February, 2008: "The Foundation and Planned Giving - Charitable Annuity Gifts"

by Mike Bourland
American Football Coaches Foundation

Courtesy: AFCA
Release: 02/01/2008

In previous editions of the Extra Point, we continued our discussion of various methods of Planned Giving which can assist The American Football Coaches Foundation (the “Foundation”) meet its financial requirements. Planned Giving is the structured and pre-planned way to donate to the Foundation. It is charitable giving through Wills, Living Trusts, life insurance and other advance planning methods. In the First Quarter, 2007 issue of the Extra Point we discussed Foundation giving through your Will and Living Trust as the Planned Giving technique of choice. In this issue, we will discuss gifts charitable annuities, another Planned Giving technique. But before doing that let’s again review key aspects of the Foundation, its goals and how it accomplishes its goals.

The goals of the Foundation are to provide funding for the education of American football coaches to better serve the public through role modeling and character development for young men and your women and the promotion and enhancement of the coaches’ technical skills and coaching capabilities. The American Football Coaches Association (AFCA) is a tax exempt trade organization. Contributions to the AFCA do not qualify for an income tax charitable deduction to the donor. The Foundation is a publicly supported, tax-exempt charity. Contributions to the Foundation qualify for an income tax and estate tax charitable deduction to the donor. Revenue generation activities of the Foundation should be structured to maintain its advantageous publicly supported tax exempt charity status.

To meet the requirements of a publicly supported tax exempt charity, the Foundation must receive at least one-third (1/3) of its support from a broad range of donors, which includes AFCA member coaches. That is why your annual contributions are anticipated and crucial to the success of the Foundation. For every dollar given by an AFCA member coach, the Foundation can receive two additional dollars from a larger donor or donor foundation without endangering the Foundation’s favorable publicly supported tax exempt status. As you are now familiar with this rule, you can see how every AFCA member coach’s personal involvement is important to the Foundation’s strategic game plan to solicit and receive contributions from wealthy individuals and their family foundations. With these types of gifts, the Foundation has funds that it can put to work immediately in support of the Foundation’s goals.

One way for donors to give to the Foundation is with a gift a charitable annuity. A Charitable Gift Annuity is part charitable gift and part purchase of an annuity. It is a contract between a donor and the Foundation, where the donor irrevocably transfers money or property to the Foundation in return for the Foundation’s promise to pay a fixed, guaranteed payment to the donor, or another person that the donor designates, for life. The Charitable Gift Annuity may be a single life annuity, payable over the life of the donor, or a joint and survivor annuity, which is payable to the donor and his spouse for their joint lives, then payable to the survivor for the remainder of his or her life. Payments under a Charitable Gift Annuity may begin immediately (charitable gift annuity), or at a fixed future date (deferred charitable gift annuity), or at a future date to be determined, within a range of annuity start dates (flexible charitable gift annuity). The rules for these three types of payments are similar, but the amount received under the annuity contract will vary, depending on the start date of the annuity payments.

Using a Charitable Gift Annuity technique, the donor is allowed an income tax charitable deduction for the excess of the amount of money or value of property transferred to the Foundation over the fair market value of the annuity at the time of transfer to the Foundation. A portion of each annuity payment is included in the recipient’s gross income for federal income tax purposes and a portion is excluded from gross income as a return of investment. If the annuity is funded with appreciated property, the transfer to the Foundation is treated as a bargain sale of the property for the value of the annuity, which may have capital gain implications. If there are capital gains as a result of the issuance of the annuity, the donor can generally report that gain ratably over the donor’s life expectancy. There are no federal gift tax consequences to the donor as a result of the annuity unless the donor designates someone other than himself or his spouse as the annuitant. Generally there are no federal estate tax consequences to the donor as a result of the annuity.

A donor can create a Charitable Gift Annuity during life or at death in the donor’s Will. As to a Charitable Gift Annuity created by Will, the donor’s estate will receive a federal estate tax charitable deduction for the amount transferred to the charity less the actuarial value of the annuity payments.

A Charitable Gift Annuity is a tax advantageous way for a donor to make a gift to the Foundation. The donor receives federal tax deductions, the Foundation has immediate use of the funds, and the donor, donor’s spouse or other named persons has supplemental cash flow.

As noted in previous articles, even though contributions from wealthy donors are needed, an individual donor’s contribution in excess of two percent of total contributions received by the Foundation will not qualify in satisfying the Foundation’s one-third public support test. That means that small contributions by a large number of donors are necessary to get the maximum benefit from the larger contributions of a small number of wealthy donors. Every dollar that a member coach contributes, and every dollar that is contributed because of member coaches’ active support in involving a large segment of the coaches’ community and school opens the door for maximum benefit from larger donations. The effect is circular: Member coaches raise money and awareness, and these contributions allow larger donations from a smaller group of large donors, including wealthy individuals and foundations. The result is the generation of significant revenue to the Foundation to aid the Foundation and the AFCA in achieving their goals.

Please continue to plan and conduct fundraising events in your community, such as banquets and golf tournaments. Proceeds from admissions, sales of merchandise, performance of services, or furnishing of facilities at an event are classified as “gross receipts” funds of the Foundation. Gross receipts funds should target a broad base of the community, as no single person can provide more than 1% of the Foundation’s total support through gross receipts and have it count toward maintaining the Foundation’s favorable tax status. Also, care should be taken so that no fundraising activity becomes an ongoing business, to avoid the Foundation having unrelated business taxable income (UBTI) from the activity, resulting in income taxation and possible loss of the Foundation’s tax exempt status.

Will you consider making a gift to the Foundation of through a Charitable Gift Annuity or some other Planned Giving Technique? Will you also encourage others to do this? Will you continue to plan and conduct fund raising events in your community? Remember that the Foundation needs participation from every member coach in order to meet its goals.

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“Coach George Smith is not only an influence on young people, but the influence is multiplied many times in the beliefs of the young people he helped mold into amazing human beings. George is an outstanding coach, but more importantly, he is an outstanding gentleman.” —Tina Jones, Principal of St. Thomas Aquinas High School