TRUSTS & ESTATES (CHARITABLE GIFTS)

Trusts & Estates (Charitable Gifts)

Financial advantages to charitable gifting may include capital gains tax savings, current charitable income tax deductions and estate tax deductions, providing increased income for life.

There are many methods of charitable gifting, including establishing a charitable lead trust (to provide an income stream to a charity for a term of years, with the remainder of the trust going to the children of a marriage, if any, without having to pay any estate or gift tax), or a charitable remainder trust (to provide an immediate income tax deduction, a lifetime income stream and a waiver of capital gains taxes owed on contributed property), or a donor-advised fund (which allows you to maximize income tax savings on your regular monthly or weekly contributions to churches or charities), or a private foundation (to control the use of your gifts by placing restrictions on how your gifts are used by particular charities, for particular purposes).

Charitable organizations conducting any charitable activities or soliciting charitable donations within the State of New York are required by to register with the New York Charities Bureau, an agency of the New York State Attorney General, which can be accomplished by accessing their online portal.

Registered charitable organizations are also required to file annual financial reports with the Charities Bureau, and all annual financial reports, financial documents and registration information received by the Charities Bureau from each such charitable organization are posted on the online portal, to increase transparency.

Three particular types of charitable assets are subject to added legal requirements: (designated by the donor to be used only for specific special purposes, or assets received from a specific fundraising campaign for a specific purpose) must be used for the donor's specified designated purpose, unless the donor consents to a release of the funds for other purposes; endowments, in New York, governed by the New York Consolidated Laws Article 5-A of the Not-for-Profit Corporation Law – NPC, entitled the "Prudent Management of Institutional Funds Act" (“NYPMIFA”) (that provides mandatory standards for the investment, management and use of any endowments and institutional funds that include specific donor-imposed restrictions on expending the principal); and, the by petition pursuant to NPC Sections 510-511.

New York allows the reformation (modification) of restricted assets, through either the "" doctrine or the "equitable deviation" doctrine, exercised through the New York Supreme Court.

Under the doctrine, If a donor of a particular charitable gift is deceased, or declines to consent to any reformation, or if there are no specific instructions in the charitable gift regarding how the charitable assets are to be used if there are changed circumstances (such as when the donor had specified that the income from the restricted charitable assets was to be used only for the particular purpose of funding a particular charitable program offered by a particular charity, but either such charity whose program it was discontinued that particular program, or ceased operations altogether), and the charity initiates an action to reform the trust so that the trust assets can be used for other charitable purposes, and the charity can prove that it has become impossible or impracticable to continue to comply with the donor’s original restrictions, the Court may make a determination that the donor had a "general charitable intent" to have the charitable assets used for general charitable purposes, if the original specific instructions can no longer be followed, so the trust can be amended to allow for use of the trust principal for new charitable purposes.

The equitable deviation doctrine allows the Court to change or remove a donor-imposed administrative restriction (such as a restriction on how charitable funds may be invested), if the Court determines that such restriction impedes the original charitable purpose of the gift.

NYPMIFA allows unplanned expenditures not originally-specified in the donor's instructions (“appropriations”) from an endowment based upon proof that general economic conditions warrant such appropriations after a careful analysis by the Board and counsel regarding the necessity for such appropriations, and a written memorialization at or close to the time of making the decision for allowing such appropriations, justifying the appropriations decision.

Pursuant to New York law and regulations from the New York State Joint Commission On Public Ethics (JCOPE), New York lobbyists (whether directly employed by particular legal entities or outside lobbying firms retained as consultants by such legal entities) or their clients are prohibited from offering or giving any gift to any New York public official, including any donations made by such lobbyists or their clients to any charitable organizations operating within New York in the name of any public official, unless it would be unreasonable under the circumstances to infer that such gift was intended to influence such public official, and JCOPE has concluded that any gifts by lobbyists to public officials are presumptively impermissible.

However, due to COVID-19, the New York Governor's March 7, 2020 Executive Order 202.6 suspended and modified various New York laws (including the gifting law discussed immediately above), but only to the extent that any New York agency may receive a donation in kind or otherwise, in any amount, from any source, "....

Formation of a family LLC or family partnership, for the purpose of making donations to a trust dedicated to a particular purpose, such as eventually providing funds to pay for the education of the children, and then upon the death of the donor to such trust for the education of the children, the decedent's estate should hire an appraiser to determine the lack of marketability of the decedent's share of the family LLC or family partnership, so that the appraiser's determination can be used as evidence to reduce the value of the decedent's estate, resulting in reduced estate tax.

Formation of a credit shelter trust (CST) by a married couple during their lifetimes, so that the donations from each spouse up to an aggregate for both of $2,000,000 (the Federal estate tax exemption per person is $1,000,000, so each spouse may contribute up to $1,000,000) are divided between two new trusts of up to $1,000,000 each upon the death of the first spouse (one such trust for the benefit of and controlled by the surviving spouse, who receives any income stream during their lifetime with no estate tax – since the other spouse's donations of up to $1,000,000 to the CST are considered non-taxable transfers between spouses – and one such trust for the benefit of the children, controlled by a trustee).

Formation of a life insurance policy trust, in which a grantor's life insurance policy is transferred to a trust during the grantor's lifetime, and the grantor donates amounts to such trust of up to the annual federal gift tax exemption amount for the payment of the life insurance premiums each year, and once the grantor dies, the life insurance proceeds are distributed to the beneficiaries of the trust tax free, and the decedent's estate avoids estate taxes, because the value of the life insurance policy shall not be included in the value of the grantor's total estate.

Last updated 201008_1916