Russell James

Russell James is truly a bright light in the charitable world. Not only is he a leading researcher and thinker in the area of charitable giving, but he is one of the most generous. He repeatedly offers the fruits of his efforts to our industry, for free. We are honored to present his book, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, to our readers.

In his first chapter, Russell emphasizes the complexity of planned giving. He identifies multiple issues that contribute to this complexity, including several different tax regimes, state law, federal law, appraisals, business entities, arcane documentation requirements, and more. However, at its core, planned giving can do two things; it can lower taxes and trade a gift for income. Financial advisors and fundraisers should keep these basic principles in mind when considering what planned giving can accomplish.

Due to the plethora of possibilities for trading a gift for income, the issues quickly become cluttered. A donor seeking to reduce taxes and/or trade a gift for income could utilize a CGA, CRUT, CRAT, Flip-CRUT, NIMCRUT, NICRUT, or PIF. However, the core concepts remain the same. Each one of these vehicles allows a donor to lower taxes and trade a gift for income. The advisor or fundraiser should view these structures as options available to meet the donor's needs. In addition to meeting donors' income needs, planned giving can lower taxes. Lower taxes benefit the client since gifts are cheaper; the advisor, because it provides value to the client while maximizing the assets under management; and charity, because it makes large gifts more affordable.

Fundraisers should have a basic understanding of these gift vehicles. This may seem counterintuitive since outright, cash gifts provide instant value to the charity, while the charity may have to wait many years to fully realize the donor's gift in a planned giving arrangement. However, only a small portion of a donor's assets consists of cash. Fundraisers who shun the complexities of planned giving in favor of cash gifts are asking for money out of the smallest bucket since only a small fraction of assets consist of cash.

Planned giving is also an important tool for the financial advisor. Understanding these issues may help the financial advisor attract high net-worth clients since those clients tend to do the most charitable giving. A variety of planning techniques, such as family foundations, donor advised funds, and CRTs, allow the advisor to continue to manage the funds. Moreover, because these entities are not subject to tax, the advisor has more assets under management than if the donor sold the asset and reinvested the cash.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series" to help his readers understand Chapter 1 and the entire book.

The book, Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, is designed for fundraisers or financial advisors seeking to expand their knowledge about charitable gift planning. It addresses all of the major topics in planned giving law and taxation. Over 1,000 illustrations and images guide the reader through complex concepts in a visual and intuitive way. The knowledge comes from years of teaching Charitable Gift Planning at the graduate level. Russell James makes this topic accessible and enjoyable for the busy professional.

In the third chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James delves into several nuances and specifics on charitable giving. A fundamental issue for advisors working with charitable donors is to understand the consequences of the gift's timing. A promise to make a gift is simply an instruction to a donor's agent to make a gift. That promise can take different forms, one which allows the donor to control or retake the funds, or to a charity with instructions for it to go to a specific person, but this is still just a promise. A charitable gift is not made until the donor delivers valuable property to the charity, or the charity's agent. Even a legally enforceable pledge is not a gift until the donor fulfills it. The timing of a completed gift plays out in several important, real-life ways. For example, a donor who mails a check to charity, has made a gift when the envelope is placed in the Post Office mailbox, because USPS is considered the charity's agent. Interestingly, a private delivery service would not qualify. A donation made by credit card is effective immediately, even if the donor ultimately does not pay the balance on the credit card. On the other hand, a check which bounces is not a gift, because the check is not valuable property. While a gift to a specific person is not deductible, donors can restrict gifts to a class or category of persons.

Some types of restrictions of charitable gifts do not interfere with the charitable deduction. Under state law, donors can generally retain the right to have their donation returned if the funds are not used for the charitable purposes expressed in the gift agreement. This serves only to ensure funds are used for the organization's purposes, and is deducted just like an unrestricted gift. C-Corporations which are subject to a 10% limitation on charitable gifts, are allowed a 2.5-month lookback for gifts, if the Corporation's Board has already discussed doing so. This allows the corporation to make a gift after it has determined its net income for the year.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series," to help his readers understand Chapter 3 and the entire book.

In the fourth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James outlines how to keep credible records of all gifts. Documenting charitable gifts is an essential, although less than glamorous, area of charitable planning. A lack of proper documentation can result in a total loss of the charitable deduction even if the taxpayer does not overstate the gift. Gifts of cash under $250 only require a proof of the gift, which can come in the form of a canceled check, credit card statement, or note from the charity. For a gift of cash exceeding $250, the donor must have a note from the charity indicating the amount, and stating no goods or services were provided in return for the gift, or if any were provided, a description and value of the items. The documentation requirements are based on individual, not cumulative, gift amounts.

IRS imposes different documentation requirements for noncash gifts, depending on the size of the gift, and the potential for abuse. These procedures must be complied with strictly, or the taxpayer can lose the entire deduction, even if the valuation of the gift is correct. Gifts of property under $250 must be substantiated with a receipt from the charity with the date, donor, location, and description of the property. Additionally, the donor must have reliable records proving the property's value. For gifts of property over $500, the donor must include the information mentioned, plus Form 8283. Next, for gifts of property over $5,000, other than publicly traded securities, donors must obtain a qualified appraisal. The donor must have in their possession all the above items, and include a summary of the qualified appraisal on Form 8283. Lastly, with gifts of property over $500,000, or gifts of artwork exceeding $20,000, the donor must include the entire qualified appraisal with the return. The lower limit for artwork recognizes the difficulty in valuing artwork, and the potential for abuse.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series," to help his readers understand Chapter 4 and the entire book.

In the sixth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James focuses on the rules limiting charitable income tax deductions.

Gift planners must be able to explain the consequences of charitable income tax deductions to their donors/clients. First, they must understand the dollar value of the deduction generated by the transfer; and second, they must understand how much of the deduction can be used in the current year, or the five succeeding years. Charitable deductions cannot eliminate 100% of an individual's taxable income (because they are deductions, not credits). The total amount of income that a charitable deduction can eliminate may be 20%, 30%, or 50% in a taxable year. These limitations are important, because most persons making significant charitable gifts do not do so out of income. Many persons, holding valuable assets, especially those in or nearing retirement, do not have significant incomes, and may not be able to use the charitable deduction in the immediate tax year. Some may not have enough income to use the carryforwards over the next five years, so the value of the deduction diminishes.

The Code prioritizes gifts based on what type of asset is gifted (cash vs. appreciated assets), and the identity of the charity (public charity vs. private foundation). Cash given to a public charity can be deducted against 50% of adjusted gross income ("AGI"), while gifts of long-term capital gain property can offset up to 30% of AGI. On the other hand, the same gifts to a private foundation can offset 30% and 20% of AGI, respectively (but only if the asset is qualified appreciated stock). Cash, creations by a donor, business inventory, and short-term capital gain property are all deductible at 50% of AGI. The deduction available for these items is limited to the lower of their cost basis or fair market value.

Long-term gain property does not receive the same favorable tax treatment as cash, because the donor gets a double avoidance of tax. The donor pays no capital gains tax when transferring the asset to charity, and receives a deduction for the full fair market value. If the income limitations prevent the donor from utilizing the full deduction in the first year, it can offset income for the next five years. If the donor has made gifts from more than one class of assets, the favored gifts (i.e., cash to a public charity) are deducted first, then less favored gifts (i.e., appreciated securities to private foundation). Gifts made during the year are counted before carryforward gifts.

Mr. James has created a set of 65 videos for his "Complete Charitable Planning Training Series," to help his readers understand Chapter 6 and the entire book.

In the seventh chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James discusses the specifics of a bargain sale. Essentially, the bargain sale is the sale of an asset to a charity for less than the asset's fair market value. Another way of understanding the concept is to view it as a gift by the donor to charity, where the donor receives back money or other property. Generally, the gift is the asset's fair market value, less the amount received from the charity. A charitable gift annuity is a form of bargain sale. While the calculations are complex, the basic rules are the same, where the donor deducts the value of the asset transferred, minus the present value of the charity's obligation to make payments.

With a bargain sale involving a gift of an appreciated asset or involving encumbered property (where there is a mortgage, for example), the tax rules become more complicated. The donor receives a charitable income tax deduction but also recognizes capital gain. The Code treats the transaction as if the donor sold some of the property and gifted the rest. With a gift of appreciated property, the basis must be allocated between the sale and gift portions of the transaction, in the same proportions as the sale price and the gift relate to the fair market value. This results in capital gain recognition, but at a lower amount than if the donor sold the property, and gifted some of the proceeds. If a donor makes a gift of mortgaged property, the Code states the donor has received a payment equal to the amount of debt on the property. As with a bargain sale of an appreciated asset, the basis must be allocated between the sale and gift portion of the transaction. Typically, a taxpayer cannot avoid this result by continuing to pay the mortgage, though those payments will be treated as additional donations. Accordingly, a donor who is considering making a gift of encumbered property should consider paying off the debt first or transferring it to other assets.

Mr. James has created a set of 65 videos for his Complete Charitable Planning Training Series, to help his readers understand Chapter 7 and the entire book.

In the tenth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James explains gifts of partial interests. Donors are not allowed a deduction for a retained partial interest gift, which occurs when a donor splits up the ownership rights in property, gives some to charity, and keeps others. One example is when a donor allows a charity to rent a building at no cost. While the charity has the right to use the property, the donor retains ownership. If a donor gives the title to a vehicle or other tangible personal property to a charity but keeps the right to use it for one year, no deduction is allowed until the donor's rights expire.

Generally, the donor must give all his or her rights, or there is no deduction. There are important exceptions to the general rule, such as charitable remainder trusts, charitable lead trusts, pooled income funds, charitable gift annuities, and retained life estates. These gift vehicles are subject to extensive rules prohibiting self-dealing.

While a donor cannot divide up rights in property, keep some, and give some to charity, a donor can divide the property itself. A donor who gives an undivided fractional share of an asset is entitled to a deduction. For example, a donor who splits up a parcel of land, and gives one-half to charity while keeping the other, is entitled to an immediate deduction. The concern with a retained partial interest is not present in this scenario because the donor has no rights over the land given to charity. The undivided fractional share exception allows for creative planning. If a donor gifts a remainder interest in a residence to charity (an exception to the partial interest rule), the donor could then give the charity the right to use the residence for 11 out of 12 months. This gift is an undivided interest in all the rights the donor still owns.

If the donor makes a gift of a fractional interest undivided share in tangible personal property, the charity must obtain full ownership of the asset at the earlier of ten years or the donor's death to be entitled to a deduction. If the donor violates these rules, the deduction is recaptured as ordinary income. The donor must pay taxes on this amount, plus interest and a 10% penalty.

Mr. James has created a set of 65 videos for his Complete Charitable Planning Training Series to help his readers understand Chapter 10 and the entire book.

In the thirteenth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James explains charitable lead trusts or CLTs and the rules governing them. While CRTs pay the donor first with the remainder passing to charity, CLTs pay the charity first, with the remainder passing to the donor's selected beneficiaries. CLTs are typically used to generate estate and gift tax deductions. Though they are less common than CRTs, donors usually fund CLTs with larger amounts of the assets. Because the charity is the income beneficiary, CLTs cannot offer variations such as the NIMCRUT or Flip-CRUT. A CLT is not a tax-exempt entity, unlike a CRT.

There are two types of CLTs: the grantor CLT and the nongrantor CLT. The former allows for immediate income tax deductions, while the latter does not. Because the CLT is not a tax-exempt entity, the income tax deduction for transfers to a grantor CLT is limited to 30% of adjusted gross income, or 20% if funded with appreciated property. The grantor CLT is frequently used to accelerate deductions in situations where the donor will have an income spike, such as with the sale of an appreciated asset or a Roth IRA conversion. The negative to the grantor CLT is income earned by the trust during its existence is taxed to the donor, and there are no income tax deductions for distributions to charity. On the other hand, the nongrantor CLAT does not generate an immediate income tax deduction, but the income is taxed to the trust, and the trust is permitted to deduct distributions to charity.

The typical CLT reduces estate taxes. However, a grantor CLT can be structured for a donor to take an immediate deduction for gifts to charity, with the remainder reverting to the grantor. Because the donor is treated as the trust's owner, he or she receives an income tax deduction when the trust is created but is taxed on the trust's income. The trust's assets are owned by the donor for gift and estate tax purposes.

One variation on this design is to create a CLT combining the benefits of the grantor and nongrantor CLT, where the CLT is a grantor trust for income tax purposes but not for estate tax purposes. For example, a donor could retain the right to substitute other property for the trust's property, resulting in grantor trust treatment for income taxes, but not for gift and estate taxes. This gives the donor an immediate deduction, allows trust assets to grow more quickly because the income is taxed to the donor (not the trust), and keeps the remainder out of the donor's estate.

A grantor CLT does not have issues with unrelated business income tax, because all income is taxed to the donor. Moreover, it can hold S-Corporate shares. The nongrantor CLT cannot do so, and its distribution deduction is limited (and thus the trust may be taxed) when it distributes unrelated business taxable income to a charity.

Mr. James has created a set of 65 videos for his Complete Charitable Planning Training Series to help his readers understand Chapter 14 and the entire book.

Mr. James has created a set of 65 videos for his Complete Charitable Planning Training Series, to help his readers understand Chapter 15 and the entire book.

In the sixteenth chapter of Visual Planned Giving: An Introduction to the Law & Taxation of Charitable Gift Planning, author Russell James discusses private foundations and donor advised funds ("DAF"), which hold money and distribute grants to public charities. They allow financial advisers to receive compensation for managing private charitable wealth. Private foundations hold more assets and make more charitable distributions than other planned giving vehicles. However, DAFs are growing rapidly, due to the relative ease of opening an account, and ability to distribute funds over time.

The Code presumes charitable organizations are private foundations, unless they can show they are public charities. A charitable organization can avoid private foundation status in three primary ways:

1. It can carry out traditional charitable activities, such as operating a school, hospital, or place of worship.
2. It can receive widespread financial support, which occurs when persons who individually give 2% or less of the total support ("small donors"), make up one-third of the charity's support. This is an objective, safe harbor. More subjective rules allow a charity to meet a 10% test, if it intends to receive more public support.
3. It can receive one-third of its support from small donors, income from memberships and charitable operations.
   

Establishing a private foundation involves creating a legal entity, either as a corporation or trust, and filing Form 1023 with the IRS. Once granted, tax-exempt status is typically retroactive if the Form was filed within 27 months of the entity's formation. All private foundations require ongoing administration in the form of accounting, record keeping, state and federal tax filings, and minutes of meetings. Unlike other charitable entities, private foundations pay a tax on investment income at a 1.4% rate under the new TCJA. Typically, the foundation must distribute at least 5% of its net investment assets each year.

Deductions for gifts to private foundations are subject to lower income limitations. Instead of the 50% limit for cash contributions (now 60% under the TCJA), and the 30% limit for appreciated property, gifts to private foundations are limited to 30% and 20% of adjusted gross income, respectively. There is an exception for private "operating" foundations, which have the same income limitations as public charities. Private foundations file Form 990-PF, instead of Form 990 filed by other tax exempt entities.

Because private foundations are often controlled and funded by a single family, and not subject to the oversight of a public charity, the Code has strict rules designed to prevent insider benefits and ensure the accomplishment of charitable purposes. The Code refers to insiders as disqualified persons, and defines these individuals with broad strokes. Directors, officers, and trustees are disqualified persons, and so are donors who have given more than 2% of the foundation's total contributions in any one year. Additionally, the donor's ancestors, descendants, spouses, spouses of descendants, and any organization in which disqualified persons hold at least a 35% interest fits within this definition.

The self-dealing rules prohibit disqualified persons from selling, exchanging, leasing, transferring, or loaning money, goods, services, property, or facilities to the foundation, unless this occurs as a gift. These rules prevent even a bargain sale between the foundation and the disqualified person. Self-dealing transactions result in a 10% tax on the transaction amount for the disqualified person, and an additional 5% on the foundation manager. If the foundation does not correct the transaction within 90 days of an IRS notice, a second-tier tax of 200% on the disqualified person, and 50% on the foundation manager, applies. However, the foundation can hire a disqualified person to provide investment advice, legal, tax, accounting, banking, or administrative services, if compensation is reasonable. Moreover, the foundation can reimburse board members for the expenses of attending meetings. Private foundations also face penalties if they own too much of a corporation's stock, make overly risky investments, or make grants for non-charitable purposes, such as political campaigns.

Given the complicated rules surrounding private foundations, some donors opt for the simpler method of using a DAF. A DAF is a separate account, hosted by a public charity, from which the donor can make grant recommendations. The charity has legal control over the assets, and could choose to ignore the donor's advice. Functionally, this rarely happens if the donor recommends a valid charity, since the charity sponsoring a DAF does not want to discourage future gifts.

Mr. James has created a set of 65 videos for his Complete Charitable Planning Training Series, to help his readers understand Chapter 16 and the entire book.

The book, The Storytelling Fundraiser: The Brain, Behavioral Economics, and Fundraising Story, is the first in a series of four books created by Russell James designed to help fundraisers and financial advisors understand how to effectively fundraise. This book specifically explains the "whys" of fundraising. The knowledge comes from years of teaching Charitable Gift Planning at the graduate level. Russell James makes this topic accessible and enjoyable for the busy professional.

The book, The Epic Fundraiser: Myth, Psychology, and the Universal Hero Story in Fundraising, is the second in a series of four books created by Russell James designed to help fundraisers and financial advisors understand how to effectively fundraise. This book specifically explains how to "sell" fundraising. The knowledge comes from years of teaching Charitable Gift Planning at the graduate level. Russell James makes this topic accessible and enjoyable for the busy professional.

The book, The Primal Fundraiser: Game Theory and the Natural Origins of Effective Fundraising, is the third in a series of four books created by Russell James designed to help fundraisers and financial advisors understand how to effectively fundraise. This book specifically explores the natural origins of philanthropy. The knowledge comes from years of teaching Charitable Gift Planning at the graduate level. Russell James makes this topic accessible and enjoyable for the busy professional.

The book, The Socratic Fundraiser: Using Questions to Advance the Donor's Story, is the last in a series of four books created by Russell James designed to help fundraisers and financial advisors understand how to effectively fundraise. This book specifically directs fundraisers on what they should say and how to say it in a practical sense. The knowledge comes from years of teaching Charitable Gift Planning at the graduate level. Russell James makes this topic accessible and enjoyable for the busy professional.

Understanding the timing of final charitable bequest decisions permits nonprofits to coordinate their marketing efforts to correspond with donor-decision making. This paper explores the timing of certain decisions that have resulted in realized charitable bequests, from decisions made earlier in life to decisions made during the last five years of life.

A first-ever functional magnetic resonance imaging (fMRI) analysis of charitable bequest decision-making found increased activation of certain brain sections compared to charitable giving and volunteering decisions. This paper explains those increased activations, and how such brain activations relate to donors' autobiographical connections with charitable decision-making.

Media accounts, fund-raising periodicals, and some academic research have pointed to a coming windfall of charitable estate transfers driven by the graying of the population. This paper presents a comparison of estate gifts with the previous annual giving and volunteering of the deceased. Nonprofit managers who plan based on anticipated charitable giving estate windfalls may make inaccurate choices.