Hard-to-value assets come in many forms, but real estate and business interests are the most commonly used assets for charitable purposes:

<b>Real Estate:</b> raw or undeveloped land; farms and farm land; single-family residences; condominiums; apartment buildings; timeshare units; vacation homes; rental property; commercial property; conservation easements; property with a remainder interest; and property with a retained life estate.

<b>Business Interests:</b> commercial business holdings; C-Corporations; S-Corporations; limited liability corporations (LLC); general partnerships (GP); limited partnerships (LP); limited liability partnerships (LLP); family limited partnerships (FLP); and sole proprietorships.

<b>Other:</b> retirement plan assets; closely-held or non-publicly traded securities; promissory notes; mortgages; insurance policies; tangible personal property; oil and gas interests; mineral rights; coal rights; precious metals; and intellectual property.

<b>A. Real Estate</b>

Real estate provides some unique giving opportunities in the forms of an outright donation, funding for a Trust, as a retained use for life, as a remainder interest or as part of a will or bequest.

When contributing real estate outright to Christian Community Foundation, the donor will avoid capital gains taxes on the transfer as long as the gift is made before the sale of the property. The donor will also receive an immediate tax deduction for the full fair market value of the gift, up to 30% of Adjusted Gross Income (AGI) in the year the gift is made. Any excess can be carried forward for five more years.

Additionally, real estate can be converted into a stream of income for the duration of the donor’s life by establishing a Charitable Remainder Trust (CRT) with CCF. This option transforms a low-yield asset into a higher-yield, income- producing asset and provides a tax deduction for the charitable portion of the gift.

Gifts of real estate require the proper documentation and compliance with CCF’s gift acceptance policies. For CCF to accept a gift of real estate, it needs to be readily marketable at or close to the appraised value and free from any indebtedness in the form of liens or loans. A qualified appraisal is required to establish the fair market value. An environmental review must be completed, along with a title search and the history of the property. When gifting real estate assets to CCF, the donor will be responsible for appraisal costs, transfer fees and taxes while CCF handles the administrative details.

<b>Example: </b>Donor gives CCF a vacation home which is no longer used. The cost basis on the home which was purchased 10 years ago is $100,000. The current market value on the house is $300,000. Donor receives a $300,000 charitable deduction which amounts to a tax savings of $84,000, assuming a 28% tax bracket for the donor. The donor avoids a capital gain if otherwise sold of $200,000 from appreciation of the house. The capital gains tax savings is $30,000 ($200,000 x 15%). So the total tax savings is $114,000 ($84,000 + $30,000). The net cost of the gift is $186,000 ($300,000 - $114,000) compared with $216,000 ($300,000 - $84,000) for an equivalent gift of cash. Furthermore, the home will no longer be taxable in the donor’s estate.

The donor’s deduction for the year of the gift will be limited to 30% of AGI with a five year carry-over for any unused portion. Assuming AGI of $100,000, the donor is able to claim 30% or $30,000 in the year of the gift. If the donor had held the property for less than one year, the charitable deduction would be limited to the home’s cost basis and there still would be no tax on any appreciation. In that case, the deduction would be limited to 50% of AGI with a five year carry-over.

<b>B. Property with a Retained Life Estate</b>

In addition to gifting real estate outright to CCF, an individual may retain the use of the property for life or a term of years and make a planned gift to CCF. The property does not have to be a primary residence and may be any personal residence, including a farm, vacation home or condominium. By using a retained life estate arrangement, property can be deeded to CCF and provide valuable tax savings for the donor. CCF would not take possession until after the lifetime of the tenant or tenants. At the time of death, the property would either be sold or used by CCF for purposes specified by the donor or donors.

If a life estate is retained in the property, real estate taxes, indebtedness relating to the property, insurance costs and maintenance expenses will be the responsibility of the donor or the beneficiary of the life estate.

<b>Example:</b> Donor purchased a condominium years ago that has since appreciated in value. Donor gifts the condominium to CCF, allowing her estate to benefit from greater tax savings than if the dwelling had been passed on to her two children through a bequest. Donor then purchases life insurance policies for her two children. This expense would have been paid in taxes if not for the charitable deduction received for her gift. Her children will receive cash from the insurance policies instead of receiving the condo. A further benefit is that this transaction avoids any probate process.

<b>C. Property with a Remainder Interest</b>

With a gift of a remainder interest in a property, the title is transferred to CCF and the donor receives current income tax deductions for the present value of the remainder interest. This deduction is made possible because the gift cannot be revoked. The amount of the deduction varies according to the property and age of the donors. At the same time, the gift allows the donor to avoid capital gains taxes on the appreciation of the property.

<b>Example:</b> Donor is a 70 year-old widow gifting a remainder interest in her home. She will continue to live in the home until her death. On the gift date, the market value of the house is $200,000. Required IRS tables for discounting the gift based on donor’s life expectancy and future depreciation of the home establish her income tax charitable deduction at approximately $75,000.

<b>D. Bargain Sale</b>

Long-term appreciated real estate can be sold to CCF for less than its fair market value as determined by a qualified appraisal, thus creating a bargain sale. The donor receives a charitable deduction for the difference between the sale price and the higher present market value. This action by the donor is considered a partial gift and a partial sale. The bargain sale allows for the gift while providing cash to the donor who doesn’t have to worry about the sale process.

<b>Example:</b> Donor’s residence is appraised at $250,000, but donor sells it to CCF for only $150,000, producing a charitable contribution of $100,000. While the donor will have to pay a capital gain tax, the tax burden will be less than if the house had sold at the appraised value. The donor is considered to have sold 60% ($150,000/$250,000) of the property, so 60% or $90,000 of the $150,000 basis constitutes the sale portion. The gain is $60,000 ($150,000 received - $90,000 sale portion basis). However, $40,000 of the appreciation from the gift is not taxed and the donor receives a $100,000 charitable deduction.

<b>E. Business Interests</b>

There are various forms under which an individual or group can establish a business. The most popular form is a corporation, either a C-Corporation or an S-Corporation. A C-Corporation must incorporate with the proper state agency. It is an entity owned by one or more shareholders who are investors in the corporation and are issued stock certificates for their ownership interest. The stock is a separate asset that may be transferred to CCF. A C-Corporation is a separate legal and taxable entity from its shareholders and may be either publicly traded or privately held.

S-Corporations must also incorporate with the proper state agency and have one or more shareholders that are equity owners. Stock certificates are issued and the stock is a separate asset that may be transferred. However, the S-Corporation is not a separate legal and taxable entity from its shareholders and is not publicly traded. The taxable income and gain passes through to its shareholders.

A limited liability company (LLC) also incorporates with the proper state agency and may have one or more members who are the equity owners. The LLC is operated either by a majority vote of the members or by an appointed managing member. Members are not given special evidence of ownership but the interest is a separate asset and can be transferred to CCF. The members are not legally liable for the activities of the LLC. An LLC can be taxed as a partnership or as a corporation.

A partnership is a business entity with two or more individuals acting together for a joint purpose, with shared profits and expenses. There are three types of partnerships: general partnership (GP); limited partnership (LP); and limited liability partnership (LLP). A GP can be formed without filing any documents with a state agency and does not need any formal written agreement. All general partners are legally liable for the activities of the GP. A LP files a certificate with a state agency and has both general and limited partners. The general partner manages the activities and is legally liable for the actions of LP while the limited partner has no legal liability and only has limited involvement in the operations.

In a LLP, the partners are not liable for the activities and a manager oversees the operations. A partnership owned by family members is a family limited partnership (FLP). A partnership is not a tax paying entity and the partners in the aggregate share the taxable income and gain which is passed through the partnership to them.

Simplicity and liability characterize sole proprietorships. This type of business entity does not have a separate entity for state law purposes and all tax items are reflected on Schedule C of the owner’s personal income tax return. The owner is legally liable for all actions and debt of the sole proprietorship and only the assets can be transferred.

When considering gifts of limited liability company interests, key issues for CCF to evaluate include corporate income sources, debt and financing structure, asset structure and unrelated business taxable income. When considering gifts of partnership interests, unrelated business taxable income and sources of payment for potential tax liabilities must be identified. CCF will need specific corporate or business organizational information, including bylaws, shareholder agreements, articles of incorporation, partnership agreements and other contractual agreements. Financial information such as annual and interim financial statements, cash flow statements, tax returns, tax basis and appraisals are also needed.

<b>Example: </b>Donor is an 87 year old retired business owner of a limited partnership valued at $1,000,000. The donor gifts 98% of the limited partnership interests to CCF. The partnership is to run for 30 years. Assuming a 10% yearly growth rate, 1% is paid annually to CCF and a 2% management fee is paid to the general partner. That means net annual growth is 7%. The partnership assets will be worth $8,000,000 in 20 years when the partnership is terminated. The 1% annual distribution to CCF would be $10,000 in the first year, but would average about $30,000 a year over the 30 years. CCF would receive 98% of $8,000,000 plus approximately $900,000 in cumulative annual distributions. CCF owes no taxes on the income.

<b>F. Retirement Plan Assets</b>

Retirement plan assets are most commonly in the form of 401(k) or 403(b) plans and IRA (Individual Retirement Account) plans or, to a lesser extent, profit-sharing plans, annuity plans, stock bonus plans and employee stock ownership plans (ESOP) such as incentive stock options (ISO) and nonqualified stock options (NSO).

ESOPs grant employees the right to purchase a set amount of shares at a fixed price some time in the future. ISOs qualify for preferential tax treatment under the Internal Revenue Code and generally allow an employee to defer taxes until the date the shares bought with the options are sold, and to pay tax at the applicable capital gains rate instead of the higher ordinary income tax rate. Taxes can be avoided altogether if the options are included in a Charitable Remainder Trust at CCF. NSOs do not qualify for the IRS’ preferential tax treatment. When the employee “exercisesâ€ the options by buying the stock, he or she must pay ordinary income tax on the “spreadâ€ between the value of the stock and the price he or she paid for it. Because the employee must also pay income tax when the stock resulting from the option is sold, NSOs bear a substantial tax burden. This tax burden can be avoided if NSOs are used for charitable purposes.

The undistributed balance in a qualified retirement plan is included in an individual’s gross estate and subject to estate tax. When these funds are passed on to heirs, the heirs are exposed to income taxes. In this manner, retirement funds are subject to a double taxation. Because retirement assets grow over many years with very little tax consequences, estate taxes and income taxes to descendants can be substantial, up to a combined marginal rate of 65% on large, taxable estates. However, through a carefully planned charitable gift, the tax burden can be avoided or reduced, and the charity can receive the benefit of the gift.

Estate assets that were not included in a decedent’s taxable income generate income in respect of a decedent (IRD). These assets were not taxed as income because the recipient did not live long enough to receive them. Retirement plan assets constitute the major source of IRD. By donating the assets, they avoid both IRD and estate taxes.

As part of an estate plan established with a financial advisor, testamentary gifts of retirement assets can create a lasting legacy for a donor. Donors can accomplish their charitable goals, support their charitable causes, and greatly reduce the tax burden of their estate. As part of the Pension Protection Act of 2006, it is now possible to make tax-free charitable gifts from an IRA and avoid income and estate taxes in the current year of the gift and for as many as five future years.

Retirement assets can be donated to CCF in several ways. A Donor Advised Fund (DAF) can receive plan assets and is a flexible tool for designated family members to suggest the charitable purposes for the DAF. Assets may also be received into discretionary Field of Interest Funds managed by CCF. These funds, which support specific causes, provide flexibility in meeting donors’ charitable desires in a changing environment. Another option is to transfer retirement assets into a Charitable Remainder Trust (CRT). A designated CRT beneficiary will receive an income for life and the remaining principal will be directed toward the beneficiary’s DAF at CCF.

<b>Example:</b> Donor wants to avoid his retirement assets being taxed as part of his taxable estate and as income to his son, the beneficiary. Donor establishes a charitable bequest with his $500,000 IRA. If the money is left to his son, the entire amount would be ordinary, taxable income to the son. To avoid taxes for his son and to avoid substantial estate taxes for himself, the donor leaves the IRA to CCF. Because the estate tax charitable deduction has no limits, the IRA in CCF’s hands will incur no estate tax. Since CCF is the beneficiary, CCF will owe no income tax either. The son will receive other assets from his father’s estate which are free of income taxes instead of the IRA proceeds that are subject to income tax.

<b>G. Closely-Held Securities/Non-Publicly Traded Securities</b>

For business owners of privately-held corporations, retained earnings in the form of closely-held securities can be gifted to CCF. If these earnings are distributed to individuals, they will be subject to personal income tax after they have already been taxed at the corporate level. However, shares can be donated to CCF and redeemed from CCF using retained earnings for the purchase as long as there is no pre-arranged agreement for the corporation to buy the stock.

Gifts of closely-held or non-publicly traded securities are deductible at the appraised value. Valuation or appraisal value poses a challenge due to infrequent trading which makes it difficult to establish fair market value. A known means of liquidation, redemption, sale, or conversion to liquid assets is essential when considering these types of securities as a gift. Items such as shareholder agreements to buy or sell, transfer restrictions on stock certificates and a qualified independent appraisal must be furnished to CCF for consideration of the gift.

<b>Example:</b> Donor is the founder of a privately held company in which he owns all the stock. Cost basis is zero because original investment has been written off. Current valuation is $1 million with $300,000 of retained earnings. After obtaining a qualified appraisal of the stock, donor gifts $300,000 of stock to CCF and receives an income tax deduction for that amount. The donor avoids capital gains taxes and state taxes while avoiding scrutiny by the IRS on his accumulated retained earnings which may have produced a penalty tax. The gift has not affected the donor’s control of his corporation. If there were other family members with ownership in the company, a gift followed by a redemption of stock which is retained as treasury stock could be used to increase family members’ interests.

<b>H. Life Insurance</b>

As the need for life insurance declines with age, life insurance policies that have built up cash value and are no longer needed for their original purpose represent another opportunity for charitable giving. The cash value of a policy becomes a hidden asset to be used for a current charitable gift. The owner of a life insurance policy with cash surrender value may gift a portion or all of the value of the policy and create significant estate tax savings while providing immediate income tax savings.

A donor may name CCF as the primary beneficiary of a policy in a revocable arrangement which is not deductible for income tax purposes. Or, the donor may irrevocably assign a life policy to CCF which may become the owner and beneficiary. Then, any premium payments made by the donor to continue the policy are tax deductible. In this manner, the gift may be substantial while the donor’s outlay remains modest and the future benefits can exceed the current surrender value. The donor will receive an income tax charitable deduction, a tax savings from the deduction and reduced future estate taxes. Gifts of life insurance are considered ordinary income, deductible up to 50% of AGI with a deduction carry over for an additional five years.

If the donor chooses not to continue the payments, CCF may pay the premiums and receive the full face value of the policy at the donor’s death or surrender the policy for its present cash value. CCF may also convert the policy to paid-up insurance in a reduced amount with no further payments. A donor may also purchase a new life insurance policy to gift by naming CCF as owner and beneficiary. Gifts to CCF to cover initial and future premiums are tax deductible.

Term insurance has no cash value, so gifting a policy would have no tax advantage. When term insurance is provided by an employer, the cost for any coverage in excess of $50,000 is included in the insured’s taxable income. However, if CCF is the beneficiary, this cost is no longer included in taxable income.

<b>Example</b>: Donor couple own a second-to-die whole life policy with a $500,000 value. Annual premiums of $10,000 have been paid for 20 years, producing a basis in the policy of $200,000 ($10,000 x 20). When donors decide to contribute the policy to CCF, they avoid any income tax liability. They are entitled to a charitable deduction of $200,000, since it is less than the policy value of $500,000. The deduction will be subject to the AGI 50% limitation instead of the 30% limitation because there is no capital gain involved in the charitable deduction.

<b>I. Wealth Replacement Trust/Irrevocable Life Insurance Trust</b>

Life insurance in philanthropic plans may also be used to replace the value of a large gift to CCF for multiple heirs of an estate. Instead of naming CCF as the beneficiary and owner of a policy, a wealth replacement trust or irrevocable life insurance trust may be a better alternative, especially in cases where estate liquidity is an issue. A charitable gift can often reduce the value of inheritances for wealthy family members. In many cases, income tax savings from the use of a charitable deduction can be large enough to acquire life insurance with death benefits equal to the value of the gift. When the wealth replacement trust terminates, its assets can be passed on to CCF with no tax consequence. The life insurance death benefits then pass to heirs untaxed. Federal gift tax on contributions to the wealth replacement trust to cover the premiums can be avoided as well.

<b>Example: </b>Donor couple wishes to make a substantial gift to CCF but defer it until after their death. They transfer appreciated stock to a charitable remainder trust (CRT) that will pay them a stated income annually for the rest of their lives. Upon their deaths, the assets remaining in the trust will pass to CCF. The stock is worth $750,000 and yields a 3% dividend. Their basis in the stock is only $150,000. To avoid the impact of selling the stock and incurring federal tax on their capital gain of $90,000 ($600,000 x 15%) and state tax, the couple chooses to make a gift of the stock directly to CCF via the CRT. CCF will sell the stock without incurring any capital gain and the $750,000 proceeds will earn income for the donors. The donors will receive an income tax deduction equal to the current value of CCF’s future interest in the CRT. The donors have also removed the stock from their estate thus removing federal estate tax on the asset.

In addition to setting up the CRT, the couple will set up a wealth replacement trust for their three grown children. This trust is funded with $750,000 in insurance purchased by the trustee on the donors’ lives with the children named as the beneficiaries of the policy. Annual premiums will be paid by the donors through transfers to the trust. Amounts from income tax deductions and avoidance of capital gains tax will reduce the impact of the premium payments.

Premium payments to the trust are considered gifts and subject to federal gift tax. However, a $72,000 gift tax exemption is available based on each donor making a gift to each child (3 children x 2 donors x $12,000 gift tax exclusion for 2006). At the donors’ death, the proceeds from the insurance policy will not be subject to tax in their estates. The proceeds will not be subject to expenses of probate.

<b>J. Tangible Personal Property/Gifts in Kind</b>

Tangible personal property represents any property, other than land or buildings, which can be seen, handled, touched or moved by an individual as opposed to an intangible asset such as ownership in a corporation. Gifts of tangible personal property, also known as gifts in kind, come in many varieties, including jewelry, gems, antiques, furniture, works of art, coin and stamp collections, motor vehicles, aircrafts, watercrafts, livestock, crops, timber, manuscripts, books, and business inventory and equipment such as computer hardware and software. CCF may accept such gifts if they are free and clear of encumbrances and after a thorough review of the marketability of the personal property and the intended purpose for the gift. Proof of ownership, the cost basis in the gift, date of acquisition, a qualified appraisal and a description of the donated asset, including an explanation of the method used to determine the fair market value, are required documents.

Tangible personal property presents specific and special issues for income tax charitable deduction purposes. The amount of charitable deduction and percentage limitation depends on the relation between the tangible personal property and the purposes of CCF as the tax-exempt entity receiving the property. The gift must not be placed to an unrelated use by CCF. Tax deductibility for tangible personal property varies according to IRS established related use rules. For gifts estimated at $5,000 or more to qualify for a charitable tax deduction, IRS regulations require the submission of a written appraisal by a qualified independent appraiser.

<b>Example:</b> An art collector contributes a collection of paintings to CCF with a fair market value of $125,000. The cost basis is $50,000 and the collector’s AGI is $150,000. If the donation is to a museum and there is a qualified appraisal prepared by a qualified appraiser, the collector gets a $125,000 deduction, of which $45,000 ($150,000 x 30%) is allowed in the current year and $80,000 carried over to future years. If the donation goes to CCF, the gift is not related to the charitable purposes or functions of CCF. The collector’s deduction will be his cost basis of $50,000 and is fully deductible this year, with no carryover ($150,000 x 50% = $75,000 is the limit for the deduction).

<b>K. Intellectual Property</b>

Intellectual property is defined as a product of the intellect that has commercial value. It represents ownership of ideas and control over the tangible or virtual representation of those ideas. Intellectual property comprises two main branches: industrial, such as trademarks, patents, royalties, industrial designs, contract rights and inventions; and copyright, such as literary, musical, artistic, photographic and audiovisual works.

Donors of intellectual property can be either corporations or individuals. In accepting these types of gifts, CCF will need an appraisal of the property and a signed agreement by the donor to assign all of the rights associated with the gift. Additionally, CCF will look at the transferability of ownership, whether full or fractional interest in the property is being gifted and whether the gift furthers the mission of CCF. CCF will provide written confirmation to the donor regarding any income from the donated property.

Valuable tax benefits are available for contributions of intellectual property so long as they are valid charitable donations. Individuals can receive thousands of dollars in tax deductions and corporations’ deductions can reach millions of dollars. Legislation passed in 2004 enables a donor to deduct the lesser of his basis in the contribution or the true fair market value of the property.

Additional amounts may be deducted in subsequent years based on a percentage of the income received by the charitable organization from the contributed property. The deduction starts at 100% for the first year and declines over the years to 10% in tax year 12 with the percentage of income deductible varying with each passing year. The deduction is further limited to income received during the legal life of a patent or intellectual property, or the tenth anniversary of the donation, whichever is earlier.

Transfers of property are not deductible for the transfer of a partial interest in property, if the transfer is inadequately substantiated, if the property is overvalued, or if a benefit is received for the transfer. Tax deductions are subject to percentage of income limitations and other limitations which are clearly spelled out and closely scrutinized by the IRS.

<b>Example:</b> Donor is the author of a best-selling book on philanthropy and owns the copyright. Donor decides to contribute his entire copyright to CCF. He will be able to deduct the full share of the copyright since that represents his entire interest in the property. Had he donated only 50% of his copyright, his gift would not be deductible since he would be contributing less than his entire interest in the property. 