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Definitions - General Gift Planning

Reduction Rules

The reduction rules are federal income tax rules that reduce the amount of the charitable deduction available for gifts of certain kinds of property.

Normally, the charitable deduction for a gift is based on the fair market value of the gift at the time of donation. The basic reduction rules says, however, that the deduction must be reduced by the amount of gain in the property that would not have been treated as long term capital gain if the donor had sold the property for its fair market value.

Private Foundation Rules

Private foundations are subject to a variety of special tax laws that restrict their behavior. These rules are known collectively as the private foundation rules. These rules include prohibitions against self-dealing, jeopardy investments, and certain expenditures, as well as governing instrument requirements.

Private Foundation

A private foundation is a form of charitable organization that is set up by an individual or group of individuals, typically family members, for the purpose of supporting public charities of their choosing.  Contributions to the foundation are deductible from the donor's income taxes at the time of the contribution even though the assets may not be distributed by the private foundation to public charities for many years.

Private foundations offer individuals a mechanism for maintaining maximum control of the investment and distribution of charitable funds.

Present Value

An asset's present value is the equivalent value of an asset in today's dollars, given its value at a specific time in the future. The equation for computing present value is:

     PV = FV / (1 + R) ^n

Where,

     PV = present value

     FV = future value

     R = assumed interest rate

     n = number of years into future

The interest rate chosen has a profound effect on a future amount's present value.

Payment Frequency

The frequency with which a gift plan makes payments.  The frequency of payments affects the deduction slightly.  This value is set in our Planned Giving Manager software under Gift Options in the follow-up window for the gift plan.

Annual - Payments are made once per year.

Semiannual - Payments are made twice per year in installments once every six months.

Quarterly - Payments are made four times per year in installments once every three months.

Payment Timing

The timing of payments made to the annuitants by a gift annuity, charitable remainder annuity trust, or charitable lead annuity trust.

Outright Gift

An outright gift is an irrevocable transfer from a donor to a charity of securities, real estate, tangible personal property, or other assets in which the donor receives nothing of value from the charity in return.  The donor earns an income tax deduction equal to the fair market value of the assets donated, subject to IRS 30%/50% limitations.

Net Present Value

A net present value is the sum of a series of separate present value calculations.  A net present value calculation, for example, is used to determine the present value of a stream of income payments from a life income plan.

An payment's present value is the equivalent value of a payment in today's dollars, given its value at a specific time in the future.  The equation for computing present value is:

     PV = FV / (1 + R) ^n

Where,

     PV = present value

     FV = future value

     R = assumed interest rate

PPP Valuation Standards for Charitable Planned Gifts

On April 5, 2004, the Partnership for Philanthropic Planning (formerly the National Committee on Planned Giving) released its first Valuation Standards for Charitable Planned Gifts. Developed by a PPP task force over a 3-year period, the standards are designed to help charities determine the value of their planned gifts in terms of purchasing power.

Cost of Gift

Cost of gift is the donor's out-of-pocket cost of funding a gift.

For example, if a donor funds a gift with $10,000 and the charitable deduction from the gift saves the donor $2,000 in income taxes, the donor's out-of-pocket cost to make the gift is $8,000 ($10,000 - $2,000). The amount of tax savings equals the charitable deduction multiplied by the donor's income tax bracket.

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