Question

John and Mary Cook have supported The Museum of Silence in Industry for many years. John was on the Board and Mary was on the Women’s Board, and they have given at least $1,000 a year since 1995, and as much as $100,000 once (for a special project). John is now 75 and Mary is 64. They have been approached for a gift to the new campaign, for an exhibit called “The Cone of Silence through the Years.” They have several substantial assets that lend themselves to gifting. They own a home worth

$1.2 million (purchased in 1985 for $54,000); a farm in Iowa worth $4 million (inherited when it was worth $150,000); an IRA worth over $2 million, and stocks which have a value of $5,000,000 and a cost basis of 10%.

Here’s what they want to do. They want to remember the campaign in their estate plans, and they are concerned about maintaining a high income and about reducing taxes. They are inclined against making lots of irrevocable gifts, but are open to suggestions as to what would work best for them. Also, they aren’t thrilled about the “Cone” exhibit, and would rather the gift go to a new idea of theirs, “Soundproofing and You.”

The Museum has a policy that estate gifts to the campaign from those 70 and above will be credited to the campaign at 100% of the value, those under 70 at 75%, and those under 65 get no credit. However, they are interested in recognizing donors at levels that will make them feel appreciated and respected.

Discuss:

A. What are their planned gift options for each listed asset, along with a discussion of the tax implications, if any, of each gift recommended.

B. How would you address their interest in making a planned gift restricted to the “Soundproofing” idea?
C. Discuss how you would recommend to the Museum that they deal with the amount to be credited toward the campaign goal, and what you would recognize on the donor list.

Answer 1

The students' question involves understanding planned giving options suitable for a couple's assets that respect their wishes. The response includes details on retained life estate, CRUTs, CLTs, and IRA charitable rollovers, the concept of restricted gift agreements, tax implications, and campaign recognition suggestions.

Step-by-step explanation:

The student is asking about planned giving options for John and Mary Cook's assets, taking into account their desire to support a museum, maintain high income, reduce taxes, and fund a specific exhibit idea. The couple has several assets to consider for charitable giving: a home, a farm, an IRA, and stocks. It's important to look at the tax implications and ways to potentially restrict a gift to a specific project they prefer.

A. Planned Gift Options & Tax Implications

• Home: A retained life estate might be appropriate. They could donate the home while retaining the right to live there for the rest of their lives, potentially qualifying for an income tax deduction based on the remainder value of the property. However, they would still be responsible for home expenses until they pass away.
• Farm: The Cooks can consider a charitable remainder unitrust (CRUT) or charitable lead trust (CLT) for their farm. This could provide them with income for life or a term of years, with the remainder going to the museum. It would provide income tax benefits and could reduce estate taxes.
• IRA: An IRA charitable rollover could work for their IRA. This allows individuals 70½ or older to transfer up to $100,000 per year to charity tax-free.
• Stocks: Donating stocks directly to the museum could allow the Cooks to avoid capital gains tax on the appreciation and possibly receive an income tax deduction for the full market value.

B. Restricting a Planned Gift

The Cooks desire to support "Soundproofing and You." A restricted gift agreement could be drafted, ensuring that their contributions are allocated as per their interests. However, they should ensure that the museum will accept a restricted gift and has the capacity to carry out the project.

C. Campaign Recognition

Since John is above 70 years old, his gift would be credited at 100%, whereas Mary's gift would be credited at 75% per the museum's policy. This should be addressed with the museum, perhaps suggesting they account for the full value of both gifts for campaign recognition purposes. Recognition on the donor list could be commensurate with their level of support, acknowledging them in a manner that reflects their longstanding contributions and honors their specific request for the exhibit.