Thursday April 18, 2024

6.1.1 Present Values

Present Values

Factors Used to Calculate a Present Value:  Present value is determined by applying an assumed discount rate to the future value of the gift.

Period of Time:  A present value calculation can involve a fixed term of years or one or more lives.

Discount Rates:  The discount rate is very important for the present value calculation.

Payment Frequency:  A small adjustment is made for the payment frequency of the income stream to the beneficiaries.

Bequests:  Often, a charity is notified by a donor that the donor has made a bequest to charity in his or her will.

Present Value Calculations in Crescendo - IRS Method vs. CFO Method:  There are several reasons to calculate a present value.

Present Value Annuity Trust Income:  The annuity interest is valued using the methods of Reg. 1.170A-7(a) and IRS Publication 1457.

Present Value NIMCRUT Income Interest:  With a standard unitrust, the value of the income interest is based on the stated payout percentage.

Present Value (IRS Method) Calculations in Crescendo Pro

Present Value (IRS Method) Calculations in CresPro/CresEstate/CresLite

Present Value (CFO Method) Calculations in Crescendo Pro/Estate/Lite

Calculating PV Using 2012 IAR Table
When a donor makes a transfer of property into a split-interest gift such as a charitable remainder unitrust, charitable remainder annuity trust, gift annuity or pooled income fund, the donor is making a gift of a future interest. That is because the donor is retaining the right to receive an income stream for life or a term of years, after which time the charity will receive the remainder amount. That remainder amount is a future gift.

Generally, gifts of a future interest do not qualify for a charitable income tax deduction. Sec. 170(f). However, there are exceptions in the Tax Code that allow for the deduction of a future gift. Those exceptions include charitable remainder unitrusts, annuity trusts, gift annuities, life estates and pooled income funds.

Because the charity will receive a gift at some point in the future and the donor is entitled to an income tax deduction today, the value of the gift or the charitable deduction has to be calculated in today's dollars. The donor is not allowed to deduct the entire value of the asset given to a charitable trust or gift annuity for two reasons. First, the donor will receive part of the property back in the form of an income stream. Second, the charity has to wait for the requisite period of time before it will receive the remainder. Thus, the fair market value of the property today is not the value the charity will receive in the future. Recognizing this, the Internal Revenue Code mandates the calculation for finding the present value of the remainder interest (i.e., the charitable deduction). Again, this number takes into account the value of the income stream to be paid to the beneficiaries (i.e., the present value of the income interest) and the time value of money.

Factors Used to Calculate a Present Value
Present value is determined by applying an assumed discount rate to the future value of the gift. Thus, to perform a present value calculation, one needs the period of time for the discounting (i.e., life expectancy or term of years), the discount rate, the payment frequency of the income stream, the payout percentage and the amount being transferred to the trust or gift annuity.

Period of Time
A present value calculation can involve a fixed term of years or one or more lives. The fixed term of years is a more precise calculation because there is certainty to the time portion of the calculation. For example, if a charitable remainder unitrust has a duration of 10 years, one can know the exact date when the charity will be entitled to the remainder interest.

If the duration, however, is for one or more lives, then a mortality table component is included in the calculation. For the purpose of calculation, a beneficiary's age is rounded to his/her nearest birthday. Reg. 1.664-4(e)(5). With a lifetime split-interest gift, one may not know exactly when the charity will be entitled to the remainder. Using mortality tables, one can estimate when a person is likely to pass away, but there is always the possibility that the person could die prematurely or live longer than expected. Therefore, when a present value calculation is performed using mortality tables, the calculation takes into account the possibility each year that the person could pass away.

Because of this possibility, if a present value calculation is performed for a term of 5.5 years and another present value calculation is performed for a person who has a life expectancy of 5.5 years, the life expectancy calculation will produce a greater deduction. This is true even though each uses 5.5 years. With the life expectancy component, the present value calculation takes into account the possibility that the person could pass away at any time, while the other calculation is for a fixed 5.5 years.

Discount Rates
The discount rate is very important for the present value calculation. Recall that a present value is the amount the charity expects to receive in the future expressed in today's dollars. Thus, if someone were offered $100,000 today or $100,000 ten years from now, a wise person would choose to take the money today. Why? Because doing so would give that person current enjoyment of the funds. The money could be invested and earn interest. In 10 years, the original amount will grow larger. It is the ability to earn interest that is important in a present value calculation. By not having the funds today, the charity is essentially foregoing potential future earnings.

Therefore, the interest rate or discount rate plays a significant role in the calculation. The larger the discount rate, the smaller the present value number. Conversely, the smaller the discount rate, the larger the present value number will be.

What discount rate should be used? If the present value calculation is for income tax deduction purposes, the required discount rate is the one referred to in Sec. 7520. This rate is also called the applicable federal rate (AFR) or the rate of the month. The rate of the month is published by the IRS on a monthly basis. It is 120% of the Federal Midterm Rate rounded to the nearest two-tenths. Essentially, the rate of the month is used as the growth factor to determine the future value of the gift and also as the discount factor to determine the present value. When performing a present value calculation, if a charitable deduction is allowable, the rate of the month may correspond with the date of the gift or the rate for either of the two prior months can be used.

Payment Frequency
A small adjustment is made for the payment frequency of the income stream to the beneficiaries. The more often an amount is paid from the trust or gift annuity, the lower the annual growth of the principal. For example, if a savings account has $100,000 and is earning 3% annually, at the end of the year there would be $103,000 in the account. If at the end of the year the owner withdrew $3,000, the account would have a balance of $100,000. Assuming the same facts except that the owner withdraws $1,500 six months into the year and another $1,500 at the end of the year, the savings account will not have earned the same $3,000 of interest. This is because the account did not maintain the full $100,000 balance for the entire year. Thus, even though the owner withdrew the same amount, the overall earnings are lower when money is withdrawn throughout the year. This same concept applies to charitable split-interest gifts. Therefore, if the payment frequency is anything other than annual, there will be an adjustment to the deduction calculation.

Bequests
Often, a charity is notified by a donor that the donor has made a bequest to charity in his or her will. Because the donor can change his or her mind at any time before death, the gift is deemed to be revocable and is not included on the charity's financial statements. The charity, however, may wish to thank the donor for the value of the future gift or may wish to include such value as part of its fundraising goals and reporting. Typically, this type of present value calculation is much more simplified. Generally, the calculation for the present value of a bequest is performed by calculating the life expectancy of the donor and discounting that value by the average earnings rate of the charity's endowment fund.

Present Value Calculation in CresPro or CresLite

Bequest Present Value

  1. Open your CresPro or CresLite program.
  2. Select the "Calculators" in the toolbar.
  3. Selection the "Bequest" button.
  4. Enter in the data using the donor(s) current age, the amount of the bequest in their estate planning document and the discount rate of your organization.
  5. Choose the Mortality Table desired.
  6. Select "Calculate" to determine the present value of the bequest.

Example 6.1.1A Bequest Present Value Calculation

Donny Donor, age 70, informed Happy Charity that he will include a $1 million bequest in his final will and testament. Because this gift is revocable, Donny receives no current income tax deduction. However, Happy Charity wants to recognize Donny for his bequest intention. Happy Charity wonders, "What is the present value of this future gift?"

This question may be answered by performing a present value calculation. In this case, we know the future value of the gift is $1 million. Donny is 70 and his life expectancy is 17 years. Therefore, we will use 17 for the term of years. Next, Happy Charity must select a discount rate. It could use the 70-year average inflation rate of 3.4%, a typical actuarial value of 6% or the actual endowment return of 9%. With 3.4%, the present value is $566,436. With 6%, the present value is $371,364. With 9%, the present value is $231,073. Happy Charity decides to use 6%. Therefore, based upon a future gift of $1 million, a term of 17 years and a 6% discount rate, the present value of Donny's bequest is $371,364. This means that if Donny gave Happy Charity $371,364 today and Happy Charity earned 6% on those funds, in 17 years that amount will have grown to $1 million. Therefore, the charity would get the same benefit by receiving $371,364 today or $1 million 17 years from now. But if it received the funds now, it would have a vested gift.

Present Value Calculations in Crescendo - IRS Method vs. CFO Method
There are several reasons to calculate a present value. The first is that when a donor establishes a split-interest gift a present value calculation must be performed to determine the donor's charitable income tax deduction. Recall that the charitable deduction is simply the present value of the remainder interest to charity. Second, whenever a charity issues gift annuities or serves as trustee of charitable remainder trusts (CRTs), the charity's auditors will require a yearly calculation to determine the liability of those gifts. The liability is determined by performing a present value calculation. The present value of the remainder interest plus the present value of the income interest will always equal the total current value. Third, gift planners generally report the amount of gifts that they have raised each year. For current gifts, the value is easily determined. For example, if a donor gave $100,000 of Wal-Mart stock to the charity, the gift planner brought in a $100,000 gift. If, however, a donor gifted that same stock in exchange for a one-life CRT, the value of the funds raised by the gift planner is not as clear. That is because the charity is not entitled to receive the funds until the donor has passed away. That could be tomorrow or it could be years from now. One way to determine the value of funds raised is to use the same present value method mentioned above.

The method referenced above is referred to as the "IRS" method. While it can be used to value the amount of funds raised by the gift planner, it tends to be a very conservative calculation method, and therefore, may underestimate the value of that gift to charity. Another present value method that may be used to determine the amount of funds raised by a gift planner is referred to as the "CFO" method.

Some chief financial officers (CFOs) may be willing to consider financial estimates and present value based on a basic present value method. With the basic method, the return rate and growth of the trust or annuity fund are estimated. This permits calculation of the future value of the trust or gift annuity fund. The future value is then discounted back to present value.

The advantage of this basic present value method is that the CFO can select an actual trust return rate, a cost rate for trust management and a discount rate. With these selected factors, it seems possible that this calculation could be a better determination of the actual present value to a given charity.

For this purpose, the CFO must determine the net earnings over the estimated trust expectancy. With a charitable remainder trust, the probable future earnings will depend upon the trust investments. Based on the probable maturity of the trust, or an average maturity of all charitable trusts, and the mix of stocks, bonds, mortgages and other investments, the CFO can determine a total return rate.

Next, the CFO must determine trust costs. Costs include the fees for investment management and the administrative costs for trust management. Depending upon trustee and investment manager, these costs may vary from 50 basis points to over 200 basis points (0.5% to 2.0%). Subtracting the costs from the total return produces the net return.

Finally, the CFO must determine the discount rate. If the CFO is willing to use an inflation rate for the discount rate, this rate could be anywhere from 3.0% to 3.5%. The discount rate will be different depending upon whether the past three decades, five decades, seven decades or eight decades of inflation history are considered.

In addition, some CFOs may look at the past decade and the lower inflation rates and could rationally conclude that we are likely in the next decade or two to have somewhat lower inflation. A CFO who comes to this conclusion might choose the 3.0% inflation rate.

Some CFOs will not be willing to use an inflation rate. Some actuaries use a flat 5% discount rate for calculations. Some CFOs may determine that the discount rate should be the return rate on their endowment portfolio. This could be a higher number yet.

After determining the net return rate and the discount rate, the basic present value calculation can be completed. Based on these rates and the Crescendo calculation methods, a present value can be determined. In most cases, this present value will be significantly larger than the IRS present value. This present value will print on the lower left corner of the Crescendo "Benefits to Family and Charity" page.

Instructions on how to calculate a present value of a planned gift using both the IRS method and the CFO method are detailed below.

Present Value Annuity Trust Income
The annuity interest is valued using the methods of Reg. 1.170A-7(a) and IRS Publication 1457. Based upon the age or ages of the annuity recipient(s) on the date of the income interest gift, the applicable federal rate (AFR), the frequency of payment and the annuity amount, the present value of the annuity may be determined. If the entire annuity is transferred for the gift annuity, the amount calculated using the Treasury method is the funding value for the annuity contract.

However, there is one possible limitation on the deduction value. Under Sec. 170, all charitable deductions are limited to fair market value. If the annuity trust principal has declined in value to an amount less than the calculated Treasury annuity value, the deduction will be limited to the lower fair market value of the annuity trust corpus on the date of the income interest gift.

Present Value NIMCRUT Income Interest
In the past, the valuation of the income interest for a net plus makeup unitrust (NIMCRUT) or net income unitrust (NICRUT) was required to use the lesser of the AFR or the stated unitrust payout percent for the unitrust payout percentage. With the passage of the Protecting Americans from Tax Hikes Act of 2015, however, Sec. 664(e) was amended to provide that the valuation of an income interest in a NIMCRUT or NICRUT is to use the stated payout percent for the unitrust payout percentage.


To calculate the present value of the donor/beneficiary's income interest, using the IRS method:

Present Value (IRS Method) Calculations in Crescendo Pro



Charitable Remainder Unitrust for One or Two Lives

As explained in Chapter 3.10.6 of GiftLaw Pro, a unitrust income recipient may give part or all of the unitrust income interest to the charity. The following instructions take you step-by-step through the process of valuing this interest.

  1. Open your Crescendo Pro program.
  2. Select the "Deductions" tab.
  3. Open the UT-1/2 Lives, GUAR, MAX, GRUT (30) worksheet.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.
  5. For the trust payout percent enter the unitrust payout stated in the trust document

    OR

    "Clear all Data" and enter in the data used when the unitrust was originally established, with the following modifications.
  6. Change the gift date to the day for which the present value is needed.
  7. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  8. Remove any beneficiary who has passed away, making sure the surviving beneficiary(ies) is/are listed.
  9. Change the trust amount to the value of the trust on the day for which you need the present value.
  10. If the unitrust has a guaranteed number of years, reduce the number of guaranteed years to the number remaining as of the date the present value is needed.
  11. Select the "Options" tab.
  12. Check the "Life Income Value Deduction" option.
  13. Go to the print tab and print out the "Charitable Deduction Worksheet."
  14. The "life income deduction value" is located at the bottom of the page.

One Life Unitrust Income and Remainder Values

In 1996, James Johnson, age 70, informed Happy Charity that he would make it the remainder beneficiary of his charitable remainder unitrust (CRUT). He funded the CRUT with $300,000 worth of stock and selected a 6% CRUT payout. By 2012, the CRUT has grown to $400,000 and James is age 86. Happy Charity is asked by an auditor to determine the present value of James' income interest and the organization's remainder interest as of September 30, 2012.

The present value of the income and remainder interest may be calculated using the unitrust worksheet program. The current value of the CRUT is $400,000. Use a valuation date of 9/30/2012, an AFR of 1.0%, his birthdate, payment frequency, the payout rate and $400,000 as the gift value. By checking the "life income value deduction " box under the "Options" tab and hitting the "Answers button," the present value of the income interest is $111,476. The organization's remainder interest is $288,524.

Charitable Remainder Unitrust for One or Two Lives + Term of Years

  1. Open your Crescendo Pro program.
  2. Select the "Planned Gifts" tab.
  3. Open up the Unitrust - Life Plus Term (43) gift model.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.
  5. For the trust payout percent enter the unitrust payout stated in the trust document

    OR

    "Clear all Data" and enter in the data used when the unitrust was originally established
  6. Change the gift date to the day that the present value is needed.
  7. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  8. Remove any life beneficiary who has passed away, making sure the surviving life beneficiary is listed.
  9. Change the trust amount to the value of the trust on the day for which you need the present value.
  10. Select the "Mortality" tab.
  11. Remove any term beneficiary(ies) who may have passed away.
  12. Go to the print tab and print out the charitable deduction worksheet.
  13. The present value is the trust amount you originally entered less the charitable deduction.

One Life + Term Unitrust Income and Remainder Values

In 1996, John Jones, age 70, informed Happy Charity that he would make it the remainder beneficiary of his life plus 10-year term charitable remainder unitrust (CRUT). He funded the CRUT with $300,000 worth of stock and selected a 5% CRUT payout. By 2012, the CRUT has grown to $400,000 and John is age 86. The term beneficiaries of the trust are his son and daughter, ages 45 and 43, respectively. Happy Charity is asked by an auditor to determine the present value of John's income interest and the organization's remainder interest as of December 30, 2012.

The present value of the income and remainder interest may be calculated using the unitrust worksheet program. The current value of the CRUT is $400,000. Use a valuation date of 12/30/2012, the present month AFR of 1.2%, his birthdate, the number of years for the term, the payment frequency, the payout rate and $400,000 as the gift value. Insert the information for the term beneficiaries under the "Mortality" tab. By hitting the "Answers" button, the present value of the remainder interest is $182,784. The present value of the income interest is the trust amount of $400,000 less the present value of the remainder interest, or $217,216.

Charitable Remainder Unitrust for a Term of Years

  1. Open your Crescendo Pro program.
  2. Select the "Planned Gifts" tab.
  3. Open up the Unitrust - Term of Years/FLIP (42) gift model.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    "Clear all Data" and enter in the data originally used when the unitrust was established.
  5. For the trust payout percent enter the unitrust payout stated in the trust document
  6. Change the gift date to the day that the present value is needed.
  7. Change the AFR to the corresponding AFR for the month for which the present value is needed or to one of the prior two months.
  8. Change the trust amount to the value of the trust on the day for which you need the present value.
  9. Reduce the term of years to the remaining number of years left as of the date of the present value calculation.
  10. Go to the print tab and print out the "charitable deduction worksheet."
  11. The present value is the trust amount you originally entered less the charitable deduction.

Term of Years Unitrust Income and Remainder Values

In 2002, John Jones, age 70, informed Happy Charity that he would make it the remainder beneficiary of his 20 year term of years charitable remainder unitrust (CRUT). He funded the CRUT with $300,000 worth of stock and selected a 5% CRUT payout. By 2012, the CRUT has grown to $400,000 and James is age 80. Happy Charity is asked by an auditor to determine the present value of James' income interest and the organization's remainder interest as of December 30, 2012.

The present value of the income and remainder interest may be calculated using the unitrust worksheet program. The current value of the CRUT is $400,000. Insert a valuation date of 12/30/2012 , the current month AFR of 1.2%, the number remaining years for the term, the payment frequency, the payout rate and $400,000 as the gift value. By hitting the "Answers" button, the present value of the remainder interest is $240,436. The present value of the income interest is the trust amount of $400,000 less the present value of the remainder interest, or $159,564.

Charitable Remainder Annuity Trust for One or Two Lives

As explained in Chapter 3.1.6 of GiftLaw Pro, an annuity trust income recipient may give part or all of the income interest to the charity. The following instructions take you step-by-step through the process of valuing this interest.

  1. Open your Crescendo Pro program.
  2. Select the "Deductions" tab
  3. Open the Annuity Trust - 1 or 2 Lives (20) worksheet.
  4. Pull up the prior record of the donor you wish to calculate the present value,

    OR

    "Clear all Data" and enter in the data used when the annuity trust was originally established, with the following modifications.
  5. Change the gift date to the day for which the present value is needed.
  6. Change the AFR to the corresponding AFR for the month for which the present value is needed or to one of the prior two months.
  7. Remove any beneficiary who has passed away, making sure the surviving beneficiary is listed.
  8. Keep the trust amount the same amount as it was originally funded with and enter the annuity payment percent.
  9. Check the "Life Income Value Deduction" option and enter current trust value.
  10. Go to the print tab and print out the "charitable deduction worksheet."
  11. The "life income value deduction" is located on the bottom of the page.

One Life Annuity Trust Income and Remainder Values

In 1996, John Jones, age 70, informed Happy Charity that he would make it the remainder beneficiary of his charitable remainder annuity trust (CRAT). He funded the CRAT with $300,000 worth of stock and selected a 6% CRUT payout that would pay him fixed payments of $18,000 annually for one life. Happy Charity is asked by an auditor to determine the present value of John's annuity interest and the organization's remainder interest as of September 30, 2012. At that time, the trust corpus is $400,000.

Select Program 20 under the "Worksheets" tab to determine the present value of his income interest. Input the 9/30/2012 date as the gift date, his birth date, a trust amount of $300,000 and the 6% annuity. The annuity will be calculated at $18,000. Check the box for "life income value deduction" and enter $400,000 as the current trust value ("gift date corpus"). Based upon John's age and a 1.0% AFR, the present value of the $18,000 annuity interest is $100,347.32. Subtract the present value from the current corpus value of $400,000, and the remainder value of the charity is $299,652.68.

Charitable Remainder Annuity Trust for Three to Six Lives

  1. Open your Crescendo Pro program.
  2. Select the "Deductions" tab.
  3. Open the Annuity Trust - 3 to 6 Lives worksheet (21).
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    "Clear all Data" and enter in the data used when the annuity trust was originally established, with the following modifications.
  5. Change the gift date to the day for which the present value is needed.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. If a beneficiary has passed away, select the number of remaining beneficiaries, making sure the surviving beneficiary(ies) is/are listed.
  8. Select the "Annuity Trust Data" tab.
  9. Enter the original trust amount.
  10. Insert the trust payout percentage.
  11. Go to the print tab and print out the "charitable deduction worksheet."
  12. Line E shows the present value of the annuity trust.

Three-Life Annuity Trust Income and Remainder Values

In 2000, John Jones, age 70, informed Happy Charity that he would make it the remainder beneficiary of his three-life charitable remainder annuity trust (CRAT). The other beneficiaries were Mary Jones, age 70, and Tom Jones, age 69, John's brother. He funded the CRAT with $300,000 worth of stock and selected a 5% CRUT payout that would pay him fixed payments of $15,000 annually for three-lives. Happy Charity is asked by an auditor to determine the present value of John's annuity interest and the organization's remainder interest as of December 30, 2012. At that time, the trust corpus is $400,000, John and Mary are age 80, Tom is age 79, and the AFR is 1.2%.

Select Program 21 under the "Worksheets" tab to determine the present value of John's income interest. Input 12/30/2012 date as the gift date, the 1.2% AFR and the current ages of the beneficiaries. Under the "Annuity Trust Data" tab, insert the original trust amount of $300,000 and the 5% annuity percentage. The annuity will be calculated at $15,000. Based upon John, Mary and Tom's ages and a 1.2% AFR, the present value of the $15,000 annuity interest is $185,217.24. Subtract the present value of the annuity from the current corpus value of $400,000, and the remainder value of the charity is $214,782.76.

Charitable Remainder Annuity Trust for a Term of Years or for the Lesser of a Term of Years or One or Two Lives

  1. Open your Crescendo Pro program.
  2. Select the "Deductions" tab.
  3. Open the Annuity Trust - Term of Years, QPRT, GRAT (22).
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    "Clear all Data" and enter in the data used when the annuity trust was originally established, with the following modifications.
  5. Select the "Term Annuity Trust" option or the "Lesser of Term or Lives" option.
  6. Change the gift date to the day which the present value is needed.
  7. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  8. Enter the original trust amount.
  9. Insert the trust payout percentage.
  10. Reduce the term of years to the remaining number of years left as of the date of the present value calculation.
  11. Go to the print tab and print out the "charitable deduction worksheet."
  12. Line E shows the present value of the annuity trust.

Term Annuity Trust Income and Remainder Values

In 2000, John Jones, age 70, informed Happy Charity that he would make it the remainder beneficiary of his 20-year term annuity trust. He funded the CRAT with $300,000 worth of stock and selected a 5% CRUT payout that would pay him fixed payments of $15,000 annually. Happy Charity is asked by an auditor to determine the present value of John's annuity interest and the organization's remainder interest as of December 30, 2012. At that time, the trust corpus is $400,000 and the AFR is 1.2%.

The present value of John's income interest can be calculated using Program 22 under the "Worksheets" tab. The 12/30/2012 gift date, the 1.2% AFR, the payment frequency, the original trust amount of $300,000, the annuity percentage of 5% and 10 years for the number of years left for the 20-year term are used. Based upon this information, the present value of the $15,000 annuity interest is $141,191. This number is subtracted from the current corpus value of $400,000 to produce a remainder value to the charity of $258,809.

Charitable Gift Annuity - CresPro

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or of all his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing this interest. For current gift annuities, program 82 will calculate the deduction.

  1. Open your CresPro program.
  2. Select the "Worksheets" tab
  3. Open up Present Value - Gift Annuity (82) gift model. Note: Deferred gift annuities cannot be valued in this program.
  4. Select the prior record of the donor

    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the gift annuity was originally established.
  5. Select "Gift of Contract to Charity" if you are looking for the charitable deduction, OR select "Annuity Contract Present Value" if you are running present value calculations.
  6. Verify the AFR matches the AFR used on the original deduction sheet.
  7. Enter the funding value and funding cost basis for the original gift.
  8. Enter the original payout percentage.
  9. Enter the date of the irrevocable assignment to charity or the valuation date for the present value.
  10. For a two-life annuity, select if both annuitants are alive or select if the first or second annuitant has passed away prior to the assignment date.
  11. Select Answers/Print.
  12. You can verify the original deduction sheet matches by clicking "Original Charitable Deduction" and comparing to your records.
  13. To view the Gift of Contract click "Gift of Contract" the value of the charitable deduction will be listed in bold as "Charitable Tax Deduction" OR to view the Annuity Contract Present Value click "Annuity Contract Present Value" it will be listed as "Life Annuity Contract Value."
  14. To print, select or unselect the pages you would like to print and click Print Selected. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Charitable Gift Annuity - CresLite

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or of all his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing this interest. For current gift annuities, program 53 will calculate the deduction.

  1. Open your CresLite program.
  2. Open up Gift Annuity - 1 or 2 lives (53) gift model.
  3. Select the prior record of the donor for whom you wish to calculate the present value,

    OR

    Create a new record by clicking the blue "New Record" button. Enter in data used when the gift annuity was originally established.

  4. Because the deduction is the lesser of (a) total unrecovered basis plus any unreported capital gain of the annuity income interest or (b) present value of the annuity income interest, it will be necessary to run two separate calculations in this program.
  5. To determine (a), view or print the Annuity Income Taxation Worksheet based on the original gift data and find the sum of any unrecovered basis (tax free return column) plus any unreported capital gain. You may need to speak with your finance department for recent payment history.
  6. To determine (b), change the gift date to the date of the irrevocable assignment to charity or the valuation date for the present value.
  7. Change the AFR to the current month or one of the two prior months. The lowest AFR produces the largest annuity contract value. However, if the valuation is not for purposes of a charitable deduction, only the AFR for the current month may be used.
  8. With a two-life annuity, remove any annuitant that passed away prior to the assignment date.
  9. Income tax and capital gain tax rates are not necessary to obtain a present value calculation.
  10. Change the payout date to the next annuity payment due date.
  11. Change the Gift Annuity Payout % to 'User Selected' and enter the original payout percentage.
  12. Select Answers/Print, unselect all pages and select the checkbox for Deduction.
  13. Click Print Selected. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.
  14. On the Deduction Worksheet, the current value of the annuity contract is Line (E).
  15. Use the lesser of the value from Step 5 (sum of total unrecovered basis plus any unreported capital gain) or Step 15 (present value of the annuity contract).

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Charitable Gift Annuity

In 1996, John and Mary Jones, both age 70, entered into a gift annuity contract with Happy Charity. They funded the gift annuity with $300,000 worth of stock that had a cost basis of $100,000. John passes away in March of 2012. Happy Charity is asked by an auditor to determine the present value of Mary's annuity interest and the organization's remainder interest as of September 30, 2012.

The present value of Mary's annuity interest can be calculated using the charitable gift annuity worksheet program, program 23. Select one-life, input Mary's birthdate/age, the September 30th date, the annuity amount, the cost basis and the standard ACGA rate. Under the "Options tab," make sure "donor receives annuity is selected." Using these inputs, the present value of her annuity interest (Line E on the "Deduction" page) is $134,797.60. The remainder value is $166,202.40.
Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Deferred Charitable Gift Annuity – Payments Will Commence in More Than One Year

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or all of his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing the remaining deferred gift annuity income interest if (i) payments have not begun and (ii) the first scheduled payout date is more than one year away from the date of assignment.

  1. Open your CresPro or CresLite program.
  2. Open up the "Gift Annuity - Deferred Payment (55)" gift model.
  3. Pull up the prior record of the donor for whom you wish to calculate the present value,

    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the gift annuity was originally established.
  4. Because the deduction is the lesser of: (a) total unrecovered basis plus any unreported capital gain of the annuity income interest; or (b) present value of the annuity income interest, it will be necessary to run two separate calculations. If you only want a present value calculation skip step 6.
  5. To determine the value for "(a)", view or print the Taxation Worksheet and find the sum of any unrecovered basis plus unreported capital gain. Since no payments have been made yet, add together the Lifetime Capital Gain and Lifetime Basis figures provided.
  6. To calculate the value for "(b)", change the gift date to the date of the irrevocable assignment to the issuing charity.
  7. Select the AFR to the current month or one of the two prior months. The lowest AFR produces the largest annuity contract value. However, if the valuation is for a present value calculation only the AFR for the current month may be used.
  8. With a two-life annuity, remove any annuitant that passed away prior to the assignment date.
  9. Select 'User Selected' under 'Gift Annuity Payout %' and enter the original payout percentage.
  10. Select Answers/Print, unselect all pages and select the checkbox for Deduction.
  11. Click Print Selected. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.
  12. On the Deduction Worksheet, the present value of the annuity income interest can be found on Line (H) for one life or Line (R) for two lives.
  13. To determine the charitable deduction for a gift of the contract to charity, use the lesser of the value from Step 5 (sum total unrecovered basis plus any unreported capital gain) or in Step 11 (present value of the annuity income interest).


The charitable income tax deduction is the lesser of (1) the annuity unrecovered basis plus any unreported capital gain, or (2) the present value of the annuity interest.

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Deferred Charitable Gift Annuity – Payments Have Commenced or Will Commence in Less Than One Year

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or all of his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing the remaining deferred gift annuity income interest if: (i) payments have already begun; or (ii) payments have not begun, but are scheduled to begin in less than one year from the date of the assignment.

  1. Open your CresPro or CresLite program.
  2. Because the deduction is the lesser of: (a) total unrecovered basis plus any unreported capital gain of the annuity income interest; or (b) present value of the annuity income interest, it will be necessary to run two separate calculations in two separate programs. If you would like to calculate only the present value, skip to Step 6.
  3. To calculate the value for "(a)", open up the "Gift Annuity - Deferred Payment (55)" gift model. (Note: If you still have the original calculation, you may already have this information and can skip ahead to Step 6).
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the gift annuity was originally established.
  5. Select Answers/Print and unselect all pages, select the Taxation page, find or calculate the sum of any unrecovered basis (tax free return column) plus unreported capital gain. If no payments have been made yet, simply add together the Lifetime Capital Gain and Lifetime Basis figures provided.
  6. To calculate the value for "(b)", open up the "Gift Annuity - 1 or 2 lives (53)" gift model.
  7. Select New Record and then enter the following information:
  8. Enter the gift date as the date of the valuation date for the present value OR the irrevocable assignment back to the issuing charity.
  9. Use the current AFR or the AFR for one of the prior two months. The lowest AFR produces the largest annuity contract value However, if the valuation is for a present value calculation only the AFR for the current month may be used.
  10. Enter only the name(s) and birthdate(s) of living annuitant(s) (as of the present value or assignment date).
  11. Enter the original gift amount (funding amount), cost basis and payment frequency.
  12. Enter the date of the irrevocable assignment to the issuing charity as the payout date (same as Step 8).
  13. Select the 'User Selected' under "Gift Annuity Payout %" and enter the original payout percentage.
  14. Select Answers/Print, unselect all pages and select the checkbox for Deduction.
  15. Click Print Selected. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.
  16. On the Deduction Worksheet, the present value of the annuity contract is Line (E).
  17. Use the lesser of the value from Step 5 (sum of total unrecovered basis plus any unreported capital gain) or Step 14 (present value of the annuity contract).


Deferred Charitable Gift Annuity-Payments Will Commence in More Than One Year

On December 1, 2010, John Jones, age 68, entered into a deferred gift annuity contract with Happy Charity. He funded the gift annuity with $300,000 worth of stock that had a cost basis of $200,000. The ACGA rate at that time was 7.1% and the payout date selected was 12/1/2014. John wishes to contribute his income interest in the annuity to Happy Charity on 12/1/2012. To do so, the present value of his income interest (the charitable deduction) needs to be determined.

The present value of John's annuity interest can be calculated using the deferred charitable gift annuity worksheet program, program 25. First, use all of the original information for the deferred gift annuity, including the gift date of 12/1/2010 and that month's AFR. Select "Answers" and the unrecovered basis is found on Line H, $201,840.93. Next, using the same program, change the gift date to the gift date of 12/1/2012 and change the AFR to the December 2012 rate. Select "User-Selected Gift Annuity Payout %" and enter the original payout percentage. Select "Answers," and on the Deduction Worksheet the present value of the annuity is Line H, or $231,741.87. The lesser of the two numbers is the present value of the income interest and would be the charitable deduction.
Please review Chapter 3.3.7 of GiftLaw Pro for further information.


Deferred Charitable Gift Annuity – Payments Have Commenced or Will Commence Within One Period

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or all of his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing the remaining deferred gift annuity income interest if (i) payments have already begun or (ii) payments have not begun, but are scheduled to begin in less than one payment period from the date of the assignment.

  1. Open your Crescendo Pro program.
  2. Select the "Deductions" tab.
  3. Because the deduction is the lesser of (a) total unrecovered basis plus any unreported capital gain of the annuity income interest or (b) present value of the annuity income interest, it will be necessary to run two separate calculations in two separate programs.
  4. To calculate (a), open up Gift Annuity – Deferred Payment (25) gift model.
  5. Pull up the prior record of the donor for whom you wish to calculate the present value,

    OR

    "Clear all Data" and enter in the data used when the gift annuity was originally established.
  6. Go to the print tab and print out the Gift Annuity Deduction Worksheet.
  7. On the Deduction Worksheet, the Present Value of Annuity is Line (H) for one life or Line (R) for two lives. This is the unrecovered basis.
  8. To calculate (b), open up Gift Annuity – 1 or 2 lives (23) gift model.
  9. Select "Clear all Data" and enter in the information as follows.
  10. Enter the gift date as the Annuity Starting Date from the original calculation.
  11. Use the current AFR or the AFR for one of the prior two months. The lowest AFR produces the largest annuity contract value. However, if the valuation is not for purposes of a charitable deduction, only the current month's AFR may be used.
  12. Enter the name(s) and birthdate(s) of annuitant(s).
  13. Enter the original gift amount (funding amount), cost basis and payment frequency.
  14. Enter the payout date from the original calculation.
  15. Select the 'User Selected' Gift Annuity Payout % and enter the original payout percentage.
  16. Select Options and Reinsurance of Contract. Enter the Present Value of Annuity from Step 7 as the Reinsurance amount.
  17. Select Annuitant Gives Contract to Charity and enter the date of the irrevocable assignment of the contract to the charity.
  18. Go to the print tab and print out the Gift Contract to Charity.
  19. On the Gift of Contract to Charity worksheet, the deduction is on Line I.

Deferred Charitable Gift Annuity-Payments Have Commenced or Will Commence Within One Period

On December 1, 2010, John Jones, age 68, entered into a deferred gift annuity contract with Happy Charity. He funded the gift annuity with $300,000 worth of stock that had a cost basis of $200,000. The ACGA rate at that time was 7.1% and the payout date selected was 12/1/2011. John wishes to gift his income interest to Happy Charity on December 1, 2012. Thus, Happy Charity needs to determine John's charitable deduction.

The charitable deduction can be calculated using the deferred charitable gift annuity worksheet program, program 25. First, input all of the original information for the deferred gift annuity, including the gift date of 12/1/2010 and that month's AFR of 1.8%. Select "Answers" and the unrecovered basis is found on Line H, $201,840.93.

Next, using program 23, change the gift date to the Annuity Starting Date from the original calculation and change the AFR to the one for the current month, 1.2% (or one of the two prior months for charitable deduction purposes). Enter the name and birthdate of John Jones and the original funding amount, cost basis and payment frequency. Select "User-Selected Gift Annuity Payout %" and enter the original payout percentage of 7.1%. Select Options and Reinsurance of Contract, entering the present value of the annuity from the previous step, $201,840.93. Also select the Annuitant Gives Contract to Charity box and enter the date of the gift of the annuity income interest. Select "Answers," and the Gift of Contract to Charity worksheet. The deduction is on Line I, which is $189,730.76.

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Pooled Income Fund

As explained in Chapter 3.8.5 of GiftLaw Pro, a pooled income fund recipient may give part or all of the trust income interest to the charity. The following instructions take you step-by-step through the process of valuing this interest.

  1. Open your Crescendo Pro or Estate program.
  2. Select the "Deductions" tab.
  3. Open up the Pooled Income Fund - 1, 2 or 3 Lives (29) worksheet.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    "Clear all Data" and enter in the data used when the pooled income fund was originally established with the following modifications.
  5. Change the gift date to the day for which the present value is needed.
  6. Remove any beneficiaries who may have passed away, making sure to list the surviving beneficiaries.
  7. Change the asset value to the value of the donor's pooled income fund for the day that you need the present value.
  8. Change the highest rate of return to the highest rate for the past three years.
  9. Check the "Life Income Value Deduction" option.
  10. Go to the print tab and print out the "Pooled Income Fund Deduction" Worksheet.
  11. The "life income value deduction" is listed on the bottom of the page.

One Life Pooled Income Fund Income and Remainder Values

In 1996, Mary Jones, age 70, informed Happy Charity that she would make it the remainder beneficiary of her pooled income fund (PIF). She funded the PIF with $20,000 cash. Happy Charity is asked by an auditor to determine the present value of Mary's annuity interest and the organization's remainder interest as of September 30, 2012.

By this time the value of her PIF is $21,000 and the highest payout percentage in the past three years is 2.4%. Using Program 29 under the "Worksheets" tab, the $21,000 corpus, her birth date, the 2.4% "highest three year" percentage and a gift date of 9/30/2012, the present value of the life income interest is $2,621.85. The remainder value is $18,378.15.
To calculate present value using the IRS method:

Present Value (IRS Method) Calculations in CresPro/Estate/CresLite



Charitable Remainder Unitrust for One or Two Lives

As explained in Chapter 3.10.6 of GiftLaw Pro, a unitrust income recipient may give part or all of the unitrust income interest to the charity. If the gift of income interest option is checked, use the date of the income interest gift as the gift date and enter the unitrust value on that date.

  1. Open your CresPro or CresLite
  2. Select the "Worksheets" tab
  3. Select the Unitrust or GRUT Worksheet (30).
  4. Pull up the prior record of the donor you wish to calculate the present value for.

    OR

    "Clear all Data" and enter in the data used when the unitrust was originally established with the following modifications.
  5. Change the gift date to the day that the present value is needed.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. Remove any beneficiary who has passed away, making sure the surviving beneficiary is listed.
  8. Change the trust amount to the value of the trust on the day that you need the present value.
  9. If the Unitrust has a guaranteed number of years, reduce the number of guaranteed years to the number remaining as of the date the present value is needed for.
  10. Select the "Options" tab.
  11. Check the "Life Income Value Deduction" option.
  12. Go to the print tab and print out the Charitable Deduction Worksheet.
  13. The present value of the life income is located at the bottom of the page.

Charitable Remainder Unitrust for One or Two Lives (CresPro/CresLite)

As explained in Chapter 3.10.6 of GiftLaw Pro, a unitrust income recipient may give part or all of the unitrust income interest to the charity. If the gift of income interest option is checked, use the date of the income interest gift as the gift date and enter the unitrust value on that date.

  1. Open your CresPro or CresLite
  2. Select the "Worksheets" tab
  3. Select the Unitrust or GRUT Worksheet (30).
  4. Pull up the prior record of the donor you wish to calculate the present value for.

    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the unitrust was originally established, with the modifications described below:
  5. Change the gift date to the day that the present value is needed.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. Remove any beneficiary who has passed away, making sure the surviving beneficiary is listed.
  8. Change the trust amount to the value of the trust on the day that you need the present value OR the irrevocable assignment to charity.
  9. If the Unitrust has a guaranteed number of years, reduce the number of guaranteed years to the number remaining as of the date the present value is needed for.
  10. Select the "Options" tab.
  11. Check the "Life Income Value Deduction" option.
  12. Click the Answers/Print button and select the Charitable Deduction Worksheet.
  13. The life income deduction value and present value of the remainder interest are located at the bottom of the page.
  14. To print, select or unselect the pages you would like to print and click Print Selected.
  15. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.

Charitable Remainder Unitrust for One or Two Lives (Only available in CresPro)

As explained in Chapter 3.10.6 of GiftLaw Pro, a unitrust income recipient may give part or all of the unitrust income interest to the charity. The following instructions take you step-by-step through the process of valuing this interest.

  1. Open your CresPro program.
  2. Select the "Worksheets" tab.
  3. Open the Present Value - Unitrust (81) Worksheet.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.

    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the unitrust was originally established, with the modifications described below:
  5. Enter the "Valuation Date" as the day for which the present value is needed OR the irrevocable assignment to charity.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. Remove any beneficiary who has passed away, making sure the surviving beneficiary is listed.
  8. Change the trust amount to the value of the trust on the day for which you need the present value.
  9. For the trust payout percent enter the unitrust payout stated in the trust document.
  10. Click the Answers/Print button and select the Charitable Deduction Worksheet.
  11. The life income deduction value and present value of the remainder interest are located at the bottom of the page.
  12. To print, select or unselect the pages you would like to print and click Print Selected.
  13. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.

Charitable Remainder Unitrust for a Term of Years (Only available in CresPro)

As explained in Chapter 3.10.6 of GiftLaw Pro, a unitrust income recipient may give part or all of the unitrust income interest to the charity. The following instructions take you step-by-step through the process of valuing this interest.

  1. Open your CresPro program.
  2. Select the "Worksheets" tab.
  3. Open the Present Value - Unitrust (81) Worksheet.
  4. Pull up the prior record of the donor for whom you wish to calculate the present value.
    OR

    Create a new record by clicking the blue "New Record" button. Enter in the data used when the unitrust was originally established, with the modifications described below:
  5. Enter the "Valuation Date" as the day for which the present value is needed OR the irrevocable assignment to charity.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. If the unitrust has a term of years, reduce the number of years to the number remaining as of the date the present value is needed.
  8. Change the trust amount to the value of the trust on the day for which you need the present value.
  9. For the trust payout percent enter the unitrust payout stated in the trust document.
  10. Click the Answers/Print button and select the Charitable Deduction Worksheet.
  11. The life income deduction value and present value of the remainder interest are located at the bottom of the page.
  12. To print, select or unselect the pages you would like to print and click Print Selected.
  13. A PDF version of the selected sheets will generate. You can then save to your desktop or send to your printer.

Charitable Remainder Annuity Trust for Term of Years or the Lesser of One or Two Lives and a Term of Years

  1. Open your CresPro or CresLite.
  2. Select the "Worksheets" tab.
  3. Open the Annuity Trust worksheet, GRAT or QPRT (22)
  4. Pull up the prior record of the donor you wish to calculate the present value for.

    OR

    Clear all Data and enter in the data used when the annuity trust was originally established with the following modifications.
  5. Change the gift date to the day that the present value is needed.
  6. Change the AFR to the corresponding AFR for the month that the present value is needed or to one of the prior two months.
  7. Remove any beneficiary who has passed away, making sure the surviving beneficiary is listed.
  8. Keep the trust amount the same amount as it was originally funded with.
  9. Go to the print tab and print out the Charitable Deduction Worksheet.
  10. The present value of the annuity trust is located on Line E.

Charitable Gift Annuity

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or of all his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing this interest. For current gift annuities, program 53 will calculate the deduction.

  1. Open your CresPro or CresLite program.
  2. Open up Gift Annuity - 1 or 2 lives (53) gift model.
  3. Pull up the prior record of the donor for whom you wish to calculate the present value,

    OR

    "Clear all Data" and enter in data used when the gift annuity was originally established.

  4. Because the deduction is the lesser of (a) total unrecovered basis plus any unreported capital gain of the annuity income interest or (b) present value of the annuity income interest, it will be necessary to run two separate calculations in this program.
  5. To determine (a), view or print the Taxation Worksheet and find the sum of any unrecovered basis plus any unreported capital gain.
  6. To determine (b), change the gift date to the date of the irrevocable assignment back to the issuing charity.
  7. Change the AFR to the current month or one of the two prior months. The lowest AFR produces the largest annuity contract value. However, if the valuation is not for purposes of a charitable deduction, only the AFR for the current month may be used.
  8. With a two-life annuity, remove any annuitant that passed away prior to the assignment date.
  9. Change the payout date to the next annuity payment due date.
  10. Change the Gift Annuity Payout % to 'User Selected' and enter the original payout percentage.
  11. Go to the print tab and print out the Charitable Deduction Worksheet.
  12. On the Deduction Worksheet, the current value of the annuity contract is Line (E).
  13. Use the lesser of the value from Step 5 (sum of total unrecovered basis plus any unreported capital gain) or Step 11 (present value of the annuity contract).

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Deferred Charitable Gift Annuity – Payments Will Commence in More Than One Year

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or all of his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing the remaining deferred gift annuity income interest if (i) payments have not begun and (ii) the first scheduled payout date is more than one year away from the date of assignment.

  1. Open your CresPro or CresLite program.
  2. Open up the "Gift Annuity - Deferred Payment (55)" gift model.
  3. Pull up the prior record of the donor for whom you wish to calculate the present value,

    OR

    Select "Clear all Data" and select "yes" when asked if you want to clear all data, after which, enter in the data used when the gift annuity was originally established.
  4. Because the deduction is the lesser of: (a) total unrecovered basis plus any unreported capital gain of the annuity income interest; or (b) present value of the annuity income interest, it will be necessary to run two separate calculations.
  5. To determine the value for "(a)", view or print the Taxation Worksheet and find the sum of any unrecovered basis plus unreported capital gain. Since no payments have been made yet, you can use the Lifetime Capital Gain and Basis figures provided.
  6. To calculate the value for "(b)", change the gift date to the date of the irrevocable assignment to the issuing charity.
  7. Change the AFR to the current month or one of the two prior months. The lowest AFR produces the largest annuity contract value. However, if the valuation is not for purposes of a charitable deduction, only the AFR for the current month may be used.
  8. With a two-life annuity, remove any annuitant that passed away prior to the assignment date.
  9. Select 'User Selected' under 'Gift Annuity Payout %' and enter the original payout percentage.
  10. Go to the print tab and print out the Charitable Deduction Worksheet.
  11. On the Deduction Worksheet, the present value of the annuity income interest can be found on Line (H) for one life or Line (R) for two lives.
  12. Use the lesser of the value from Step 5 (sum total unrecovered basis plus any unreported capital gain) or in Step 11 (present value of the annuity income interest).

The charitable income tax deduction is the lesser of the annuity unrecovered basis plus any unreported capital gain, or the present value of the annuity interest.

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Deferred Charitable Gift Annuity – Payments Have Commenced or Will Commence in Less Than One Year

As explained in Chapter 3.3.7 of GiftLaw Pro, a gift annuity income recipient may give/assign part or all of his/her annuity income interest back to the issuing charity. The following instructions take you step-by-step through the process of valuing the remaining deferred gift annuity income interest if: (i) payments have already begun; or (ii) payments have not begun, but are scheduled to begin in less than one year from the date of the assignment.

  1. Open your CresPro or CresLite program.
  2. Because the deduction is the lesser of: (a) total unrecovered basis plus any unreported capital gain of the annuity income interest; or (b) present value of the annuity income interest, it will be necessary to run two separate calculations in two separate programs.
  3. To calculate the value for "(a)", open up the "Gift Annuity - Deferred Payment (55)" gift model. (Note: If you still have the original calculation, you may already have this information and can skip ahead to Step 7).
  4. Pull up the prior record of the donor for whom you wish to calculate the present value,

    OR

    Select "Clear all Data" and enter in the data used when the gift annuity was originally established.
  5. On the Taxation Worksheet, find or calculate the sum of any unrecovered basis plus unreported capital gain. If no payments have been made yet, simply use the Lifetime Capital Gain and Basis figures.
  6. To calculate the value for "(b)", open up the "Gift Annuity - 1 or 2 lives (53)" gift model.
  7. Select "Clear all Data", select "yes" when asked if you want to clear the previous data and then enter the following information:
  8. Enter the gift date as the date of the irrevocable assignment back to the issuing charity.
  9. Use the current AFR or the AFR for one of the prior two months. The lowest AFR produces the largest annuity contract value. However, if the valuation is not for purposes of a charitable deduction, only the current month's AFR may be used.
  10. Enter only the name(s) and birthdate(s) of living annuitant(s) (as of the assignment date).
  11. Enter the original gift amount (funding amount), cost basis and payment frequency.
  12. Enter the date of the irrevocable assignment to the issuing charity as the payout date (same as Step 8)
  13. Select the 'User Selected' under "Gift Annuity Payout %" and enter the original payout percentage.
  14. On the Deduction Worksheet, the current value of the annuity contract is Line (E).
  15. Use the lesser of the value from Step 5 (sum of total unrecovered basis plus any unreported capital gain) or Step 14 (present value of the annuity contract).

Please review Chapter 3.3.7 of GiftLaw Pro for further information.

Present Value (CFO Method) Calculations in Crescendo Pro/Estate/Lite



Unitrust, Annuity Trusts, Pooled Income Funds

  1. Open your Crescendo Pro or Lite program.
  2. Select the Personalize button on the right side of your screen.
  3. Enter your data and select a discount rate. The discount rate is the interest rate utilized throughout the program to perform valuation calculations. Typically, the rate chosen is reflective of the projected rate of inflation (such as 3.4%) or the rate of return (such as 5% or 6%).
  4. Select the Crescendo program for the gift that you wish to value.
  5. Select the prior record for the donor of the gift that you wish to value.

    OR

    Clear all data and enter in the data for the gift you wish to value.
  6. Select Answers.
  7. Select the Family/Charity spreadsheet.
  8. Scroll to the bottom of the Family/Charity spreadsheet. The present value, based on your selected discount rate and donor life expectancy, appears at the bottom left of the screen.

Gift Annuities

  1. Open your Crescendo Pro or Lite program.
  2. Select the Personalize button on the right side of your screen.
  3. Enter your data and select a discount rate. The discount rate is the interest rate utilized throughout the program to perform valuation calculations. Typically, the rate chosen is reflective of the projected rate of inflation (such as 3.4%) or the rate of return (such as 5% or 6%).
  4. Select the Crescendo program for the gift annuity that you wish to value.
  5. Select the prior record for the donor of the gift annuity that you wish to value.

    OR

    Clear all data and enter in the data for the gift you wish to value.
  6. Select the Options tab. Under Enter Contract Value to Charity select User Enters Annuity Reserve Earnings Rate. Enter the projected rate of return of the charity's investment fund.
  7. Select Answers.
  8. Select Taxation.
  9. Scroll to the bottom of the Taxation spreadsheet. The present value appears at the bottom right of the screen.

Life Estates

  1. Open your Crescendo Pro program.
  2. Select the Personalize button.
  3. Enter your data and select a discount rate. The discount rate is the interest rate utilized throughout the program to perform valuation calculations. Typically, the rate chosen is reflective of the projected rate of inflation (such as 3.4%) or the rate of return (such as 5% or 6%).
  4. Select save and Select the Gift programs page.
  5. Select Life Estate Reserved Program 52.
  6. Select the prior record for the donor of the life estate that you wish to value.

    OR

    Clear all data and enter in the data for the gift you wish to value.
  7. Enter the estimated annual appreciation rate and additional data needed to perform the life estate calculation.
  8. Select Answers.
  9. Select Deduction.
  10. Scroll to the bottom of the deduction worksheet. The present value appears at the bottom right of the screen.

Bequests

  1. Open your Crescendo Pro or Lite program.
  2. Select the Calculator button on the right side of your screen.
  3. Select the Life Expectancy tab.
  4. Calculate the life expectancy of your donor(s).
  5. Select the Present Value tab.
  6. Perform the Future to Present Value calculation.
  7. Enter the bequest value as future value.
  8. Enter the donors life expectancy as term of years.
  9. Select an interest rate. Typically, the rate chosen is reflective of the projected rate of inflation, i.e., in the range of 3.4%.
  10. Calculate the present value of the bequest.

Calculating PV Using 2012 IAR Table



Immediate CGA or Deferred CGA if Payments Have Commenced or Will Commence Within One Period

  1. Open your Crescendo Pro program.
  2. Open "Gift Annuity - One or Two Lives (53)" gift model.
  3. "Retrieve the Prior Saved Data" of the donor for whom you wish to calculate the present value,

    OR

    "Clear all Data" and enter in data used when the gift annuity was originally established.
  4. Change the "Gift Date" to the date you would like to calculate the present value.
  5. Change the "Rate of the Month" to the AFR for the month you would like to calculate the present value OR if calculation is not for reporting purposes the interest rate provided by your CFO.
  6. Select whether the annuitant(s) is (are) male or female.
  7. Change the "Payout Date" to the date you would like to calculate the present value.
  8. Select "User Selected" under "Gift Annuity Payout %" and enter the original annuity payout percentage.
  9. On the "Options" tab under "Other Options" select "Tables 2012 IAR"
  10. Go to the "Print" tab and print the "Charitable Deduction" worksheet
  11. The present value of the annuity according to the 2012 IAR Tables is on the first page in the right margin under "Ann. Value."

Immediate CGA:

Mary set up an immediate charitable gift annuity with Charity on April 12, 2004 when she was 70 years old for $100,000 cash. The annuity made quarterly payments at 6.5%. Dave, a gift planner at Charity was asked by his CFO to provide the present value of Mary's annuity using the 2012 IAR mortality table as of December 31, 2015. Dave opened Crescendo Pro and then the Gift Annuity - One or Two Lives (53) gift model. He retrieved the prior saved record for Mary. He changed the Gift Date and the Payout Date of Mary's annuity to 12/31/2015 and the rate of the month to 2% (the rate of the month for December 2015). He made sure that "F" for female was selected next to Mary's age. He selected "User Selected" under "Gift Annuity Payout %" and entered 6.5%. Finally, Dave went to the Options tab and selected "Tables 2012 IAR" under Other Options. He printed out the Deduction Worksheet and found that the Ann. Value using the 2012 IAR Tables is $63,938. He provided this information to his CFO.

Deferred CGA Payments Will Commence within One Period:

Bill set up a deferred charitable gift annuity with Charity on December 15, 2013 when he was 65 years old for $100,000 cash. The annuity was scheduled to make its first payment on December 31, 2015 at a rate of 5.1%. Janice, a gift planner at Charity was asked by her CFO to provide the present value of Bill's annuity using the 2012 IAR mortality table as of December 1, 2015. Janice opened Crescendo Pro and then the Gift Annuity - One or Two Lives (53) gift model. She retrieved the prior saved record for Bill. She changed the Gift Date and the Payout Date of Bill's annuity to 12/01/2015 and the rate of the month to 2% (the rate of the month for December 2015). She made sure "M" for male was selected next to Bill's age. She selected "User Selected" under "Gift Annuity Payout %" and entered 5.1%. Finally, Janice went to the Options tab and selected "Tables 2012 IAR" under Other Options. She printed out the Deduction Worksheet and found that the Ann. Value using the 2012 IAR Tables is $88,955. She provided this information to her CFO.


NOTE: There may be a need to override the 10% deduction test when doing the calculation for a deferred annuity with a long deferral period. If necessary, please call Crescendo for assistance at (800) 858-9154.

Deferred CGA if Payments Will Commence in More than One Year

  1. Open your Crescendo Pro program.
  2. Select the "Gift Annuity - Deferred (55)" gift model.
  3. "Retrieve the Prior Saved Data" of the donor for whom you wish to calculate the present value,

    OR

    "Clear all Data" and enter in data used when the gift annuity was originally established.
  4. Change the "Gift Date" to the date that you would like to calculate the present value.
  5. Change the "Rate of the Month" to the AFR for the month you would like to calculate the present value OR if calculation is not for reporting purposes the interest rate provided by your CFO
  6. Under "Gift Annuity Payout %" select "User Selected" and enter the original annuity payout percentage.
  7. On the "Options" tab under "Other Options" select "Tables 2012 IAR"
  8. If you are calculating a two-life annuity and one annuitant passed away prior to the assignment date, then run a one life calculation for the survivor.
  9. Go to the "Print" tab and print the "Charitable Deduction Worksheet"
  10. The present value of the annuity according to the 2012 IAR Tables is on the first page in the right margin under "Ann. Value"

Example - Deferred Gift Annuity - Payments Will Commence in More Than One Year:

Amy set up a deferred charitable gift annuity with Charity on January 3, 2013 when she was 60 years old for $100,000 cash. The annuity was scheduled to make its first payment on December 31, 2016 at a rate of 5%. Ron, a gift planner at Charity was asked by his CFO to provide the present value of Amy's annuity using the 2012 IAR mortality table as of December 15, 2015. Ron opened Crescendo Pro and then the Gift Annuity - Deferred (55) gift model. He retrieved the prior saved record for Amy. He changed the Gift Date of Amy's annuity to 12/15/2015 and the rate of the month to 2% (the rate of the month for December 2015). He made sure "F" for female was selected next to Amy's age. He selected "User Selected" under "Gift Annuity Payout %" and entered 5%. Finally, Ron went to the Options tab and selected "Tables 2012 IAR" under Other Options. He printed out the Deduction Worksheet and found that the Ann. Value using the 2012 IAR Tables is $98,446. He provided this information to his CFO.


NOTE: There may be a need to override the 10% deduction test when doing the calculation for a deferred annuity with a long deferral period. If necessary, please call Crescendo for assistance at (800) 858-9154.

Related Topics on Present Values

3.1.10  Income, Gift, Estate and GSTT:    The donor to a charitable remainder annuity trust will receive an income tax deduction equal to the present value of the remainder interest. It is calculated using the applicable federal rate for the current month or one of the prior two months, as permitted under Sec. 7520.

3.10.9  Income, Gift, Estate and Generation-Skipping Transfer Taxes:    The donor to a charitable remainder unitrust will receive an income tax deduction equal to the present value of the remainder interest. It is calculated using the applicable federal rate for the current month or one of the prior two months, as permitted under Sec. 7520.

3.7.4  Income, Gift and Estate Tax:    An income tax deduction is permitted for the present value of the remainder interest. It is calculated using the Applicable Federal Rate (AFR) under Sec. 7520 and factors from IRS Pub. 1457. The remainder must be reduced by straight-line depreciation for the income tax deduction. Sec. 170(f)(4).

Davenport:    In Estate of Sarah M. Davenport et al. v. Commissioner; T.C. Memo. 2006-215; No. 16060-04 (5 Oct 2006), the court determined that two commercial annuities would be includable in the estate and valued using the Sec. 7520 treasury tables.

Schaefer:    In Estate of Arthur E. Schaefer v. Commissioner; 145 T.C. No. 4; No. 13183-11 (28 Jul 2015), the estate desired to value two net income plus makeup unitrusts based upon the Sec. 7520 Applicable Federal Rate (AFR) rather than the stated payout percentages.


      Quiz-Basic



© Copyright 1999-2024 Crescendo Interactive, Inc.