of 49 35 for the first 12 months and 59 22 the second 12 months of the two year term Prorating those payments on a daily basis the trust created on 4 7 1993 required a payment of 36 3703 269 365ths of 49 35 on or after 12 31 1993 56 6241 96 365ths of 49 35 plus 269 365ths of 59 22 on or after 12 31 1994 and 15 5757 96 365ths of 59 22 on or after 4 7 1995 According to the Tax Court opinion the trust actually distributed 36 3703 for 1993 and 56 6240 for 1994 This program is designed to value distributions based on the anniversary of the trust and the valuation of these irregular distributions is beyond the scope of the program Edit Payout Rates Button This button appears only if you select Yes for the input data fields named Varying Annuity Payments By editing the rate you can choose to grow annuity payments by a constant rate or enter your own rate You can also view the calculated amount 51 Charitable Financial Planner of the annual payout The program will not allow the entry of a value more than 20 greater than the preceding value Data I
62. e non charitable beneficiary Sections 1 664 2 1 664 3 and 1 642 c 5 of the Income Tax Regulations Thus an amendment of a trust to meet the requirement of section 20 2055 2 b 1 of the Estate Tax Regulations requirement that only a negligible chance exist that the charity will receive nothing is not a change within the purview of section 2055 e 3 since the purpose of such a change is not compliance with the section 2055 e 2 A requirements Additionally the Senate Finance Committee Report states that the purpose of section 2055 e 3 of the Code was merely to extend the cut off date of the Treasury Regulation transitional rules that allow trusts to be amended to comply with the new requirements added by the Tax Reform Act of 1969 S Rep No 93 1063 93d Cong 2d Sess 3 1974 The Conference Committee report contains a similar statement H R Rep No 73 1405 93 Cong 2d Sess 3 1974 Therefore to interpret section 2055 e 3 as affording trusts an opportunity to achieve compliance with the long standing requirement of section 20 2055 2 b 1 of the regulations would be inconsistent with its legislative history Accordingly no deduction is allowable under section 2055 of the Code for the amended charitable remainder annuity trust in this case END OF RULING 5 Probability Test Revenue Ruling 77 374 imposes a 5 probability test on charitable remainder annuity trusts that are measured by life expectancies This is a second tes
63. e value of the same annuity lasting for 16 years plus Y the value of it lasting for 17 years An annuity lasting for 16 years is valued by taking Y4 the value of the same annuity lasting for 16 years plus the value of it lasting for 17 years Getting back to the example Annuity Factor for 16 years Y x 8 4055 2 x 8 6121 8 5088 Annuity Factor for 16 years 4 x 8 4055 GA x 8 6121 8 56045 Of course the frequency of payments still has to be taken into account The payout frequency factor from Table K IRS Pub 1457 is 1 0252 Therefore the annuity is valued Value 1 0252 x 100 000 x 8 5088 21 657 64 x 8 56045 8 5088 1 0252 x 850 880 1 118 62 871 468 99 The above examples ignore the calculation of both when the annuity exhausts and the amount of the final payment These two numbers however are critical to calculating a proper annuity valuation The program provides two different methods for calculating these numbers the Exact Method and the IRS Annuity Factor Method The IRS Annuity Factor Method is the method the IRS used in 25 7520 3 b 2 v Example 5 Example 5 This method finds the highest term that yields a term certain annuity value less than the initial value of the trust This term is equal to the number of years that full payments last Repeating this technique for the number of periods in the final year gives us the number of periods in the final year which have full
64. e value of the property contributed the value is determined under Treasury Reg 1 642 c 6 a 1 The program selects a remainder factor which is determined by the number of lives and the transfer date which is used The Charitable Financial Planner handles one to five lives These factors may be found in the IRS Publication 1457 Actuarial Values Alpha Volume for transfer dates after April 1989 and IRS Publication 723D for transfer dates prior to May 1989 If the transfer date 5 89 or 6 89 is used the Old or New Expectancy data input field appears Under a transitional rule for Transfer Dates of 5 89 or 6 89 you may optionally use newer life expectancy assumptions or older life expectancy assumptions that were in use prior to May 1989 See Notice 89 24 1989 1 CB 600 for more information on this ruling If you entered a Transfer Date prior to May 1989 the program will automatically enter Old and will skip over this input If you entered a date after June 1989 the program will automatically enter New and skip over this input If the yearly rate of return is a percentage which is between those rates for which returns are provided in the table a linear interpolation is required The present value of the remainder interest is determined by multiplying the remainder factor times the fair market value of the property contributed 29 Charitable Financial Planner Highest Rate of Return for Three Preceding Years This number is imported f
65. e value of the retained interest The valuation of retained interests in trust under Section 2702 specifically does not apply to incomplete gifts determine without regard to whether there is consideration personal residence trust and charitable lead trusts This occurs if the only interest other than the remainder or a qualified annuity or unitrust interest is the charitable lead interest Section 2702 also does not apply to assignment of remainder interests in trusts if the only retained interest is distribution of income in the sole discretion of an independent trustee as defined in Code section 674 c and certain property settlement agreements The following definitions apply under Section 2702 e A member of the family includes the spouse of an individual the ancestor lineal descendant sibling of an individual the individual s spouse the spouse of any such person or the brother or sister of the individual e An applicable family member includes the spouse of an individual an ancestor of the individual or the individual s spouse or the spouse of any such person e A transfer in trust includes a transfer to a new trust or an interest in an existing trust But it is not a transfer resulting from exercise of a special power of appointment exercise release or lapse of a power of appointment that would not constitute a taxable gift e g lapse of Crummey power which does not exceed 5 or 5 limitation or a disclai
66. ed and funded using the subtraction method The gift tax value is determined 53 Charitable Financial Planner by subtracting the value of the annuity interest and other retained interests such as the right to have the assets revert back to the transferor s estate if he or she does not live the entire term of the trust from the fair market value of the assets transferred in the trust How the annuity interest and any other retained interests are valued depends on who the remainder beneficiary ies is are and who retains the annuity and other interests relative to the transferor There is a more restrictive and less appealing set of valuation rules when family members are beneficiaries and certain family members retain interests in the property both before and after the trust is created than when unrelated parties are involved When unrelated parties are involved all interests are valued according to their actuarial present values using the valuation rules of IRC 87520 These rules mandate the use of a discount rate based on the 120 percent applicable federal annual midterm rate for the month in which the trust is created and funded and the mortality factors from Table SOCNSMT if the interests have a life contingency The 120 percent applicable federal annual midterm rate changes monthly and is reported in the IRS s Cumulative Bulletin in various tax services and in various financial news publications such as The Wall Street Journal See Fe
67. elect the payment schedule that should be followed for each year Annual Semiannual Quarterly Monthly Months Valuation Precedes Payout Enter a value to indicate the number of full months by which the valuation date precedes the first payout The program will only allow valid input values according to which Payment Period was selected on the previous input field Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the Enter the number of lives up to five that will be used to determine the charitable deduction This data input field is only available when Life is chosen as the Calculation Type Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Income Tax The Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets in 2011 Indicate whether or not you wish to assume that the income tax provisions of that act will sunset Cost Basis Enter the amount of basis for the asset being placed in the trust Charity Type Choose 50 30 or 20 All qualified non profit organizations will fit within one of t
68. ent Percentage Payout by data input field to change the increment change of the Payout Change the number to see a more in depth evaluation of the comparison 37 Charitable Financial Planner 38 Calculation Models Charitable Lead Unitrust A Charitable Lead Unitrust provides fixed periodic distributions to charity followed by a non charitable lead or reversionary interest In other words the charity receives payment throughout the length of the trust At the end of the period the trust assets are paid back to the donor or a non charitable beneficiary ies The difference with this trust is that the charity s interest comes before the non charitable interest One point to remember is that a unitrust pays a varying annuity The amount paid changes each payment period since the payments are based on periodic fluctuations in the value of the trust This trust handles Term and Life Calculations See page 16 for more information on the different types of calculations Data Input Fields Enter the appropriate values into the data input fields for this calculation model Calculation Type Select Life or Term For more information on calculation types see page 16 Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 7520 Rate The program automatically displa
69. er transfers made after that date Administrative Pronouncement This document serves as an administrative pronouncement as that term is described in section 1 6661 3 b 2 of the regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure Drafting Information The principal author of this notice is William L Blodgett of the Office of Assistant Chief Counsel Passthroughs and Special Industries For further information about this notice call Mr Blodgett at 202 377 9661 not a toll free call Transitional Rule 70 Reference Information The following discussion is only relevant for Transfer Dates of May or June 1989 Under a transitional rule you may optionally use the new Table Rate with the pre 5 89 life expectancies for May 1989 and June 1989 transfers For example 5 89 Transfer Dates may use the 5 89 Table Rate with the new life expectancies or the 3 89 or 4 89 Table Rates not 10 with the old life expectancies Similarly 6 89 Transfer Dates may use the 5 89 or 6 89 Table Rates with the new life expectancies or the 4 89 Table Rate not 10 with the old life expectancies Rev Rul 77 374 The Charitable Financial Planner uses the 5 probability test of Revenue Ruling 77 374 1977 2 CB 329 in its calculations when the dollar payout is high enough for the ruling to apply In its calculations when the dollar payout is high enough for the ruling to apply In its calculation results
70. erm certain income interest may be computed by using this formula 65 Charitable Financial Planner Income Factor 1 000000 Remainder Factor Thus if 120 percent of the applicable federal midterm rate for the month is 10 8 percent and the remainder factor as computed in Example 1 above is 440232 the income factor for an income interest in a trust for a term of 8 years is 1 000000 minus 440232 which equals 559768 Example 3 Computation of an Annuity Interest Assume that a donor makes a gift of an annuity interest for an 8 year term certain after April 30 1989 Assume also that 120 percent of the applicable federal midterm rate for the month is 10 8 percent The valuation factor for a term certain annuity interest may be computed by using this formula IncomeFactor AnnuityFactor i where i equals the applicable interest rate under section 7520 Thus if 120 percent of the applicable federal midterm rate for the month is 10 8 percent and the income factor as computed in Example 2 above is 559768 the valuation factor for an annuity interest for a term of 8 years is 559768 divided by 10 8 percent which equals 5 1830 Example 3 may be used to compute term certain valuation factors for charitable remainder annuity interests Valuation of Interests Measured by One or More Lives in the Case of Charitable Contributions Made in May and June 1989 In valuing a charitable remainder interest in a transfer that i
71. ess than 16 years This worked to the taxpayer s advantage since 15 years would have resulted in a higher probability The program determines the number of years to the expiry of the trust in the same manner If the number of years exceeds 109 the program will indicate the period to be 109 years After the number of years to expiry is determined it is then added to the age of the person whose life determines the term of the trust to determine the age at the expiry of the trust The program uses the age input you have entered which is the age as of the nearest birthday Table LN values are then determined for the age input and the age at the expiry of the trust When the Table LN value for the age at the expiry is divided by the Table LN value for the age input the probability of surviving to the expiry of the trust is determined for a one life charitable remainder annuity trust For a two life charitable remainder annuity trust each probability is first subtracted from 1 0 and then multiplied times each other The product is then subtracted from 1 0 to determine the probability of at least one survivor at expiry If this probability exceeds 5 the charitable deduction may be disallowed The 5 probability test of Rev Rul 77 374 is automatically applied when the dollar payout is high enough for the ruling to apply This occurs when the annual percentage payout times the adjustment factor Table K for transfers after April 1989 exceeds the Table
72. f the program BUTTON FUNCTION m Saves current information in a data file E Accesses the program s printing options iH Accesses the Comparison Graph S Opens data files that have been previously saved E Accesses the Tax Assumption screen Charitable Financial Planner AFRs Accesses the AFR Rates chart Accesses the online help for the active calculation Other Navigation Tools Access the Calculations from the Hotspots on the right side of the screen or from the Calculation menu Calculation Pull down menu Charitable Financial Planner 1999 00 Charitable Remainder Annuity Trust UNTITLED ax Calculation Remainder Annuity Trust Feb 5 6 Best Charitable Remainder Unitrust Pooled Income y Fund ones it 4q Hotspots Soenonee AE in Res Farm Charitable Lead 2 Annuity Trust Amount of Annuity Charitable Lead Two Life Annuity Factor 11 9859 Unitrust Payout Frequency Factor 1 0000 f Present Value of Annuity Annual Payout x Factors 599 295 00 F dao Charitable Remainder FMV of Trust less PV of Annuity 400 705 00 Charitable Deduction for Remainder Interest 400 705 00 Donor s Deduction as Percentage of Amount Transferred 40 070 Ri Interrelated Estate Tax The following combination of keystrokes will provide an alternative method for navigating through the report tabs of each calculation Press
73. f the property transferred exceeds the cost basis the capital gain consequences are indicated The printed report shows greater detail including any capital gain when there is a partial payment in the year of the first payment as well as the capital gain for the final reporting year 7520 Report The 7520 Treasury Regulations Exhaustion Test calculates a limit in the valuation of annuities created a Charitable Remainder Annuity Trust The Charitable Financial Planner shows the steps used to calculate the value of the exhausted annuity by splitting the annuity into two smaller annuities e An annuity that lasts up to but does not include the period when the original annuity exhausts e A single payment equal to the final partial payment of the original annuity The two parts are then added together The total is the Value for the 7520 Treasury Regulations Exhaustion Test report See the 25 7520 3 b 2 v Example 5 ruling in the Reference section for more information on the exhaustion test Income Tax Report 44 Calculation Models The trust provides an Income Tax Report See page 17 for more information on this report Tax Savings Report The Tax Savings report illustrates how a Charitable Deduction is distributed over a period of years The report shows the current year and the next five years which is the maximum period allowed for distributions Multiplying the Charity Type 50 30 or 20 and the Adjusted Gross I
74. followed for each year Annual Semiannual Quarterly Monthly Months Valuation Precedes Payout Enter a value to indicate the number of full months by which the valuation date precedes the first payout The program will only allow valid input values according to which Payment Period was selected on the previous input field Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the Enter the number of lives up to five that will be used to determine the charitable deduction This data input field is only available when Life is chosen as the Calculation Type Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from O to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Summary Report The deduction for a charitable contribution of a unitrust interest is limited to the fair market value of the unitrust interest on the date of contribution Treasury Reg 1 170A 6 c 3 ii The present value of the unitrust interest is determined by subtracting the present value of all interests in the property other than the unitrust interest from the fair market value of the transferred property Trea
75. g the present value of an annuity an interest for life or for a term of years or a remainder or reversionary interest The tables set forth in this notice apply for valuation purposes under several Code provisions including sections 170 642 664 2031 2055 2512 2522 and 2624 Background Section 5031 of the Technical and Miscellaneous Revenue Act of 1988 Pub L No 100 647 102 Stat 3342 1988 amended the Internal Revenue Code by adding section 7520 Generally under section 7520 the value of an annuity interest for life or for a term of years or remainder or reversionary interest is determined under new tables that are to be prescribed by the Secretary Section 7520 is applicable to gifts and certain other transfers made after April 30 1989 and to estates of decedents dying after April 30 1989 The new tables prescribed by section 7520 are to be based on an interest rate that is 120 percent of the applicable federal midterm rate for the month in which the valuation date falls and the most recent mortality experience available Section 7520 c 3 provides that no later than December 31 1989 the Service must revise existing tables to take into account the most recent mortality experience available as of the time of such revision The Service published Notice 89 24 1989 10 I R B 16 on March 6 1989 to provide temporary guidance to taxpayers in planning transfers that would take place after April 30 1989 Notice 89 24 provides form
76. h of the charitable deduction is used each year as well as the annual tax savings generated from the charitable deduction The Capital Gain is derived from the following formula FMV Cost Basis x Capital Gain Rate The bar graph shows an annual comparison of the income tax with and without the charitable trust Graphs The graphs tab shows two graphical views of the present scenario e Deduction Percent The pie graph shows the deduction as a percentage of the amount transferred 21 Charitable Financial Planner e Deduction vs Payout The bar graph shows the rise and fall of the deduction that the client can receive depending on the percentage payout that is used Use the Increment Percentage Payout by input to change the increment change of the Payout Change the number to see a more in depth evaluation of the comparison 22 Calculation Models Charitable Remainder Unitrust A Charitable Remainder Unitrust CRUT determines a deduction for a contribution to a charitable remainder unitrust It also calculates a deduction as a percentage of the amount transferred When a Charitable Unitrust is established a donor transfers cash and or property to an irrevocable trust but retains either for himself or for one or more non charitable beneficiaries a variable annuity payment that can vary in amount but is a fixed percentage from that trust At the end of a specified term or upon the death of the beneficiary ies th
77. he Potential Death Tax Savings Combined Bracket times value of Property minus Taxable Gift are also shown in the results Highest Rate of Return for Three Preceding Years Calculates the highest rate of return earned by the fund in any one of the three years preceding the year of the contribution If the fund has been in existence less than three years a presumed rate of return must be used For funds created before May 1989 the presumed rate is 9 0 For later periods the IRS determines the presumed rate This presumed rate for new funds is expected to be 9 4 for funds created after April 1989 and before 1990 9 8 for funds created in 1990 through 1992 9 4 for 1993 8 4 for 1994 6 8 for 1995 7 2 for 1996 One Five Life Remainder Factor The program automatically enters the factor which correlates to the number of lives used The tables containing the factor can be found in the IRS Publication 1457 Actuarial Values Alpha Volume If the yearly rate of return is a percentage that is between those rates for which returns are provided in the table a linear interpolation is required Charitable Deduction for Remainder Interest The present value of the remainder interest is determined by multiplying the remainder factor times the fair market value of the property contributed Donor s Deduction as Percentage of Property Transferred This amount shows the percentage of the property value that will not be taxed The pe
78. he age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Second Age 0 if None This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Term of Trust Enter the number of years the trust will provide income to the grantor With Reversion Enter whether or not the assets should revert to the grantor s estate in the event of the grantor s death during the term of the trust Yes is the most common entry Trusts which have terms based solely on life expectancy do not include a reversion 2702 Applies Answer Yes to apply 2702 Typically the 82702 rules apply when both of these apply e The transfer is to or for the benefit of a member of the transferor s family e The transferor or applicable family member retains the interest in the trust Summary Report This calculation provides detailed analyses of the selected type of GRAT showing required annuity factors adjustment factors and the subtraction method of computing the taxable gift value of the residual interest in trust The gift tax value of the transferred assets is determined at the time the trust is creat
79. he program does not handle Nevada cases Fixed Non charitable Bequest Enter the total amount of the Fixed Non charitable Bequests These are specified amounts going to non charitable beneficiaries Fixed Charitable Bequest Enter the total amount of the Fixed Charitable Bequest These are specified amounts going to charitable beneficiaries Percent of Remainder to Charity Enter the percentage of the residue or remainder that goes to charity It is this amount which results in an interrelated calculation 59 Charitable Financial Planner Estate Tax Calculations Recent changes in estate tax law have resulted in higher exemption amounts and other changes affecting estate tax calculations Charitable Financial Planner allows you to select between three potential scenarios e 2011 Sunset e 2010 Repeal in 2010 e 2009 Rates in 2009 program default These choices will affect program computations for 2010 and later years only Explanation 2011 Sunset current law with sunset Assumes repeal occurs in 2010 and prior law returns in 2011 with a 55 top rate and 1 million exemption This is way the tax law is currently written This may be a reasonable assumption if one believes that no changes to the current law are likely and that the sunset provisions will prevail One of the other two choices may be a better assumption if one believes that the sunset provisions will not be implemented due to future law changes 2010
80. hese types IRS Publication 78 25 Charitable Financial Planner Capital Gains Rate Enter the income tax rate that applies to capital gains property Summary Report The fair market value of a remainder interest in a charitable reminder unitrust is its present value The present value is determined under Treas Reg 1 664 4 a 1 An adjusted payout rate is determined by multiplying the fixed percentage payout by the appropriate payout sequence factor The payout sequence factor can be found in the IRS Publication 1458 Actuarial Values Beta Volume If the adjusted payout rate is between rates shown in the table a linear interpolation is required When the remainder factor is computed the present value of the remainder interest is obtained by multiplying the factor times the fair market value of the trust assets The summary tab shows the direct results from the values that are entered into the input fields Payout Sequence Factor It is used to calculate the payout rate the frequency of payments The factor is found in Table F 1 for transfers prior to May 1989 or Table F for the appropriate interest rate for transfers after April 1989 which corresponds to the number of months by which the valuation date precedes the payout date The tables can be found in the IRS Publication 1458 Actuarial Values Beta Volume Adjusted Payout Rate An adjusted payout rate is determined by multiplying the fixed percentage payout by
81. ification is determined by Brentmark to be correct Brentmark will replace the defective diskette s or documentation The entire and exclusive liability and remedy for breach of this Limited Warranty shall be limited to replacement of defective diskette s or documentation and shall not include or extend to any claim for or right to recover any other damages including but not limited to loss of profit data or use of the software or special incidental or consequential damages or other similar claims even if Brentmark has been specifically advised of the possibility of such damages In no event will Brentmark s liability for any damages to you or any other person ever exceed the lower of suggested list price or actual price paid for the license to use the software regardless of any form of the claim BRENTMARK SOFTWARE INC SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE Specifically Brentmark makes no representation or warranty that the software is fit for any particular purpose and any implied warranty of merchantability is limited to the sixty day duration of the Limited Warranty covering the physical diskette s and physical documentation only and not the software and is otherwise expressly and specifically disclaimed The limited warranty gives you specific legal rights you may have others that may vary from state
82. int Accesses the program s printing options Allows customization of the margins the fonts styles and sizes the heading which can include the date and time and also the footer Page Setup Accesses the settings for the layout of the reports Allows for customization of margins fonts and footers File Location Allows you to select the default folder to which files will be saved and from which they will be read Reopen File Allows you to open quickly the five files you worked on most recently Inputs Menu The Inputs Menu provides an extra section to enter client information two ways to perform calculations and a feature to clear all data input fields Tax Assumptions Used to enter Income Tax data which the program uses to calculate the Income Tax report Some of the values entered into the Tax Assumptions window are automatically inserted into the Income Tax tab If the Tax Assumptions worksheet is not completely filled out the results for the income tax will be inaccurate Using the Charitable Financial Planner Exhaustion Test The Charitable Lead Annuity Trust Charitable Remainder Annuity Trust Grantor Retained Annuity Trust and Charitable Gift Annuity calculations all need to perform an exhaustion test This test can be performed using one of two different methods e The IRS Annuity Factor Method This is the method which appears to have been used by the IRS in 25 7520 3 b 2 v Example 5 It uses published annuity f
83. ion 7520 Report 20 Summary Report 19 Tax Savings Report 21 Charitable Remainder Annuity Trust Qualifications 17 Charitable Remainder in Residence Farm 31 Data Input Fields 31 Summary for a Life Case 33 Summary for a Term Case 32 Tax Savings Report 34 Charitable Remainder Unitrust 23 Data Input Fields 24 Graphs 27 Summary Report 26 Tax Savings Report 27 Charitable Remainder Unitrust Qualifications 23 Clear Inputs 5 Compare Different Calculations 7 Comparison Graph 6 Compare Different Scenarios of the Same Calculation 8 Create Desktop Icon 9 D Deduction Phaseout 15 Deductions 14 Delete Registry Settings 9 E Edit Payout Rates Button 51 Exact Method 5 13 78 Exhausting Annuities 76 Exact Method 78 IRS Annuity Factor Method 77 Exhaustion Test 5 Exhaustion Text 12 F Factor Method 5 13 77 File Menu 3 G Grantor Retained Annuity Trust Data Input Fields 51 Economic Schedule 55 Edit Payout Rates Button 51 Graph 55 Optimize Button 49 Rev Rul 77 454 Report 55 Reversion Report 54 Summary Report 53 87 Charitable Financial Planner Term Calculations and the Regulations 50 Grantor Retained Annuity Trust GRAT 49 Grantor Retained Income Trust 47 Grantor Retained Unitrust Data Input Fields 56 Economic Schedule 58 Graph 58 Summary Report 58 Grantor Retained Unitrust GRUT 56 Graphs 21 H Help Menu
84. ions the retained annuity interest s value cannot exceed the actuarial value of an annuity for the shorter of the specified term or life even if the trust instrument itself calls for payment of a term certain annuity Therefore when you run a Term case with the program you will see three Taxable Gift values The first is based solely on a Term Interest valuation Taxable Gift 1 and is not supported by the Regulations Some commentators suggest that this is the correct approach and that the Regulations are incorrect The program then shows a Taxable Gift as per Reg 25 2702 3 e Ex 5 Taxable Gift 2 which is a shorter of term or life valuation This more conservative value generally is a higher taxable gift value than would result otherwise Finally the program shows a Taxable Gift limited by Rev Rul 77 454 Taxable Gift 3 When the exhaustion test of Rev Rul 77 454 starts to kick in it generally results in an even higher taxable gift value The possible application of Rev Rul 77 454 in Term cases is dependent on the viewpoint that one must use a shorter of term or life valuation to begin with If one did not need to use such a valuation there would appear to be no argument for applying Rev Rul 77 454 at all Actuarially the Example 5 values are rather straightforward unless you are running a case involving a payment made at the beginning of the period For such cases we use a Shorter of Term or Life calculation that has one less p
85. ions provides that if a trust is created or property is transferred for both a charitable and a private purpose deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable and hence severable from the non charitable interest Section 20 2055 2 b of the regulations provides that in the case of a charitable transfer subject to a condition no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible Section 24 1 c of the Temporary Estate Tax Regulations describes those situations where a charitable deduction may be obtained by amending a governing instrument pursuant to section 2055 c 3 of the Code Section 24 1 c states however that a governing instrument may not be amended pursuant to this section unless at the 72 Reference Information time of the decedent s death the interest is an irrevocable remainder interest for which a deduction but for section 2055 c 2 A would be allowable under section 2055 a and the regulations thereunder Under section 2031 of the Code and section 20 2031 10 of the regulations an interest rate of six percent per annum is used for valuation purposes with respect to decedents dying after December 31 1970 See also section 1 664 4 a 1 ii of the Income Tax Regulations A fund of 400 000 invested at 6 percent per annum yields 24 000 each ye
86. ith a e Pooled Income Fund because it only handles Life cases e Charitable Gift Annuity because it only handles Life cases e Grantor Retained Trust because in addition it also handles Shorter of Life cases If a trust is distributed for a term of years the trust provides periodic distributions to non charitable beneficiaries for a period not in excess of 20 years If a trust is distributed for life the trust provides periodic distributions to a non charitable beneficiary for a period not in excess of the life of this individual income beneficiary If a trust is distributed for two to five lives the trust provides fixed periodic distributions to these non charitable beneficiaries for a period not in excess of the lives of those individual beneficiaries If a trust is distributed for Shorter of Term or Life the trust ends immediately at the donor s death Charitable Financial Planner Income Tax Report This Report tab is used to show a detailed list of what is taken into account to calculate the tax due from the gross income when the trust is taken into account Many of the calculation models have an Income Tax Report The Income Tax Report should be used in conjunction with the Tax Assumption sheet Inputs menu Tax Assumptions Complete the Tax Assumptions worksheet before consulting with the results in the Income Tax Report tab Some of the figures used in the Tax Assumptions worksheet will automatically appear on the Income
87. lanner 82 Section 4 Licensee Information Update Policy Technical Support 83 Charitable Financial Planner 84 Licensee Information Update Policy When you initially license the program you are automatically covered by maintenance for an initial six month period Before the end of the period you will be sent an invoice to sign up for the optional maintenance for coverage of the next twelve months You are eligible for any major and minor updates that are released during the duration of your maintenance agreement Major updates reflect tax law changes or addition of new features When new features are added or changes are made due to a tax law change customers with maintenance will automatically be sent the major update Minor updates reflect user interface problems typos or minor changes to a calculation Minor updates are available for downloading from our web site Visit our web site at http www brentmark com download htm to download the latest patch We are always interested in hearing from you about ways to improve the program Whether it s a small change to the user interface or a new area of coverage we would like to hear from you Technical Support Technical assistance is available by telephone FAX postal mail e mail or the Internet e For assistance by e mail contact us at support brentmark com e For assistance using the Internet visit our web site at http www brentmark com e For assistance
88. mer e A retained interest is one held by the same individual both before and after the transfer to the trust or a carved out term interest IRS Notice 89 24 62 Reference Information In Notice 89 24 1989 1 CB 660 the IRS provides initial guidance and transitional rules for use in determining the present value of an annuity an interest for life or for a term of years or a remainder or reversionary interest under Code Sec 7520 Text of Notice 89 24 The purpose of this notice is to provide guidance to taxpayers in determining the present value of an annuity an interest for life or for a term of years or a remainder or reversionary interest under section 7520 of the Internal Revenue Code The methods established under section 7520 and this notice apply for valuation purposes under several Code provisions that include sections 170 642 664 2031 2055 2512 2522 and 2624 Background In general actuarial factors used in determining the present value of an annuity an interest for life or a remainder or reversionary interest are for federal estate gift and certain income tax purposes based on two components the life expectancy of a designated individual or individuals the mortality component and the assumed rate of return the interest rate component Valuation factors for determining the present value of interests measured by a term certain are based on two components a term of years component and an interest r
89. n where each depends on the other Data Input Fields Enter the appropriate values into the data input fields for this calculation model Year of Death Enter the year of death yyyy Gross Estate Enter the total amount of the Gross Estate Deductions Enter the total amount of allowable deductions Include estate settlement costs that are deductible and debts for which the estate is liable Adjusted Taxable Gifts Enter the Adjusted Taxable Gifts total taxable gifts within the meaning of IRC 82503 made by the decedent after 12 31 76 other than gifts that can be included in the decedent s gross estate Unified Credit Enter the amount of unified credit remaining If you enter a number higher than the unified credit allowable for the entered year of death the allowable number will be used Other Credits Enter any other credits that may apply This includes the Credit for federal gift taxes on pre 1977 gifts the Credit for foreign death taxes and the Credit for tax on prior transfers It does not include the Credit for state death taxes State Death Tax Enter 0 and the program will use the federal state death tax credit as the state death tax Enter a number less than the federal state death tax credit and the program will use a value equal to the federal state death tax credit When entering a 0 the program handles all pick up states automatically For other states enter the higher state death tax T
90. nary interest In other words the charity receives payment throughout the length of the trust At the end of the period the trust assets are paid back to the donor or a non charitable beneficiary ies The difference with this trust is that the charity s interest comes before the non charitable interest Data Input Fields Enter the appropriate values into the data input fields for this calculation model Calculation Type Select Life or Term For more information on calculation types see page 16 Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 7520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 87520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you ha
91. ncome calculate the amount of deduction taken annually from the trust The report shows how much of the charitable deduction is used each year as well as the annual tax savings generated from the charitable deduction The Capital Gain is derived from the following formula FMV Cost Basis x Capital Gain Rate The bar graph shows an annual comparison of the income tax with and without the charitable trust Graphs The graphs tab shows two graphical views of the present scenario e Deduction Percent The pie graph shows the deduction as a percentage of the amount transferred e Deduction vs Payout The bar graph shows the rise and fall of the deduction that the client can receive depending on the percentage payout that is used Use the Increment Percentage Payout by input to change the increment change of the Payout Change the number to see a more in depth evaluation of the comparison Assumptions and Limitations The program uses various Assumptions and Limitations to perform this particular calculation For capital gains calculations the program assumes that the gift annuity is not assignable and that the donor is the annuitant This results in the gain being reportable over the donor s life expectancy If the donor is not the annuitant the capital gain must be reported in the year of the transfer For a deferred gift annuity the capital gain would not be reportable until payments start if the donor is the annuitant At
92. nference on Gift Annuities on May 5 1983 and were reconfirmed by the 19 Conference on Gift Annuities on May 1 1986 As recommended by the Committee the recommended rates for immediate annuities are also adjusted by a uniform interest factor for deferred annuities As adopted by the Committee on Gift Annuities the program uses a recommended payout rate for deferred gift annuities which is 5 higher then previously for Transfer Dates of 4 6 89 through 6 30 92 For Transfer Dates of 7 1 92 and later the program uses a uniform interest factor for deferred annuities that is 1 higher than the period from 4 6 89 though 6 30 92 The program performs a 90 test to see whether the annuitant s investment in the contract equals or exceeds 90 of the principal Less than 90 passes the test If the test is failed the charity will be taxed on income from the transferred property as unrelated business taxable income The program handles Federal income tax consequences including capital gain treatment and partial payment years Table V Expected Return Multiples Reg 1 72 9 and appropriate adjustment factors are applied by the program to determine an exclusion ratio The program to determine the amount of the annual annuity that is excludable for income tax purposes as well as the amount that is taxable uses this ratio The printed report also shows detail for any partial payment that may occur in the year of first payment If the fair market value o
93. nnuitants that are 60 or younger the rates are slightly lower 42 Calculation Models Answer Yes NY NJ if you live in New York or New Jersey These rates comply with those states maximum annuity rate requirements The program will automatically display the American Council on Gift Annuities uniform gift annuity rate for that region The only difference with these factors is that for deferral periods of 19 years or more the factors are lower than the factors of all other states For deferral periods of less than 19 years the factors are the same as with all other states This new choice will also go into effect July 1 1999 Payout If the Use Recommended Payout is answered No enter any value with up to three places after the decimal point Apply 7520 Exhaustion Test Answer Yes and the program will calculate the 7520 Exhaustion Test and use the result for the present value of annuity The program only handles the 87520 Exhaustion Test for immediate gifts Lives Enter the Enter the number of lives 1 or 2 that will be used to determine the charitable deduction Birth Date s Enter the birth date of one of the persons usually the donor and spouse whose lives are being used to measure the term of the gift annuity dd mm yyyy If the annuity is being funded with the donor s separate property and there are capital gain consequences Basis is less than the FMV of Property enter the donor s birthday first Cha
94. nput Fields Enter the appropriate values into the data input fields for this calculation model Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 87520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 7520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table 80CNSMT or the Mortality Table 90CM For any dates prior to May 1 1999 the program will automatically use the 830CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 Calculation Type Select Life Term
95. of the donor The 87520 rate used is 6 8 This annuity is calculated to exhaust in 18 years with a final payment in year 18 equal to 32 712 To value this annuity break it down into two separate parts 100 000 lasting for 17 years and a single payment of 32 712 in the 18 year Once the pieces are known value each one individually and then add them together The annuity factor for an annuity lasting for the shorter of 17 years or until the prior death of a person age 60 is 8 6121 The annuity factor for the shorter of 18 years or until the prior death of a person age 60 is 8 7957 Given these factors 76 Reference Information which can be obtained from example 11 in IRS Pub 1457 the valuation of the annuity is Value 100 000 x 8 6121 32 712 x 8 7957 8 6121 861 210 6006 867 216 Of course these numbers get more complicated when the annuity is payable more frequently than annually but the basic methodology is still the same For example take the above case but make it payable quarterly instead of annually Now the 100 000 payments only last 16 years The final payment made in the 3 quarter of the 16 year is 5 414 41 Transforming this single payment into an annual amount by multiplying it by the number of payments per year in this case 4 yields an annuity of 21 657 64 lasting 16 years Valuing partial year annuities requires interpolation An annuity lasting 16 years is valued by taking 4 th
96. omplete the following case 1 Select the Charitable Remainder Annuity Trust calculation by clicking the text on the right side of the screen or select the calculation from the Calculation menu 2 Select Comparison Graph from the Tools menu or click the Comparison Graph button located under the Menu Bar 3 Click the Take Data from Current Calculation button and on the first panel a bar graph will appear showing the FMV and the deduction of that trust This information will also appear on the second panel in the form of a description chart 4 In the description chart click the area under the Visible column until an X appears for the CRAT Be sure not to click the area under the Link column Leave 1t blank to disable the Link feature Charitable Financial Planner 5 Click the Close button 6 Repeat steps 2 5 for the Charitable Gift Annuity and the Pooled Income Fund How to Compare Different Scenarios of the Same Calculation Use the comparison graph to view a different scenario for the same calculation For example to compare different Charitable Remainder Annuity trusts use your own values for the calculation or use the default settings of the program complete the following case 1 Select the Charitable Remainder Annuity Trust calculation by clicking the Hotspot on the right side of the screen or select the calculation from the Calculation menu 2 Select Comparison Graph from the Tools menu or click the Comparison Graph
97. ort Tax Savings Report The Tax Savings report illustrates how a Charitable Deduction is distributed over a period of years The report shows the current year and the next five years which is the maximum period allowed for distributions Multiplying the Charity Type 50 30 or 20 and the Adjusted Gross Income calculate the amount of deduction taken annually from the trust The report shows how much of the charitable deduction is used each year as well as the annual tax savings generated from the charitable deduction The Capital Gain is derived from the following formula FMV Cost Basis x Capital Gain Rate The bar graph shows an annual comparison of the income tax with and without the charitable trust 30 Calculation Models Charitable Remainder in Residence Farm A Charitable Remainder in Personal Residence Farm provides a gift to charity of a future interest in a personal residence or farm with the donor s reserving the right to live in or use the property for a term of years or for a life span In other words an irrevocable trust is established with the trustee directed to pay to the grantor the income from the trust for a specified number of years When the grantor s trust interest terminates the property in the trust is distributed outright to family members In some cases the trust continues for their benefit or makes a distribution to a uniform gifts minors account or IRC 2503 c trust from them This trust h
98. ost recent mortality experience available The Service will publish these tables in publications that may be purchased from the Superintendent of Documents United States Government Printing Office Washington D C 20404 Charitable Contributions Made after April 30 1989 Section 7520 a of the Code provides in part that if an income estate or gift tax charitable contribution is allowed for any part of the property transferred the taxpayer may use the federal midterm rate for the month of the transfer or for either of the 2 months preceding the month in which the valuation date falls In the case of transfers of more than one interest in the same property each interest must be valued on a basis consistent with the valuation of all other such interests For example if a taxpayer transfers property to a charitable remainder trust in October 1989 the taxpayer may use an interest rate based upon the federal midterm rate for August September or October 1989 however the taxpayer must use the same rate for both the non charitable lead interest and the charitable remainder interest For charitable contributions made in May or June 1989 if the taxpayer elects to use the federal midterm rate for the preceding 2 months which may include March and April the valuation factors for March or April that involve the lives of one or more individuals will be computed on the basis of Table 1 of United States Life Tables 1969 71 and interest at 120 percent of th
99. ou to handle files in a number of different ways by creating opening saving or preparing a document for printing The following is explanations of the functions under the File Menu New Displays a new file that has the default input settings The new file is called UNTITLED Open Accesses already saved files When the Open window appears select the directory where the file is located if it is different from the current directory Enter the name of the file you wish to open or select the file name from the files listed Save Saves current inputs into a file When the Save window appears select the directory in which the file should be located and enter a name for the file Charitable Financial Planner Save As Saves the current file while allowing any or all of the following variables e Change the name of the file e Change the location of the file e Change the extension of the file Open DOS CHAR File Accesses files from the DOS version of the Charitable Financial Planner If any changes are made to a DOS file it must be saved with the Windows extension CFP otherwise the new data will be lost Open EZ Gift File Accesses files from the EZ Gift program If any changes are made to an EZ Gift file the file must be saved with the Windows extension CFP otherwise the new data will be lost Page Setup Accesses the settings for the layout of the reports Allows for customization of margins fonts and footers Pr
100. out adverse gift tax consequences However the annuity amount may not increase by more than 20 percent over the prior year For example if the initial annuity payment is 1 000 the trust could provide that annuity payments in subsequent years increase by as much as 20 percent to 1 200 in the second year 1 440 the third year and so on If the transferor retains the right to the greater of a fixed amount or the trust income in each year for a term of years the annuity will still be a qualified annuity However the right to the trust income if any in excess of the fixed amount is 54 Calculation Models valued at zero for gift tax purposes Thus the retained interest is valued for gift tax purposes as if it did not include any rights to excess income Reversion Report This report calculates the assets that would revert to the grantor s estate in case of the grantor s death during the term of the trust Rev Rul 77 454 Report The Rev Rul 77 454 is part of the Section 7520 Reg and it is also known as the exhaustion test This report calculates a limit in the valuation of annuities The Charitable Financial Planner shows the steps used to calculate the value of the exhausted annuity by splitting the annuity into two smaller parts e An annuity that lasts up to but does not include the period when the original annuity exhausts e A single payment equal to the final partial payment of the original annuity The two parts
101. pe of GRUT showing required annuity factors adjustment factors and the subtraction method of computing the taxable gift value of the residual interest in trust The summary report also shows an annuity payment equal to a fixed percentage of the current value of each year of the assets in trust In this sense a GRUT is similar to a variable annuity The payout rate is fixed but since the value of the assets can be expected to vary year to year the dollar annuity payout also varies year to year Economic Schedule The GRAT and GRUT calculations include an Economic Schedule Its growth and income values are calculated on an average annual basis This schedule is available to show an assumed future value of the remainder of the trust if capital growth and income were to rise or fall from the assumed income rate It should be noted that the Annual Growth of Principal and Income Earned by Trust data input fields are only used for the Economic Schedule and are not used for any other part of the GRAT or GRUT calculations Graph This is a graphical pie graph view of how the principal is divided into two parts e Taxable Gift e Non taxable Portion 58 Reference Information Interrelated Estate Tax Estate Tax calculates the Federal Estate Tax and state death taxes in states where the federal state death tax credit is the same as the state death tax Interrelated Estate Tax calculates the Federal Estate Tax and charitable deductio
102. rcentage is obtained by dividing the Charitable Deduction for Remainder Interest by the Property Value The Graph Report shows the value using a pie graph Factors Report The Charitable Financial Planner derives a factor from the duration of the trust that is entered in the Term of Trust input field The factor is used to calculate how much income Remainder Interest will be paid to the grantor of the trust Graph The bar graph shows the Taxable Gift that would be given to the grantor of the trust depending on the term of the trust and the grantor s age at the end of the term 48 Calculation Models Grantor Retained Annuity Trust GRAT A Grantor Retained Annuity Trust GRAT provides the grantor with a fixed annuity interest in an irrevocably transferred property The remainder interest generally passes to the grantor s designated beneficiaries at the end of a specified term or at the earlier of the end of a specified term or the grantor s death Optimize Button The Optimize Button provides two choices for optimization if e Shorter or Life as the Calculation Type is selected e Term as the Calculation Type is selected Optimizing for Shorter or Life The Optimize Button gives you two choices if you select Shorter or Life as the Calculation Type e Optimize for Taxable Gift of Residual Interest in Trust e Optimize for Taxable Gift Limited by Rev Rul 77 454 Ifyou select Optimize for Taxable Gift of Residual Interest in T
103. re included in this notice Table 80CNSMT Mortality Table based on the 1980 census This table supersedes Table LN which is set forth in section 20 2031 7 f of the Estate Tax Regulations Table R 1 Single Life Remainder Factors for determining the present worth of a remainder interest based on a single life with interest rates between 8 2 percent and 12 percent This table supersedes Table A which is set forth in section 20 2031 7 f of the regulations and section 25 2512 5 f of the Gift Tax Regulations Any remainder factor in Table R 1 may be converted to a factor for determining the present worth of an income interest or an annuity interest based on a single life by the method set forth in Notice 89 24 The remainder factors in Table R 1 are also applicable for determining the present worth of the remainder interest in property transferred to a pooled income fund having a yearly rate of return equal to the 69 Charitable Financial Planner interest rates specified in the table Table R 1 also supersedes Table G which is set forth in section 1 642 c 6 d 3 of the Income Tax Regulations Table K Adjustment factors based on timing and frequency of payments for annuities payable at the end of each interval Table K supersedes the payout frequency factors set forth in sections 20 2031 7 b 2 and 25 2512 5 b 2 of the regulations Table B Term Certain Remainder Factors for determining the present worth of a remainder intere
104. rity Type Choose 50 30 or 20 All qualified non profit organizations will fit within one of these types IRS Publication 78 Capital Gains Rate Enter the income tax rate that applies to capital gains property Summary Report In terms of its calculations the gift annuity is more complicated than any other split interest charitable methods The program calculations were designed based on research that consulted several sources In particular see Deferred Giving by Conrad Teitell and publications furnished by the Committee on Gift Annuities Tax Implications of an Annuity Gift and Deferred Gift Annuities Calculations will vary depending upon whether an annuity is considered to be immediate the first payment date is one year or less from the transfer date or deferred the first payment date is more than one year after the transfer date The program automatically handles the different calculation methods for immediate and deferred gift annuities The Committee on Gift Annuities recommends the use of its uniform gift annuity rates These recommended rates are revised from time to time by the Committee The recommended rates are revised from time to time by the Committee The 43 Charitable Financial Planner recommended rates are intended to produce on the average a gift to the charitable organization of approximately 50 of the amount transferred to the charity The uniform rates used by the program were adopted by the Co
105. rn for Three Preceding Years Enter the highest rate of return earned by the fund in any one of the three years preceding the year of the contribution 28 Calculation Models Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the number of lives up to five that will be used to determine the distribution The Pooled Income Fund only handles Life scenarios Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from O to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Income Tax The Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets in 2011 Indicate whether or not you wish to assume that the income tax provisions of that act will sunset Cost Basis Enter the amount of basis for the asset being placed in the trust Charity Type Choose 50 30 or 20 All qualified non profit organizations will fit within one of these types IRS Publication 78 Capital Gains Rate Enter the income tax rate that applies to capital gains property Summary Report The fair market value of a remainder interest in property transferred to a pooled income fund is th
106. rom the input field section of this calculation It is the highest rate of return earned by the fund in any one of the three years preceding the year of the contribution If the fund has been in existence less than three years a presumed rate of return must be used For funds created before May 1989 the presumed rate is 9 0 For later periods the IRS determines the presumed rate This presumed rate for new funds is expected to be 9 4 for funds created after April 1989 and before 1990 and 9 8 for funds created in 1990 or 1991 If the yearly rate of return is a percentage that is between those rates for which returns are provided in the table a linear interpolation is required Remainder Factor This factor changes depending on the number of lives used for this calculation Charitable Deduction for Remainder Interest The dollar amount of the property value that is not subject to taxation income tax The present value of the remainder interest is determined by multiplying the remainder factor times the fair market value of the property contributed The fair market value of a remainder interest in property transferred to a pooled income fund is the value of the property contributed Donor s Deduction as Percentage of Property Transferred The percentage amount of the property value that is not subject to taxation income tax Income Tax Report The trust provides an Income Tax Report See page 17 for more information on this rep
107. rust the program near zeros the Taxable Gift Value of Residual Interest in Trust without regard to Rev Rul 77 454 If you select Optimize for Taxable Gift Limited By Rev Rul 77 454 the program calculates the highest Rate of Annuity which results in a Rev Rul 77 454 Taxable Gift value which does not exceed the Shorter of Term of Life Taxable Gift value The program does not perform a near zero out calculation for the Rev Rul 77 454 Taxable Gift since the result would invariably be a nonsensical 99 Rate of Annuity Optimizing for Term The Optimize Button gives you two choices for optimization if you select Term as the type of calculation e Optimize for Taxable Gift of Residual Interest in Trust e Optimize for Taxable Gift as per Reg Section 25 2702 3 e Ex 5 If you select Optimize for Taxable Gift of Residual Interest in Trust the program near zeros the Taxable Gift based on term interest This would be an optimum result if Example 5 of Reg 25 2702 3 e were not a concern The resulting Taxable Gift would be correct only if that IRS Regulation or the IRS interpretation of that regulation were to be ruled to be invalid 49 Charitable Financial Planner Ifyou select Optimize for Taxable Gift as per Reg Section 25 2702 3 e Ex 5 the program near zeros the Taxable Gift as per Reg Sec 25 2702 3 e Ex 5 which is the shorter of term of life valuation Term Calculations and the Regulations According to the Regulat
108. s certain types of retained interests such as the right to have trust assets revert to the transferor s estate in the event of the transferor s premature death may be valued at zero when computing the gift tax value of the transfer As a general rule every retained interest but a qualified interest is assigned a value of zero for gift tax valuation purposes Data Input Fields Enter the appropriate values into the data input fields for this calculation model Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 87520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months 56 Calculation Models and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 7520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of u
109. s lower than his computed factor and takes the corresponding number of years as the number of years to expiry of the trust This is a conservative approach that results in one less year than the IRS allowed in Rev Rul 77 374 and the Moor case The 75 Charitable Financial Planner program uses the IRS method Teitell also uses the age at the last birthday preceding the date of the trust agreement The program uses the age as of the nearest birthday that is the value you have entered for the age input Finally Teitell does note that in marginal cases additional calculations resulting in modifications to the number of years and ages may produce a smaller probability Reg 25 7520 3 b 2 v Example 5 Eroding corpus in an annuity trust The donor who is age 60 and in normal health transfers property worth 1 000 000 to a trust The trust will pay a 10 percent 100 000 per year annuity to a charitable organization for the life of the donor and the remainder is to be distributed to the donor s child The section 7520 rate for the month of the transfer is 6 8 percent Because the 10 percent annuity payout rate exceeds the 6 8 percent income and growth rate that the trust is expected to experience each year the annuity payout must be assumed to progressively erode the corpus Using an interest rate of 6 8 percent an annuity payout of 100 000 per year will exhaust a 1 000 000 trust corpus in 18 years The final payment at the end of the
110. s death The possibility that W s annuity might entirely consume the trust assets was not so remote as to be a negligible possibility Section 2055 e 3 of the Code was enacted on October 26 1974 to provide for amendment of certain governing instruments in order to qualify charitable remainder interests passing thereunder for a charitable deduction for Federal estate tax purposes Shortly thereafter on December 5 1974 the executor of the estate the trustee of the trust and W obtained from the local probate court an order amending and reforming the trust to provide that W shall receive a reduced annuity of only 28 000 each year during W s lifetime After the trust was amended W 71 Charitable Financial Planner repaid to the trustee the excess of the amount of the annuity that W had received during the prior year over the amount receivable under the amended trust Section 2055 a of the Code provides that for purposes of the estate tax the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests devises or transfers to or for the use of charity Any property interest which increases a charitable bequest as the result of an irrevocable disclaimer of a non charitable bequest legacy devise transfer or power will qualify for the charitable deduction if the disclaimer is made before the date prescribed for the filing of the estate tax return Section 2055 e of th
111. s derived from the following formula FMV Cost Basis x Capital Gain Rate The bar graph shows an annual comparison of the income tax with and without the charitable trust Graphs The graphs tab shows two graphical views of the present scenario e Deduction Percent The pie graph shows the deduction as a percentage of the amount transferred e Deduction vs Payout The bar graph shows the rise and fall of the deduction that the client can receive depending on the percentage payout that is used Use the Increment Percentage Payout by input to change the increment change of the Payout Change the number to see a more in depth evaluation of the comparison Pooled Income Fund A Pooled Income Fund is an irrevocable trust that is maintained by a charitable organization to which many individuals contribute property The fund provides an annuity to a non charitable income beneficiary ies for a period measured by the life expectancy of one person up to five persons 27 Charitable Financial Planner Donors retain a life income interest in the property for one or more beneficiaries who receive an annual income dependent on the trust s rate of return for the year At the death of the last beneficiary the remaining value of the gift belongs to the charity Calculation Type A Pooled Income Fund only handles Life calculations The Charitable Financial Planner handles one to five lives Pooled Income Fund Requirements In order
112. s made to a pooled income fund after April 30 1989 the federal midterm rate is disregarded Instead such interests are valued on the basis of the applicable yearly rate of return of the pooled income fund at the time of the transfer and the applicable mortality table Taxpayers who plan to make charitable contributions to pooled income funds in May or June 1989 and who wish to rely on the actuarial factors that are applicable for the preceding 2 months which may include March and April can in the case of remainder interests that are measured by a single life obtain the applicable factors from Table G of section 1 642 c 6 d 3 of the regulations Thus in the case of contributions in May or June taxpayers are permitted to elect to use actuarial factors for the 2 months preceding the contribution notwithstanding the fact that the federal midterm rate is disregarded in valuing pooled income funds Example 4 Computation of a Remainder Interest Transferred to a Pooled Income Fund Assume that in May 1989 a donor aged 45 transfers property to a pooled income fund retaining the income interest for life Assume also that at the time of the transfer the highest yearly rate of return of the fund for its three preceding taxable years is 10 2 percent and 120 percent of the applicable federal midterm rate 66 Reference Information for one of the 2 months before May is 11 4 percent The donor elects to value the transfer based on the prior mortalit
113. sets must be revalued each year and the fixed percentage amount must be paid at least once a year for the term of the trust which must either be a fixed period of 20 years or less or until the death of the noncharitable beneficiaries all of whom must be living at the beginning of the trust e No sum can be paid except the fixed percentage during the term of the trust and at the end of the term of the trust the entire balance of the trust assets must be paid to one or more qualified charities e Assets in the trust are transferred to the qualified charity or retained in the unitrust for use by the charity 23 Charitable Financial Planner The donor receives an immediate deduction for the present value of the remainder interest that will transfer to the charity at the end of the term The present value of the remainder interest is determined by income tax regulations Because a charitable remainder unitrust is exempt from federal income tax the income and gains of the trust are only taxed when they are distributed to the noncharitable beneficiaries They are taxed as part of the fixed percentage of trust assets distributed each year They are frequently used to defer income tax on gains about to be realized For example if a donor has an appreciated asset that is about to be sold the donor can give the asset to a charitable remainder unitrust reserving the right to received a fixed percentage of the value of the trust for life and for the
114. should be followed for each year Annual Semiannual Quarterly Monthly and Weekly Payment Timing Select Begin or End to indicate when the payment should be made for the selected payment period This helps to determine what payout frequency factor is used in the calculation Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the Enter the number of lives up to five that will be used to determine the charitable deduction This data input field is only available when Life is chosen as the Calculation Type Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from O to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Summary Report The deduction for a charitable contribution of a guaranteed annuity interest is limited to the fair market value of such interest for transfers after November 30 1983 Treas Reg 1 170A 6 c 3 1 the value is computed under 20 2031 7 The annuity factor is multiplied by the annual dollar payout to calculate the present value of the annuity The annuity factor varies according to when the annuity is paid The program automatically enters the fac
115. sing the Mortality Table SOCNSMT or the Mortality Table 90CM For any dates prior to May 1 1999 the program will automatically use the S0OCNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 Calculation Type Select Life Term or Shorter For more information on calculation types see page 16 Principal Enter the fair market value of the assets placed in the trust Grantor s Current Age This data input field is only available when Life is chosen as the Calculation Type Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the transfer date Term of Trust Enter the number of years the trust will provide income to the grantor Payment Period Select the payment schedule that should be followed for each year Annual Semiannual Quarterly Monthly Months Valuation Precedes Payout Enter a value to indicate the number of full months by which the valuation date precedes the first payout The program will only allow valid input values according to which Payment Period was selected on the previous input field Percentage Payout Enter the projected payout percentage that should go to the beneficiary during the life
116. st postponed for a term certain This table supersedes Table B which is set forth in sections 20 2031 7 f and 25 2512 5 f of the regulations A remainder factor may be converted to factors for determining the present worth of both an income interest and an annuity interest postponed for a term of years by the method set forth in Notice 89 24 Table U 1 Unitrust Single Life Remainder Factors for determining the present worth of a remainder interest in property based on a single life in the case of a transfer to a charitable remainder unitrust with an adjusted payout rate ranging from 4 2 percent to 6 percent This table supersedes Table E which is set forth in section 1 664 4 b 5 of the regulations Tables F 10 2 12 0 Tables of factors for computing the adjusted payout rate for certain charitable remainder unitrust valuations based on interest rates ranging from 10 2 to 12 percent Table D This table is not attached is set forth in section 1 664 4 b 5 of the regulations and will continue to be effective for determining the present worth of a remainder interest postponed for a term of years in a charitable remainder unitrust for transfers made after April 30 1989 Effective Date The tables and formulas contained in this notice apply to the valuation of interests in property for income estate gift and generation skipping transfer tax purposes in the cases of decedents dying after April 30 1989 and gifts and certain oth
117. sury Reg 1 170A 6 c 3 11 and 20 2055 2 f 2 v The fair market value of a remainder interest in a charitable remainder unitrust is its present value Treasury Reg 1 664 4 a 1 the present value is determined under this Section An adjusted payout rate is determined by multiplying the fixed percentage payout by the appropriate payout sequence factor from Table F 1 for transfers prior to May 1989 or Table F for the appropriate interest rate for transfers after April 1989 which corresponds to the number of months by which the valuation date precedes the payout date The program automatically enters the remainder factor which is governed by the type of calculation used Term or Life You can find the remainder factor in the IRS Publication 1458 Actuarial Values Beta Volume When the remainder factor is computed the present value of the remainder interest is obtained by multiplying the factor times the fair market value of the trust assets 40 Calculation Models The unitrust income interest is obtained by subtracting the present value of the remainder interest form the fair market value of the trust assets Graphs The graphs tab shows two graphical views of the present scenario e Deduction Percent The pie graph shows the deduction as a percentage of the amount transferred e Deduction vs Payout The bar graph shows the rise and fall of the deduction that the client can receive depending on the percentage payout tha
118. t DP value At End of Useful Life x Payment Years or DP Value At End of Useful Life DP Value At End of Useful Life NOTE Use the smallest value of the two Payment Years or DP Value At the End of Useful Life Nondepreciable Part Indicates the dollar value of the property that does not depreciate in value Use the following formula to attain the value Land Value DP Value At End of Useful Life Remainder Factor This factor is used to calculate the charitable deduction The program derives this number from the Calculation Type used and the ages entered for each life if a Life calculation is used Remainder Interest This factor is used to calculate the charitable deduction The program derives this number from the Estimated Useful Life in Years input 1 99 years the number of lives used and the ages entered for each life When valuing the remainder interest if part of the real property is depreciable the adjusted value is subtracted from the value of the depreciable part Charitable Deduction for Remainder Interest This is the charitable deduction that is derived from the following formula Nondepreciable Part x Remainder Factor Depreciable Part x Adjusted Remainder Factor Summary for a Life Case The summary tab shows the direct results from the values that are entered into the input fields Total Value of Property This number is the sum of the Land Value and the Depreciable Property Value on
119. t 3342 amended the Internal Revenue Code by adding section 7520 Generally under section 7520 the value of an annuity interest for life or for a term of years or remainder or reversionary interest is determined under new tables that are to be prescribed by the Secretary Section 7520 is applicable to gifts made after April 30 1989 and to estates of decedents dying after that date 63 Charitable Financial Planner Interest Rates and Source of Tables for Transfers after April 30 1989 With respect to the interest rate component the new valuation tables under section 7520 of the Code are to be based in part on the interest rate that the Service announces monthly in a news release and publishes in a revenue ruling in the Internal Revenue Bulletin This rate is 120 percent of the applicable federal midterm rate compounded annually rounded to the nearest two tenths of one percent in effect under section 1274 d 1 of the Code for the month in which the valuation date falls For example the applicable federal midterm interest rate for February 1989 as set forth in Rev Rul 89 15 1989 6 I R B 9 is 9 42 percent 120 percent of this amount is 11 36 percent Thus if section 7520 were effective as of February 1 1989 instead of May 1 1989 then the rate for February under section 7520 would be determined by rounding the rate of 11 36 to 11 4 percent With respect to the mortality component the new valuation tables will be based on the m
120. t is used Use the Increment Percentage Payout by input to change the increment change of the Payout Change the number to see a more in depth evaluation of the comparison Charitable Gift Annuity A Charitable Gift Annuity donor transfers money or other property to a qualified charitable organization in return for the charity s promise to pay the donor or another fixed and guaranteed payments for life This transfer is part charitable gift and part purchase of an annuity For capital gain purposes the program assumes that the donor is the annuitant Calculation Type The Charitable Gift Annuity only uses Life to perform its calculations The Charitable Financial Planner handles one or two lives Data Input Fields Transfer Date Enter 1 to 12 to indicate the month for the transfer date and then enter the day and year of the transfer dd mm yyyy If you enter a two digit number such as 90 the program will automatically enter it as 1990 7520 Rate The program automatically displays three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 87520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or man
121. t which is quite different from the actuarial test which requires an annual percentage payout of not less than 5 of the initial fair market value of the trust Under the rationale of Rev Rul 77 374 the charitable deduction is not allowable where the probability exceeds 5 that a non charitable beneficiary will survive the exhaustion of a trust fund in which the charity has a remainder interest Thus the ruling may result in the disallowance of a charitable deduction even if a deduction amount has already been actuarially determined Therefore the program automatically applies the Revenue Ruling when applicable to one life and two life charitable remainder annuity trust calculations Calculations The program applies the 5 probability test in the same manner in which it is applied in Rev Rul 77 374 and in a tax court case George H Moor Est 43 TCM 1982 299 The formula gleaned from these may be summarized as follows 1 interest rate x initial corpus adjusted payment year end corpus Successive computations lead to the number of years in which the corpus is exhausted It is clear from the Moor case that the payment is adjusted by a payment period factor before the formula is applied It is interesting to note that both the revenue ruling and the Moor case include the year in which the corpus is exhausted For example 74 Reference Information Rev Rul 77 374 used 16 years not 15 even though the corpus would be exhausted in l
122. t will still pass all the tests such as the 10 test and the exhaustion test It also yields a non zero deduction This trust handles Term and Life Calculations See page 16 for more information on the different types of calculations Charitable Remainder Annuity Trust Qualifications A trust qualifies as a charitable remainder annuity trust if the following conditions are met e The trust pays a specified sum to at least one non charitable beneficiary who is living when the trust is created This sum must be paid annually semiannually quarterly monthly or weekly regardless of trust income appreciation or depreciation of the value of the trust s assets e The sum paid annually must be 5 or more of the initial net fair market value of the property placed in the trust e The payout rate may not exceed 50 of the initial value of the trust assets for all transfers to trust after June 18 1997 Code 664 d 1 A e The value of the charitable remainder must be at least 10 of the net fair market value of the assets transferred to the trust on the date of the gift effective for trusts funded after July 28 1997 e No sum is paid to anyone other than the specified non charitable beneficiary who must be alive when the trust is created and a qualified charitable organization e When the specified term ends the remainder interest is transferred to a qualified charity or is retained by the trust for the use of the qualified
123. the appropriate payout sequence factor If the adjusted payout rate is between the rates shown in the table a linear interpolation is required Term of Years Remainder Interest The present value of the remainder interest is obtained by multiplying the factor times the fair market value of the trust assets A number that is derived from IRS tables depending on the term of years Present Value of Remainder Interest The present value of remainder interest is its fair market value The present value is determined under Treasury Regulations 1 664 4 a 1 Donor s Deduction The dollar amount that is not subject to taxation income tax Donor s Deduction as Percentage of Amount Transferred The percentage amount that is not subject to taxation income tax 26 Calculation Models Income Tax Report The trust provides an Income Tax Report See page 17 for more information on this report Tax Savings Report The Tax Savings report illustrates how a Charitable Deduction is distributed over a period of years The report shows the current year and the next five years which is the maximum period allowed for distributions Multiplying the Charity Type 50 30 or 20 and the Adjusted Gross Income calculate the amount of deduction taken annually from the trust The report shows how much of the charitable deduction is used each year as well as the annual tax savings generated from the charitable deduction The Capital Gain i
124. the irrevocably transferred property determined annually for a fixed period of years The remainder interest generally passes to the grantor s designated beneficiaries at the end of a specified term or at the earlier part of the end of a specified term or the grantor s death A grantor retained unitrust may be an effective means for a wealthy client who wants or needs to retain all or most of the income from a high yielding and rapidly appreciating property to transfer the property to a child or other person with minimal gift or estate tax GRUTs are particularly indicated where the client has one or more significant income producing assets that he or she is willing to part with in the future to save federal and state death taxes to probate costs to obtain privacy on the transfer and to protect the asset against the claims of creditors A GRUT is created by transferring one or more high yield assets into an irrevocable trust and retaining the right to an annuity interest for a fixed term of years or for the shorter of fixed term or life When the retention period ends assets in the trust including all appreciation go to the named remainder beneficiary 1es In some cases other interests such as the right to have the assets revert back to the transferor s estate in the event of the transferor s premature death may be included If family members are involved the gift tax valuation rules of IRC 2702 may apply Under these rule
125. tomatically use the S0CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 Land Value Enter the appropriate value of the land as of the date of the gift If the valuation is for estate or gift tax purposes and you take the position that depreciation is considered only for income tax purposes you would enter the total value of the property transferred here and enter zero for the following two depreciable property value inputs 31 Charitable Financial Planner Estimated Useful Life in Years Enter the estimated year span beginning with the date of the contribution over which the depreciable property is going to be used Payment Years Enter the duration of the trust for a period not in excess of 20 years Valid entries are 1 20 This data input field will only be available when Term is chosen as the Calculation Type Lives Enter the number of lives up to five that will be used to determine the distribution The Pooled Income Fund only handles Life scenarios see page 16 Ages This data input field is only available when Life is chosen as the Calculation Type Use a value from O to 109 to indicate the age of the person whose life is being used to measure the term of the trust Enter the age of this person s using the birth date which is nearest to the tr
126. tor that should be used from the information you entered on the data input fields Factors may be found in IRS Publication 1457 Actuarial Values Alpha Volume or IRS Publication 723E 36 Calculation Models For interest rates other than 10 other adjustment factors must be used The deduction for the annuity interest cannot exceed the value of property transferred to the trust 87520 Report The 87520 Treasury Regulations Exhaustion Test calculates a limit in the valuation of annuities created a Charitable Remainder Annuity Trust The Charitable Financial Planner shows the steps used to calculate the value of the exhausted annuity by splitting the annuity into two smaller annuities e An annuity that lasts up to but does not include the period when the original annuity exhausts e A single payment equal to the final partial payment of the original annuity The two parts are then added together The total is the Value for the 7520 Treasury Regulations Exhaustion Test report See the 25 7520 3 b 2 v Example 5 ruling in the Reference section for more information on the exhaustion test Graphs The graphs tab shows two graphical views of the present scenario e Deduction Percent The pie graph shows the deduction as a percentage of the amount transferred e Deduction vs Payout The bar graph shows the rise and fall of the deduction that the client can receive depending on the percentage payout that is used Use the Increm
127. ture payments In appropriate cases Yes will result in a proration of the first payment for an immediate annuity when the period is less than the interval between future payments by more than one day Payment Period Select the payment schedule that should be followed for each year Annual Semiannual Quarterly and Monthly of Contributions Entering a value greater than 1 causes the program to replace the standard report with a Charitable IRA report This report is available only for transfer dates starting May 1 1989 or later For calculation purposes 1t is assumed that successive contributions equal to the initial one i e the FMV of Property are also made on the same Transfer Date in following years First Payment Date Enter the date of the first annuity payment If you enter zeros or spaces for the date the program will automatically display the same date that was entered for the Transfer Date data input field Recommended Payout Answer Yes and the program will automatically display the American Council on Gift Annuities uniform gift annuity rate as adjusted by the uniform interest factor for deferred gift annuities for the Payout data input field Answer No if you wish to enter another rate for the Payout data input field Note The American Council on Gift Annuities has announced new annuity rates The new rates will be effective July 1 1999 The new rates remain the same for annuitants over age 60 For a
128. ualifications ooocnnocccononononcconononnncconononn noc nononn coco nonnnn ccoo nn nono nccn noo 23 Data Input Fields A A A e 24 Summary REport iii A id a recien 26 Income Ta Rp ad 27 Tax Savings Repo ia 27 Graphs da ia 27 ss A a RU es ioi 27 Calculation Type its 28 Pooled Income Fund Requirement ccecccsceesseessesseeseceeeceseceseeeeeeseceseeaeceaecaaecsaecaeeeseseaeeeeeenreeas 28 Data Input Fields iene iii inata dio is 28 Summary Report in A A dei 29 Income Tax Reportan il ds 30 Tax Savings REPO iia td o DE SRA q SR ATE i e ee E ETA ad 30 Charitable Remainder in Reside Fa in cepas asa SUR 31 Charitable Financial Planner Data Input Hilda asa 31 Summary fora Term Casual uai E de oa TO a ean ats Ta SETE pa 32 Income Tax Reporte e CRER US Soa 34 Tax Savines Report o te o a VASO GRSA cn ad an e oo 34 Charitable Lead Annuity Td a usa see cedida eia ad CS aca ai ada 35 Data Input Fields A A KR eR 35 Summary Repo burst id idad 36 87520 REPOR iii dada 37 O a ee eA ee BR 37 Charitable cd aaa 39 Data Input Fields 00 tic 39 SUMMARY Repo a AA A ia 40 OA 41 Chatitable Gift ANNUI is 41 Calculation Vpe A A A be SR AS STARS AR E 41 Data Input Fields OS 41 SUMMALYREPOMs sermos O OS 43 EA O A RU REPETE RS ORA UR OPTE O ON UR RR 44 Income ax Report ER EEL RII A A SATAN EVA E pede ada 44 Tax Saving suReports cies e cl het tt tae ate Sin one iit ites els bees tats DF eI 45 Graph 2a e a eo do ee I AE ty Rr IEE
129. ually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM if the rate for either month 41 Charitable Financial Planner is used in the 87520 data input field For any dates prior to May 1 1999 the program will automatically use the 80CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 FMV of Property Enter the initial net fair market value of the property transferred pursuant to the gift annuity agreement Income Tax The Economic Growth and Tax Relief Reconciliation Act of 2001 sunsets in 2011 Indicate whether or not you wish to assume that the income tax provisions of that act will sunset Cost Basis Enter the long term cost basis of the property on the transfer date If the value entered is the same as the FMV of the Property the reports will not include any capital gain treatment Prorate This data input field is irrelevant for deferred gift annuities Enter No if the first payment is not to be prorated when the period between the Transfer Date and the First Payment Date is less than the interval between fu
130. ulas for computing the value of transferred interests based on the appropriate applicable federal midterm interest rate and the prior mortality experience Interest Rates and Tables for Transfers after April 30 1989 The tables set forth below include many single life and term certain factors that are to be used for valuing interests in the case of gifts and certain other transfers taking place after April 30 1989 and estates of decedents dying after that date These new tables reflect the mortality experience based on the 1980 census A complete set of tables including two life and additional single life factors will be published by the Service in the near future and will be available for purchase from the Superintendent of Documents United States Government Printing Office Washington D C 20404 The new tables contain factors that are based upon several different interest rates The appropriate factor for any particular transaction will be based on the interest rate the Service announces monthly in a news release and publishes in a revenue ruling in the Internal Revenue Bulletin The interest rate for a particular month is the rate that is published as 120 percent of the applicable federal midterm rate 68 Reference Information compounded annually in effect under section 1274 d 1 of the Code for the month in which the valuation date falls That rate is then rounded to the nearest two tenths of one percent For example the rate th
131. ve the choice of using the Mortality Table SOCNSMT or the Mortality Table 90CM if the rate for either month is used in the 7520 data input field For any dates prior to May 1 1999 the program will automatically use the SOCNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 FMV of Trust Enter the initial net fair market value of the assets placed in the trust when established 35 Charitable Financial Planner Percentage Payout Annual Payout Enter the projected payout that will go to the beneficiary during the life of the trust The program treats numbers 1 100 as a Percentage Payout and numbers greater than 100 as an Annual Payout The program performs the 10 Test and the 50 Test on the dollar amount or percentage entered before allowing the amount to be used e The 10 Test does not allow the Charitable Remainder interest to be less than 10 of the Fair Market Value FMV of the trust In other words the charity cannot receive less than 10 of the FMV of the trust If the Charitable Remainder is less than 10 a message appears stating Does not Pass the 10 Test e The 50 Test does not allow the non charitable beneficiary to receive an annuity that exceeds 50 of the Fair Market Value of the trust Payment Period Select the payment schedule that
132. y experience contained in Table G The applicable yearly rate of return for the fund is used when valuing a remainder interest transferred to a pooled income fund The applicable valuation factor is 11121 that is found in Table G under the column for 10 2 percent yearly rate of return The value of the transferred interest multiplied by this factor represents the present worth of the remainder interest in property transferred by a donor aged 45 to a pooled income fund having a yearly rate of return of 10 2 percent The valuation factors for valuing transfers to pooled income funds based on two lives are found in Table G 2 of Service Publication 723D 9 84 cited above Taxpayers who make qualifying charitable contributions in May or June 1989 of certain partial interests in property other than contributions to charitable remainder unitrusts and pooled income funds that are measured by a single life and who wish to elect under section 7520 a can obtain the applicable factors for March and April for valuing many such interests from Table G cited above Example 5 Computation of a Qualifying Remainder Interest in a farm Assume that a donor aged 40 makes a gift to a charity of a remainder interest in farmland in May 1989 Assume for purposes of illustration that 120 percent of the applicable federal midterm rate for one of the 2 months before May which the donor elects to use is 11 4 percent The applicable remainder interest actuarial fa
133. y is payable other than at the end of the year the program uses special adjustment factors to do the calculation The fair market value of the remainder interest of a charitable remainder annuity trust is the net fair market value of the property placed in trust less the present value of the annuity The program multiplies the annual dollar payout and the annuity factor to find the annuity The program automatically selects the factor depending on the Calculation Type used To find the appropriate factor see the IRS Publication 1457 Actuarial Values Alpha Volume 19 Charitable Financial Planner The summary report shows the direct results from the values that are entered into the data input fields Amount of Annuity A dollar amount of the percentage payout The annuity must pass the 5 Probability Test The test ensures that the trust does not exceed a 5 chance of diminishing to an insufficient amount leaving no remainder distribution to the charity If the annuity is payable other than at the end of the year the program uses special adjustments in the calculation Term or One Five Lives Annuity Factor The annual dollar payout is multiplied times the annuity factor The Calculation Type used governs the annuity factor that is used You can find the annuity factor in the IRS Publication 1457 Actuarial Values Alpha Volume If the annuity is payable at the end of the payment period a period adjustment factor Treasury Reg
134. ys three allowable 120 Midterm Applicable Federal Interest Rates the current month and two preceding months and places the rate that is most favorable in this input You can override the program s value by entering another rate In which case the phrase Invalid 87520 Rate appears In some cases 30 will appear as a rate Thirty percent is the default value that appears when there is not a current AFR available for the chosen month Download or manually update your AFR table See page 6 for more information about adding and downloading AFRs Check our web site at http www brentmark com AFRs htm for an updated list of AFR Rates Note For May or June of 1999 you have the choice of using the Mortality Table 80CNSMT or the Mortality Table 90CM if the rate for either month is used in the 7520 data input field For any dates prior to May 1 1999 the program will automatically use the 80CNSMT mortality table For any dates after June 30 1999 the program will automatically use the 90CM mortality table See the Reference Information section for more information on this ruling T D 8819 REG 103851 99 FMV of Trust Enter the initial net fair market value of the assets placed in the trust when established 39 Charitable Financial Planner Percentage Payout Enter the projected payout percentage that should go to the beneficiary during the life of the trust Payment Period Select the payment schedule that should be

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