WRITING A MEMO FOR CASE STUDY ANALYSIS

PlMemo

To: The Boss

From: Elaine White

Date: April 17, 2015

Re: Choosing a Charitable Vehicle

Summary

This Memo provides advice to help aide the families of Anne and William Carson and that of Mary and Jack Bradley who hope to make contributions to charity, as a result they need to know which charitable vehicle offers the best option based on their situation. The Memo will analyse the cases of the family of Anne and William Carson and that of Mary and Jack Bradley  and through making  use of existing charities and guiding principles regarding taxation deductions when one is  giving out to charities based on IRS and Federal Laws the memo will recommend the best charitable for each family to make use of in their quest to give out to charity, this will be achieved  after the analysis of what each charitable vehicle offers to the different families based on their financial situation and future prospects and needs .

case-study-memo

Summary:  Summarize the entire memo highlights major points to consider Outline Options or Considerations

Background

The first case involves Anne and William Carson who are clients of the company that Elaine White works for. They make up the upper middle class in terms of their financial situation with Anne who is an Engineer earning an annual wage of $125,000 while William on the other hand who works as a freelance writer on a normal year would make around $60,000 ,But in the year 2013 he managed to earn an annual income of $170,000. Based on this figures the Carson’s are in the 33% tax bracket and they are open to claim up to $50,000 in deductions.

The Carson hope to put some of their extra income into their savings while give part of it to charity, normally they would give between $1000 and $2000 to charity but this year they wanted to increase the amount to around $15,000.Based on this they want to know what option is best for them regarding investing their extra income or give to charity and in giving to charity what option should they go for.

On the second case which involved the family of Mary and Jack Bradley who after a successful and long careers had an estate worth $50 million which comprised $40 million in bonds and stocks, a number of properties totalling $7.5 million this added to $2.5 million in cash. In the year 2013 they made around $10 million. Their total deductions that year amounted to $1,200,000 this added to $500,000 they donated to charities. Based on their income their deductions was limited on some quarters leading to the total deduction totalling $909,000.Jack in addition wanted to sell some of restricted stock that he had that was valued at $1 million but would sell for $3 million. The Bradleys’ were taxed at a rate of 39.6% while their capital gains tax was set at 23.8%.

case-study-memo

The Bradleys’ who are about to turn 60 want to dispose their estate. In addition to donating around $3 million to charity that works on research concerning cancer. Based on this they want to know what options they have. In terms of charities to give they cannot agree on any one as each has their own interest at heart and in donating to charity they seek to donate to that which can ensure their daughter and her family will be able to benefit in the future.

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Body

Options for Anne and William Carson

The family of Anne and William Carson being upper middle class based on their financial situation have the following options they can pursue; (a) pooled income funds which was created so as to benefit upper middle class individuals the same way charitable remainder trust benefits higher net worth individuals.(b) Donor Advised Funds works like private foundations that people with high net worth uses to give to charities they have as their managers trustee organizations who give grants to other charities ,that are at times  informed by recommendations from the donors.

Anne and William can make use of the two charitable vehicles that are tailored for upper middle class individuals that is the pooled income funds and the donor advised funds. In the event they use the pooled income fund they can put the money they want into the fund and every year they in addition to their beneficiaries can get some income from it until the time they exhaust the money and in the event that upon the demise of the donors that is Anne and William Carson or their named beneficiaries and there is still some money in the trust the money is then absorbed by the fund and given to charity.

On the other hand if they decide to opt for Donor Advised Funds they stand to benefit from deductions that amount to their total contribution provided it is not more than 50% of their Annual Gross Income (AGI) or 30% of the AGI for capital gained when property is liquidated. In addition the Donor Advised Funds does not have any annual distribution requirement.

Decision for Anne and William Carson

From the case of Anne and William Carson they are seeking a charitable vehicle that will allow them tax deduction this year but will delay the distribution decisions until a later date. The best charitable vehicle that meets this need is the Donor Advised Funds as in donating to such a fund a donor can get deductions that amount to their total contribution that they have contributed provided that the deduction is not more than 50% of their Annual Gross Income.

As such with Anne and William Carson ready to donate $15,000 they can get the same amount in terms of deductions as it does not go beyond the 50% of their Annual Gross Income and they are open to make the decision of distributing the money to charity at a different date but the deductions they get it upon making the donation to a Donor Advised Fund.

Options for Mary and Jack Bradley 

From the case of Mary and Jack Bradley they ranks as high net worth individuals and as a such they have the following options as their charitable vehicles; (a) Public charities are those organization that receive more than one third of their income from public sources while (b) private foundations less than one third of their income is from public sources, public charities and private foundations have some advantages and disadvantages ,in donating to public charities one can get deductions as long as it is within a limit that is not more than 50% of their gross income in the event one donates $5 million he can get $5 million in deductions as long as their earnings is more than $10 million where by the donation would not lead to a deduction that is 50% of what they make annually ,in addition to the advantages of these vehicles there are disadvantages a such as different taxes like excise taxes that are slapped on some of the income gained by these organizations ,another disadvantage is that upon donating to these organizations accessing the money is limited as the charities will own the control of the money. Hence the option offered by   (c) split interest trusts which consists of two types that is the (i) charitable remainder trust where a donor choses a single or more 501(c)(3) organizations who are to receive what remains of a given trust ,the donor is required to have one or more beneficiaries. The trust typically expires upon the death of the donor or the named beneficiaries with the remainder being absorbed by the charity in this arrangement the name of the charity to benefit is duly named by the donor. (ii) Charitable lead trust on the other hand provides an annual donation to a single or more charities though there is no specific set of charity named but the eventual beneficiary upon the expiry of the trust is named.

Decision for Mary and Jack Bradley 

From the different charitable vehicles that Mary and Jack Bradley can use the best options to go for is the split interest trusts. Considering their case Mary and Jack Bradley who want to dispose of their estate and in addition donate money to charity that amounts to $3 million. Their estate that they can dispose is valued at $40 million which comprises of bonds and stocks in addition to the $1 million that Jack has as shares. In the event they dispose this they will pay taxes on income gains that amounts to $10,234,000 in the event they donate this to a charitable remainder trust they will get to keep bulk of their money with the remainder going to charity upon their death or the death of the named beneficiaries in this case their daughter.

Since they have different choices regarding what charities to give this option will help them dispose of their assets without paying a lot to the state which in capital gains tax would lead to more than $10 million, in this option they can set the trust over a given period that would pay them and their daughter some money annually until the time that the they die or their daughter dies. This option will help them ensure the wellbeing of their daughter in the event that her cancer comes back and in addition they will be giving out to different charities that they feel passionate about upon the expiry of the trust agreement.

There is also some $3 million that they want to donate to charity this can be channelled through using the charitable lead trust which give one or more charities annual donations and when the trust period expires the money can be given to a named beneficiary this will also help them give to the different course that they are passionate about and in addition leave their daughter with some money that can help in benefiting her and her family.

Conclusion

From the above case the advice I would give to Anne and William Carson is to make use of the donor advised funds as this will allow them to have deductions on their taxes  that amount to what they put in the charity provided that it is not amounting to 50% of what they make as the annual gross income from the case in that year they made a total of $295,000 less deductions of $50,000 this leaves them with $245,000 to be taxed  and if they give $15,000 to charity their deduction will go up by the same amount leading to the money that will be taxed being around $230,000 in so doing they will have some extra money that they will save while at the same time they will have contributed to the charities that they are passionate about ,and the decision to make the deductions in the case of a donor advised fund is not immediate one can take time to do so this meets their needs regarding the charity vehicle to take.

On the case of Mary and Jack Bradley the best options is going for Split  interest trusts which have much benefits compared to opting for either public charities and private foundations. In disposing their assets they are supposed to pay capital gains tax but if they put that money to a charitable remainder trust they will get to keep much of their money gained from disposing the assets while the remaining money upon the expiry of the trust goes to charities of their choice in the period of the trust they will get annual income alongside other beneficiaries of theirs this will ensure that they enjoy much of their wealth. And with the $3 million they want to put to charity they can make use of the charitable lead trust to give to various charities of their choice and this option will also give a named beneficiary some money upon the expiry of the trust period in both options the Bradleys’ will ensure their financial security and that of their daughter while at the same time giving to different charities that they are passionate about.