BKAL3063 INTEGRATED CASE STUDY

BKAL 3063 INTEGRATED CASE STUDY

GROUP E (6)
(CASE REPORT ANALYSIS OF CHOOSING A CHARITABLE GIVING FOR
VEHICLE)

GROUP MEMBERS:
Ummi Fadhilah Binti Mansor

221410

Siti Filzah Binti Muhamad Nadzri

221357

Nur Fatihah Binti Zainal Lim

221536

Norpadilah Binti Mohd Roslanudin

224031

LECTURERS NAME:
PN ROHANA @ NORLIZA BT YUSSUF

SUBMISSION DATE:
12 OCTOBER 2015
Executive Summary:
Elaine White is a financial advisor for two couples; the Anne and William Carson was uppermiddle class client. Carson planned to save large portion of his additional income and also
interested in making charitable distribution. They also wanted to learn more about charitable
vehicles which would allow them to received tax deduction this year but delay distribution
decision until a later date. Second customer of White is Mary and Jack Bradley is a wealthy
couple with substantial assets, a more complex tax situation, and a desire to control the
1 | Page

BKAL3063 INTEGRATED CASE STUDY

timing and recipients of their charitable contributions. White must consider the objectives of
these families in the context of several charitable giving vehicles, including Public Charities,
Private Foundations, Charitable Remainder Trusts, Charitable Lead Trusts, Donor-Advised
Funds, and Pooled Income Funds.

Contents
1.0 INTRODUCTION................................................................................................ 3
2.0 STATEMENT OF PROBLEMS.............................................................................. 4
2.1 Anne and William Carson..............................................................................4
2.2 Mary and Jack
Bradly4
3.0 CAUSES OF THE
PROBLEM.5
3.1 Anne and William
Carson.5
3.2 Mary and Jack
Bradly...5
4.0 ALTERNATIVE SOLUTIONS
6
5.0
RECOMMENDATION.7

2 | Page

BKAL3063 INTEGRATED CASE STUDY

3 | Page

BKAL3063 INTEGRATED CASE STUDY

1.0 INTRODUCTION
Donation to charity can be deducted in calculation for tax payable for individual.
Donation can reduce taxable income and lower the tax bill. Not everyone can deduct their
charitable contribution, but they can itemize the tax deduction in order to claim any charity
however, charitable for qualified organization only can be itemize in deduction. There are
type of organization that qualify for deduction; churches, temples, mosques and other
religious organization, federal, state, and local government, contribution for public purpose,
non-profit school , hospitals, public park and recreational facilities.
There are limit in donation that can be deduct. Not all donation made by tax payer can
be count for tax deduction. Contribution for public charities, collage and religious groups
cannot be exceeding 50 percent of Adjusted Gross Income (AGI). When it comes to donation
of property, the limit is 30 percent of AGI. If contribution of capital gains the limit is 20
percent of AGI. There are different between public charities and private foundation. Public
charities is generally support to the public for the example is government and engage in grant
making activities but for private foundation, the foundation is for individual, family or
corporation. A private foundation does not solicit funds from the public.
A charitable remainder trust is a trust that provides for a specified distribution, at least
annually, to one or more beneficiaries, at least one of which is not a charity. The distribution
must be paid at least annually for life or for a term of years, with an irrevocable remainder
interest to be held for the benefit of, or paid over to, one or more qualified charities.
Charitable lead trust not force to name a specific charitable recipient in the trust who would
receive the remainder. Donor-advised fund is a charitable giving vehicle administered by a
public charity created to manage charitable donations on behalf of organizations, families, or
individuals. To participate in a donor-advised fund, a donating individual or organization
opens an account in the fund and deposits cash, securities, or other financial instruments.
4 | Page

BKAL3063 INTEGRATED CASE STUDY

A pooled income fund is a charitable mutual fund that from securities or cash donated by an
individual, a family or a corporation to a charity, and then invested to provide dividends for
both the donor and charity. The donations are irrevocable and tax-deductible and must be
from personal assets.

2.0 ANALYSIS OF PROBLEM

2.1 Statement of problems
Elaine White is financial advisor advising two couples, the Carsons
and the Bradleys, regarding their charitable giving options and related tax
strategies. The Carsons are an upper-middle class family with $295,000 in
income, a moderate amount of deductions, and straightforward charitable
giving objectives. They were open to making significantly larger charitable
donation of $15,000, but were weighting this option against investing the
extra income and continuing to make their typical annual donations.
Besides that, they were had conflict as to which charity they wanted to
donate. They wanted to learn more about charitable vehicle which would
allow them to receive a tax deduction this year but delay distribution
decisions until a later date.
Meanwhile, The Bradleys are a wealthy couple owned substantial assets,
involve in a lot of complex taxation, and desire to control the timing and
recipients of their charitable contributions. They were concerned that a
lump sum donation might not be the best way to ensure that their funds
were most impactful. Jacks biotechnology background made him more
interested in research-oriented causes, whereas Mary preferred charities
5 | Page

BKAL3063 INTEGRATED CASE STUDY

which focused on improving the lives of cancer patients and their families.
So they seek for Elaine White to learn more about the options which existed for them.
White must consider the objectives of these families in the context
of several charitable giving vehicles, including Public Charities, Private
Foundations, Charitable Remainder Trusts, Charitable Lead Trusts, DonorAdvised Funds, and Pooled Income Funds. Elaine noted that her clients
were trying to solve the same problems which are hoping to make a
charitable contribution this year but trying to determine the best
charitable vehicle to use.

2.2 Cause of problems

Anne and William Carson want to know which options is the best between options
existed in charitable vehicles. The main reason Anne and William Carson
problem is to determine the best charitable they want to donate because
they only have $15,000 for charitable donation which is not a substantial amount.
They did not have large income but they have to bear tax bracket 33%
which is too high. They want to learn more about charitable vehicle which
would allow them to receive tax a deduction for this year but delay with
distribution until a later date.
Meanwhile, the main reason Mary and Jack Bradley want to
determine the best charitable is because they were not totally aligned on
which cause they would most like to support. Jacks biotechnology
background made him more interested in research-oriented causes,
whereas Mary preferred charities which focused on improving their lives of
6 | Page

BKAL3063 INTEGRATED CASE STUDY

cancer patients and their families. They also concerned about the
possibility that their daughters cancer could both contribute to a
charitable cause and provide an income stream for their daughter and her
families.

4.0 ALTERNATIVE SOLUTIONS

When charitable giving is an integral part of a total wealth plan,
donors enjoy significant tax savings while supporting a worthy cause. In
order to maximize the value of the charitable donations, as well as the
value of any assets that we wish to transfer to your heirs or other
beneficiaries, we must choose the correct vehicle for your charitable
giving. There are several charitable vehicle that given from the article
Choosing a Charitable Giving Vehicle that may one of them are suitable
for Elaine Whites clients, Anne and William Carson, Mary and Jack
Bradley, which is Public Charities and Private Foundations, Split
Interest Trust and charitable vehicles for upper-middle class: (1) Pooled
Income Funds, (2) Donor-Advised Funds
The Internal Revenue Service (IRS) has allowed for the creation of
tax-exempt charitable organizations. The simplest and most popular
charitable vehicle was a direct donation to a tax-exempt, non-profit
organization organized under S501(c) (3) of the IRC. It could be divided
into two groups which are public charities and private foundations.
7 | Page

BKAL3063 INTEGRATED CASE STUDY

Public Charities
Public charities generally derive their funding or support primarily
from the general public, receiving grants from individuals, government,
and private foundations. Although some public charities engage in grant
making activities, most conduct direct service or tax-exempt activities.
Those starting a new organization usually prefer public charity status, not
just because it better describe the organizations purpose. Public charities
also enjoy some advantages such as higher donor tax-deductible giving
limits and the ability to attract support from other public charities and
private foundations. Basically, a Public Charity is a charitable organization
that has broad public support, actively functions to support another public
charity, or is devoted exclusively to testing for public safety. Public
Charities are the organizations people usually think of when they hear the
word charity. These non-profits missions range from helping the poor to
easing community tensions to advancing religion, education, or science.
Private Foundations
A private foundation is a form of tax-exempt organization that must
be organized and operated exclusively for charitable purposes. The
charitable activities of a private foundation generally concentrate on
receiving charitable contributions, managing its charitable assets, and
making grants to other charitable organizations to support its charitable
activities.

8 | Page

BKAL3063 INTEGRATED CASE STUDY

Foundations are overseen by directors and trustees, generally

called the board often family members, friends, or advisors. This board
is responsible for determining, with the help of professional advisors, the
affairs of the foundation, including how foundation assets are invested,
where and when grants are distributes, and how large these grants should
be.
The most successful foundations are founded with a clear charitable
purpose. Typically, this is expressed in a two-to-three-sentence mission
statement created by the role of the mission statement is to create a clear
sense of direction for the foundation, to focus grant making activities and
improve the overall impact of grants, and to foster a shred understanding
of the foundations purpose.
Split Interest Trust are another type of charitable vehicle.
These types of trusts allowed a donor to subdivide a given set of assets
into claims on income and claims on the principal. There are two primary
forms depending on which claims is provided to the charity which is
Charitable Remainder Trust and Charitable Lead Trust.
Charitable Remainder Trust
Charitable Remainder Trust (CRT) is an irrevocable trust typically
funded with highly appreciated property. The CRT is structured so that
there is a current beneficiary who is either the donor or a named
individual and a remainder beneficiary, which is a qualified charity, such
as a private foundation. The CRT can provide that the named beneficiary

9 | Page

BKAL3063 INTEGRATED CASE STUDY

receive either a fixed amount each year or a percentage of the value of

the trust each year, for a period not to exceed 20 years. Since the
designated charitable beneficiary could be a private foundation while
preserving the additional benefits provided by a CRT.
How the CRT works?

1. The donor transfer cash, securities or other property to the trust.

2. The donor receives an income tax charitable contribution deduction
and saves capital gains tax. During its term, the trust makes
payments to you and/or another beneficiary.
3. The remainder goes to the charitable organization after your
lifetime.
Benefits of CRT
CRT is an immediate potential income and gift tax deduction for a
charitable contribution for the present value of the ending balance
of the trusts assets designated for the charity.
CRT is exempt from tax on its investment income. Thus, a trustee of
the CRT can sell the appreciated assets and reinvest the full
10 | P a g e

BKAL3063 INTEGRATED CASE STUDY

proceeds. The donor is able to diversify from a concentrated position

in a tax-efficient manner. When distributions are made to the donor
or beneficiary must report a portion of the income and gains in
respect to the property distributed. However, as the tax burden is
spread out over time, more money is available for reinvestment
within the CRT, benefiting both the lifetime beneficiary and
charitable remainder beneficiary.
A contribution to a CRT made at death under a Will can produce an
estate tax deduction, not subject to any percentage limitations, with
the value of the remainder interest passing to the private
foundation.
A CRT can be an effective strategy for planning for retirement as the
tryst can provide that income distribution do not commence
immediately.

Charitable Lead Trust

Charitable Lead Trust (CLT) are designed to provide income
payments to at least one qualified charitable organization for a period
measured by a fixed term of years, the lives of one or more individuals, or
a combination of the two; after which, trust assets are paid to either the
grantor or to one or more non-charitable beneficiaries named in the trust
instrument.
In theory, CLT can be thought of as the inverse of CRT. In practice,
however, many of the rules that govern the operation and taxation of CLT

11 | P a g e

BKAL3063 INTEGRATED CASE STUDY

differ significantly from those for CRT. For example, CLTs are not taxexempt entities as are CRT. The rules governing CRT are designed to
protect the charitable remainder interest, whereas the rules governing CLT
protect the charitable income interest. During the term of the CLT, a
charitable beneficiary retains an income interest, known as the lead
interest. At the completion of the trust term, a non-charitable beneficiary
receives the remaining trust assets.
How the CLT works?

1. The donor transfer property or others to a trust and receive an

estate tax deduction
2. During its term, the trust pays a fixed amount each year to the
charity chosen
3. When the trust ends, the remaining principal passes to their family
or other heirs they name.

12 | P a g e

BKAL3063 INTEGRATED CASE STUDY

If a CLTs remainder interest does not revert to the donor or the donors
spouse, but passes to other non-charitable beneficiaries, there will be
transfer tax consequences.

Gift tax If the remainder interest passes to other non-charitable

beneficiaries during the donors life, the transfer will subject to gift
tax, but the net present value of the gift can be reduced
(discounted) by the value of the income stream granted to the
charity. Because the transfer is a gift, the non-charitable

beneficiaries will receive a carryover basis in the trust assets.

Estate tax If the remainder interest passes to the other noncharitable beneficiaries after the donors death, the transfer may be
subject to estate tax, but at the date of transfer value. Any
appreciation in the trust assets value will be entirely estate tax free.
And, if there are payments still owed to the charity at the donors
death, the donors estate can deduct the net present value of those
payments. If the transfer is subject to estate tax, the non-charitable
beneficiaries will receive trust assets with a step up in basis. If not,
they may receive a carryover or modified carryover basis instead.

The other solutions that can be used in determining the charitable giving vehicle to the
clients of Elaine White glanced are by using the Charitable Vehicles for the Upper-Middle
Class. In this options of charitable giving vehicle, there have two type charitable vehicles
which are Pooled Income Funds and Donor-Advised Funds.
1) Pooled Income Funds (PIF)
13 | P a g e

BKAL3063 INTEGRATED CASE STUDY

A pooled income fund is a charitable trust established and maintained by a qualifying

nonprofit organization, providing a lifetime stream of income based on each donor's share of
the income earned by the fund. Donors may be eligible to take an immediate partial tax
deduction, based on their life expectancy and the anticipated income stream, but must pay
income tax on the income they receive from the pooled income fund each year. Pooled
income funds offer professional investment management and a way to convert appreciated
assets into income without incurring capital gains tax. Donors recommend charitable
beneficiaries to receive the balance in the fund after the death of the last beneficiary
A PIF can be used by individuals who own appreciated securities and are looking for
more income, often during retirement, but do not want to pay capital-gains taxes when
repositioning those assets to produce income. Assets contributed to the PIF are irrevocable
and allocated into diversified income-producing pools. No capital-gains taxes are paid so the
entire value of contributed assets is used to generate income to clients for life. The clients
also will receive a current-year tax deduction based on the size of the gift, the age and
number of income beneficiaries and the rate of return of the Fund. The income may vary, it is
taxable, and any tax deduction is subject to AGI. The PIF can make grants to charities only
after the death of the last beneficiary and in some cases, there may be an additional waiting
period after that.

14 | P a g e

BKAL3063 INTEGRATED CASE STUDY

How the Pooled Income Funds (PIF) works?

1. Client will transfer cash, securities or other property to the pooled income fund. A
minimum initial donation of $20,000 is required, after which subsequent minimum
donations of $5,000 may be made. Contributions of restricted and/or privately held
stock have a $100,000 minimum and are accepted on a case-by-case basis.
2. Client will received an income tax deduction and pay no capital gains tax
3. The fund will pay clients share of its income each year to the clients or to the anyone
that they named as beneficiary for life
4. When the gift term ends or after the death of the last beneficiary, client share of the
funds principal passes to the charitable trust
Example:
Clients contributes $10,000 to a pooled income fund. Assume his participation represents 1
percent of the fund. If the fund's net annual earnings are $40,000, clients becomes entitled to
1 percent of $40,000, or $400. When clients include a pooled income fund gift as an itemized
deduction on their federal tax return in the year of the gift, they also benefit from significant
15 | P a g e

BKAL3063 INTEGRATED CASE STUDY

tax savings. But according to this fund donor client has contract or signing document about
term of the PIF
Benefits of Pooled Income Funds (PIF)

Potential immediate partial tax deduction, based on your life expectancy and the

anticipated income stream

May eliminate capital gains tax for gifts of long-term appreciated securities
Income stream is taxable to the income beneficiaries and the donor or beneficiary is

assured of an income for life.

Offers clients grant-making direction, education, and guidance
Professional investment management

2) Donor-Advised Fund (DAF)

A donor-advised fund is a program of a public charity that allows donors to make
contributions to the charity, become eligible to take an immediate tax deduction, and then
make recommendations for distributing the funds to qualified nonprofit organizations on their
own timetable.
A donor-advised fund offers benefits such as flexibility in grant recommending,
including the ability to remain anonymous. Since the donors are eligible to take the maximum
tax deduction available once they have made their irrevocable contribution, the charity owns
and controls the assets, allowing the donor to have only advisory privileges over the
distribution of charitable grants. This is why the grants are recommended by donors, not
made by them.
The charity also will generally perform due diligence to verify that each organization
to which a grant is recommended is an IRS-qualified public charity, among other restrictions
as specified by the policies of each sponsoring organization with a donor-advised fund
program.
16 | P a g e

BKAL3063 INTEGRATED CASE STUDY

As far as tax considerations, donors may be eligible to take a tax deduction of up to 30% of
their adjusted gross income for contributions of securities, and up to 50% for cash
contributions.
How Donor-Advised Fund (DAF) works?

1. Client can transfer cash or appreciated asset to the donor advised funds. A minimum
initial donation of $10,000 is required, after which subsequent minimum donations of
$1,000 may be made. Contributions other than cash, stocks or mutual funds may have
different minimums, may require prequalification, involve longer processing time and
are accepted on a case-by-case basis.
2. Clients will get benefit of tax deduction and avoidance from capital gains tax for gifts
of long-term appreciated securities. The immediate tax deduction, up to 50% of
adjusted gross income for cash, 30% for appreciated assets
3. The DAF can often accept many types of assets and will engaged in professional
investment management
4. Clients can decide when and how much to gift to the charities that they recommended.
5. The clients grants can be anonymous
Example:

17 | P a g e

BKAL3063 INTEGRATED CASE STUDY

If clients itemize deductions on their 2013 tax return, they can write off the amount of their
grant, up to 50 percent of their adjusted gross income for cash or 30 percent of income for
appreciated investments. Clients can even delay a decision on which organization will
ultimately get the money. If they will be donating stocks or mutual funds that have
appreciated in value, they can get the full write-off on the donation, but avoid the capital
gains tax by transferring the investment to their DAF, which will then sell and grant it. For
example, if they sell $15,000 worth of stock and have a $5,000 capital gain, they can claim
$15,000 as a deduction and won't owe taxes on their $5,000 profit so for the current year
they will get the tax deduction and about which charity they want to choose to give grants
can be decided later on.

Benefits of Donor-Advised Funds

Clients contribution qualifies for an immediate income-tax deduction based on the

full value of the contribution, as no capital-gains taxes are paid on any unrealized

gains of long-term appreciates securities.

While clients take the tax deduction in the year that they make their contribution to
the fund, the money does not have to be granted to charities in the same year. They
can recommend grants according to clients own timetable, and clients grants can even

remain anonymous if they wish.

DAF contributions are invested with the potential for tax-free growth, possibly

allowing clients to give more over time.

Clients have the ability to select successors who can continue their charitable legacy

by recommending grants beyond their lifetime

Immediate income-tax deductions, tax-free growth potential, avoiding capital-gains
tax on long-term appreciated securities, and reduced estate taxes are all potential tax
benefits for clients when they contribute to a DAF.

18 | P a g e

BKAL3063 INTEGRATED CASE STUDY

4.0 RECOMMENDATIONS
In this case, we recommended that Anne and William Carson for using the Charitable
Vehicles for the Upper- Middle Class for their best tax implication. We are choosing the
vehicle charitable of Donor Advised Funds rather than Pooled-Income Funds for Anne and

19 | P a g e

BKAL3063 INTEGRATED CASE STUDY

William Carson because it suit with the condition and their desired.

Here are some

calculation for both type of charitable giving:

i.

POOLED INCOME FUNDS (PIF)

Current Situation
Income Recipient Age :
Give Amount :
Gift Date:
IRS Discount Rate

45
*$20,000.00
28/12/2013
2.2%

Benefits
Charitable deduction :

$4,538.40

Payment Rate:

5.00%

First Year Income:

$1,000.00

*Notes:

A minimum initial donation of $20,000 is required, after which subsequent

minimum donations of $5,000 may be made. Contributions of restricted and/or privately held
stock have a $100,000 minimum and are accepted on a case-by-case basis.

CHARITABLE DEDUCTION:
INCOME TAX SAVINGS (33%):
ESTIMATED INCOME FIRST YEAR:

ii.

$4,538.40
$1, 4978
$1,000.00

DONOR ADVISED FUNDS (DAF)

Sell Appreciated stock and donate Donated appreciated stock

20 | P a g e

BKAL3063 INTEGRATED CASE STUDY

proceeds (cash) to charity

directly to donor-advised

Fair market value

Capital gains tax paid
Total donated to

$15,000
$15,000 x 15% = $2,250
$15,000- $2250 =$12,750

fund
$15,000
$0
$15,000

charity
Charitable tax

$$12,750 x 33% = 4,208

$15,000 x 33% =4950

deduction
Net tax savings

$4,208-$2,250 = $1958

$4950

*Tax benefit of donating cash VS stock. A minimum initial donation of $10,000 is required,
after which subsequent minimum donations of $1,000 may be made.

Pros and Cons of Pooled Income Funds versus Donor Advised Funds:
ADVANTAGES

Pooled Income Funds(PIF)

Minimum Donations. $20,000 for initial

Donor-Advised Funds(DAF)

amount, subsequent $5,000

Charitable income tax deduction. The

Minimum Donation. $10,000 for initial

amount, subsequent $1,000

Professional

management.

The

donor will receive a charitable income tax

account is administered by the nonprofit

deduction equal to the present value of

organization,

21 | P a g e

not

the

donor.

The

BKAL3063 INTEGRATED CASE STUDY

the charitys remainder interest

financial advisor can manage the find

and complete due diligence to confirm

Avoidance of capital gain. Donation of

tax-exempt status of all organizations,

highly appreciated asset are ideal because

making the donation process simple for

the donor does not realized capital gains

clients.

upon the funds sale of the contribution

assets.

Tax Advantages. Clients receives an

immediate tax deduction for each

Realization of life time income. The

contribution. For the clients that make

donor or beneficiary will received a

contributions to DAF, they will receive

payment of income at least annually for

tax deduction on that year and can

the remainder of their life

on

Reduction of the gross estate. Assets

contributed to the fund will be effectively
removed from the donors estate, thereby
reducing the estate taxes payable upon
the donors death

decide which charities will benefit later

Flexibility. The client does not need to

identify up front exactly which charities
will ultimately benefit from the gift.
This can be managed and decided by the

Minimal fees. Donor does not have to pay

financial advisor. If a client donate to

up-front legal fees to establish the fund or

multiple organizations each grant can be

perform ongoing administration

completed differently for example client

may

Charity support. The remaining share of

the donors contribution upon the death
of the income beneficiary is passed to
donor-recommended qualifying charities

22 | P a g e

request

anonymity

donation and not for another

with

one

BKAL3063 INTEGRATED CASE STUDY

DISADVANTAGES

Pooled Income Funds

Unpredictable

Income.

The

Donor Advised Fund

income

Possible limited decision power. With

generated year to year may not be

this type of fund, the donor not have

consistent

absolute control. In most cases, the

sponsoring charity of the DAF follows

Contribution limitation. Many funds

the clients wishes, but clients may prefer

limit acceptable contributions to cash,

a giving strategy that allows them to

publicly traded stock, mutual fund shares

make final decisions regarding the

or publicly traded bonds. A number of

designated charities.

funds accept whole and partial interests

in real estate, but not all

Less

flexibility

than

private

foundation. For high-net-worth clients

Income taxed as ordinary income. Some

clients may wish to pursue a giving
strategy that offers other tax benefits

with extensive philanthropic goals, a

family

foundation

may

offer

more

flexibility and control, including greater

investment choices and the option to put
family members on the foundations
payroll.

In this case, we know that the situation of the William Carson had faced the situation
where actually his normal income is about $60,000 per year but he experiences fortuitous
23 | P a g e

BKAL3063 INTEGRATED CASE STUDY

earned amounted $170,000. Given his current wealth, William Carson wants to donate
$15,000 to charities in this years but hes not ready to choose where to donate that much
money all at once, but is concerned that after his income reverts back to normal so DAF
would be the best strategies for them to applied. Anne and William Carson are advisable to
choose this charitable giving vehicle because it match their desire whereby the minimum of
donation can be made is $10,000 for initial compared to the Pooled Income Funds required
minimum donation amounted of $20,000.
By taking all the consideration, we think the most suitable and beneficial charitable
vehicle for Anne and William Carson are using Donor Advised Funds. In this case, Anne and
William Carson was mentioned earlier that they want receive a tax deduction in this year
2013 but delay distribution decisions until a later date. So the DAF is a good fit any time
theres a desire to contribute now and get the tax deduction, but make the actual grant to the
final charity at some later date. In fact, the whole point of a donor-advised fund is to separate
the timing of when the tax deduction occurs from when the charity ultimately receives the
money. In addition DAF may be the ideal solution for clients who want to secure a tax
deduction today and benefit from professional management of their charitable donations.
Besides, it can give benefit to clients such as allows them to donate assets for charity
today and receive a tax deduction now even though the actual funds may not be granted to the
final charity until some point in the future. The clients may be eligible to take a tax deduction
of up to 30% of their adjusted gross income for contributions of securities, and up to 50% for
cash contributions.
In other words, the donor-advised fund essentially functions as a conduit, where the
donor receives a tax deduction when the money goes into the DAF, but has discretion about
when the assets will finally leave the DAF and actually go to the charity and in the meantime,
24 | P a g e

BKAL3063 INTEGRATED CASE STUDY

assets inside a donor-advised fund grow tax-free. Through this DAF, clients can teach their
children about charitable giving while alive and also funds as a legacy family giving vehicle
after death. The virtue of doing so is that all funds that are inside the donor-advised fund can
grow and compound tax-free indefinitely to support future family charitable giving which are
the good ethics in the community.
The reasons why the pooled income is not recommended to the Anne and William
Carson is because it required them to donates more than what they want. Based on the pooled
income fund requirements, the initial minimum of the amount donation is $20,000 so this
charitable vehicle is against with Anne and William Carson because does not full filled their
desired whereby the just want to make contribution amounted of $15,000 for that year.
Besides the pooled income funds is more suitable for the people who wish to meet charitable
goals while addressing issues such as tax planning and retirement income may benefit from a
pooled income fund.
For the conclusions, in this case Anne and William Carson is kind hearted person who
always allocate the donation for the charity purpose previously which give donation to church
and local community, so by using DAF their money will go directly to the charity and can be
used by charity to help other who entitle to get it and in the same time they can gain benefit
on tax deduction on that year.
Extraction of income tax Calculation:
$

Income :
William

170,000

Anne
Adjusted Gross Income
*deduction to DAF (50% x 295,000)

125,000

25 | P a g e

295,000
147,500

BKAL3063 INTEGRATED CASE STUDY

Taxable Income
Tax Payable (33%)

147,500
48,675

*cash donation to DAF amounted $15,000 will get tax deduction immediate 50% from
Adjusted Gross Income.

The best charitable vehicle for Mary and Jack Bradley is Charitable Remainder
Trust (CRT). This is because A CRT is tax-exempt, so appreciated assets contributed to and
sold within the trust will not result in tax liability to the donor. Besides that, an income tax
deduction is available to the donor for assets contributed to a CRT. The deduction is equal to
the present value of the charitable beneficiarys remainder interest. Contributions to a CRT
are removed from the taxable estate of the donor and typically not result in gift taxes. Gift
taxes liability may be present if the income beneficiary is an individual other than the donor
or the donors spouse. Other than that, a CRT can provide an income stream for the income
beneficiarys life or for a term of years. If the income payment is not for life, then the trust
term is limited to a maximum of 20 years. CRT also allows clients to attain their charitable
goals by passing a significant amount of assets to charitable causes of their choice.
CRT was an attractive charitable vehicle to taxpayers who wished to provide a
dependable lifetime income for family members as well as future support for a specific
charitable organization. Because of Remainder Trust simultaneously created a charitable
deduction while providing a gift to a beneficiary, the vehicle would be especially attractive to
those looking to minimize estate taxes as the couples Mary and Bradley are particularly
interested in vehicles which could contribute to a charitable cause and provide income stream
for their daughter and her family.

26 | P a g e

BKAL3063 INTEGRATED CASE STUDY

Calculation:
Benefits
Charitable deduction :

$1,090,728

Payment Rate:
First Year Income:

5.00%
$150,000

Situation
Term of Years:
Gift Amount:
Gift Date:

20
3,000,000
20/10/2015

IRS Discount Rate

2.2%

5.0 EXTERNAL SOURCING

http://ordercasesolutions.blogspot.my/2015/08/choosing-charitable-giving-vehicle-

case.html
http://taxes.about.com/od/deductionscredits/a/CharityDonation.htm
https://www.legalzoom.com/articles/charitable-contributions-how-much-can-you-

write-off
http://grantspace.org/tools/knowledge-base/Funding-Resources/Foundations/private-

foundations-vs-public-charities
http://www.pgdc.com/pgdc/charitable-remainder-trusts

27 | P a g e

BKAL3063 INTEGRATED CASE STUDY

http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resour
ces/PracticeCenter/ForefieldAdvisor/DownloadableDocuments/FFCha
ritableLeadTrustCaseStudy.pdf

http://www.fidelitycharitable.org/giving-strategies/give/charitablelead-trusts.shtml

28 | P a g e