Executive summary

The financial advisor Elaine White is tasked with the duty of advising two couples, the
Carsons and the Bradleys, about their best charitable vehicle to use and related tax strategies.
The first couple is an upper-middle class family with a total income of $295,000 with
moderate amount of deductions. This year, they are planning to make a significantly larger
donation of $15,000 compared to their previous years. Conversely, they could also invest the
extra income and continue to make their typical annual donations. Moreover, they would like
to learn more about charitable vehicles which would allow them to receive a tax deduction
while delaying distribution decisions until a later date. Hence, White should recommend the
Carsons to utilize Donor-Advised Funds. This is because firstly, it is a public charity, which
entitles the Carsons to deduct the full amount of his donation up to 50% of their Adjusted
Gross Income. Secondly, Carsons will have the ability to recommend the distributions,
recipients and investments of the said funds.
The Bradleys meanwhile are a wealthy couple with substantial assets, a more complex tax
situation, appreciated stocks to sell and a desire to control the timing and recipients of their
charitable contributions. They are also interested in charitable vehicles which allow them to
delay deciding which charity would be primary recipient of their $3 million donation. For this
case, White should advise the Bradleys to donate their appreciated restricted stocks to a
Charitable Remainder Trust directly as to prevent paying taxes on the realized gain on the
sale of stocks and a deduction could also be taken for the appreciated value of the stocks.
Besides, the Bradleys are best advised to set up a Life Insurance Trust. This is because the
proceeds of your life insurance policy are removed from their estate and become free of
estate taxes.

Introduction
The issue faced in the case is the determination of the best tax strategy for the Carsons and
the Bradleys, in particular, the best charitable vehicle to use so as to maximize tax
deductions.
Anne and William Carson are an upper-middle class family earning a total income of
$295,000 annually. They are planning to make a charitable donation of $15,000 which also
allows them to receive a tax deduction this year but delay distribution decisions until a later
date. For their case, they are faced with two options.
Firstly, there are the Pooled Income Funds, which are created to replicate the benefits created
by a Charitable Remainder Trust. The funds are sponsored and maintained by a non-profited
organization, which then pool the assets of many individuals and invest them. Each donor
has the right to name one or more beneficiaries to receive an annual income stream in
proportion to the size of the donors contribution to the Fund. After the death of the last
living beneficiary, his prorated portion will be removed from the fund and given to the
sponsoring charity. The donor is allowed to deduct the present value of the projected
charitable contribution.
Secondly, the Carsons can also choose to use Donor-Advised Funds (DAFs), which sought to
replicate Private Foundations. By donating to DAF, a donor loses all ownership of the
donation, but maintains the ability to recommend the distributions, recipients and investment
of said funds. DAF is a public charity, which entitles the donor to deduct the full amount of
his donation, up to 50% of his Adjusted Gross Income (AGI) and 30% of AGI for capital gain
property.
On the other hand, Mary and Jack Bradley are a wealthy couple with multi-million dollar
assets, namely in securities, properties and cash. The couple is deciding whether to sell
restricted stock that Jack received from his company and donate the proceeds or to donate the
stock to charity directly. Moreover, they are planning a $3 million donation to a charitable
vehicle that could delay deciding which charity would be the primary recipient and provide
an income stream for their daughter. There are several options that are available for the
Bradleys.
For a start, they can consider the option of creating a Private Foundation, which allows an
individual to enjoy a deduction immediately but to distribute funds over time, rather than

making a single lump-sum payment. However, Private Foundations themselves face excise
tax based on investment income, taxes on self-dealing, taxes on failure to distribute income,
taxes on excess business holdings and taxes on investments which jeopardize charitable
purpose.
The next alternative is the Charitable Remainder Trust (CRT). It provides a dependable
lifetime income for family members as well as future support for a specific charitable
organization. The recipient(s) of the remainder trust, which cannot be revoked, is first chosen
from the 501(c)(3) organizations. The remainder of the trust will be distributed to them after
the expiration of the trust. Next, the donor has to choose the term of the trust and how the
trusts annual income will be distributed to the trusts non-charity beneficiary. When a donor
created a CRT, he or she is entitled to a charitable deduction equal to the present value of the
remainder that would be given to charity.
The other choice would be the Charitable Lead Trust, which provides annual donations to one
or more charities and unlike CRTs, are not forced to name a specific charitable recipient in
the trust instrument. Only the non-charitable beneficiary who would receive the remainder is
named. While the donor would not receive a charitable deduction for CLTs, the trusts taxable
income would be reduced each year by its charitable contributions. The main reason of the
creation of the Trust would be if it is believed that the actual return of the trust would exceed
the IRS-published interest rate.
Finally, theres also the Life Insurance Trust. A life insurance trust is an irrevocable, nonamendable trust which is both the owner and beneficiary of one or more life insurance
policies. Upon the death of the insured, the Trustee invests the insurance proceeds and
administers the trust for one or more beneficiaries. If the trust owns insurance on the life of a
married person, the non-insured spouse and children are often beneficiaries of the insurance
trust. If the trust owns "second to die" or survivorship insurance which only pays when both
spouses are deceased, only the children would be beneficiaries of the insurance trust.

Conclusion
There are many charitable vehicles for U.S. citizens to utilize for getting tax deductions while
doing some charity at the same time. Each charitable vehicle has its own advantages and
disadvantages. For one to maximize his tax savings, he must do his own research and tax
calculations while taking into account the time value of money, namely the present value of
future contributions.
From our calculations, we find that it is best for the Carsons to choose Donor-Advised
Funds over Pooled Income Fund as DAFs provide more benefits for the Carsons over the
latter. The Carsons will find that DAFs are typically easy to set up, require minimal
administrative tasks, accept many different types of assets, offer one way to maximize
charitable deductions and finally can be an effective vehicle for involving the next
generation. For the case, Carson is allowed to make a deduction in excess of $55,000.
However, the donation desired by him is only $15,000. Therefore he is eligible for a full tax
deduction which is $15,000.
Meanwhile, for the Bradleys, it is wise for them to donate their restricted shares
directly to a Charitable Remainder Trust as the trust provide the most benefits and to avoid
paying the 23.9% capital gains tax if they sell them. Next, the Bradleys should utilize Life
Insurance Trust for their $3 million donation. The advantages for the trust include provides
immediate cash to pay estate taxes and other expenses after death, reduces estate taxes by
removing insurance from estate, inexpensive way to pay estate taxes, proceeds avoid probate
and are free from income and estate taxes, gives maximum control over insurance policy and
how proceeds are used, provide income to spouse without insurance proceeds being included
in spouse's estate and prevents court from controlling insurance proceeds if beneficiary is
incapacitated.