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Trust Division Won't Prevent Resulting Trusts From Qualifying as Charitable Remainder Trusts - 6/20/05
A married couple created a charitable remainder trust naming themselves as the sole joint and survivor income recipients. "For a variety of reasons" (which didn't include the divorce) the couple would now like to divide their trust into two identical trusts with each spouse being the sole income recipient of their respective trust. The Service has ruled that the proposed division of one trust into separate trusts will not cause either of the resulting trusts to fail to qualify as charitable remainder trusts under section 664 or cause gain or loss to be recognized by the husband and wife who set up the original trust under section 1001.
Planned Giving Design Center - Ltr. Rul. 200524013

Greenspan Wary of Risky Mortgages - 6/10/2005 Washington Post
Price Peaks Built on 'Exotic' Loans Trouble Fed Chairman
Federal Reserve Chairman Alan Greenspan yesterday expressed concern that the growing use of riskier new mortgages is helping push up home prices to "unsustainable levels" in some local markets. Home prices in some areas of the country may fall when the market cools, but that probably would not cause serious harm to the overall U.S. economy, he told Congress's Joint Economic Committee. The economy continues to expand at a decent if uneven pace, Greenspan said, indicating that the Fed probably will continue to raise short-term interest rates gradually to keep inflation under control

Reynolds Announces Bill to Allow Larger Charitable Deductions - 6/7/2005
In a June 7 release, House Ways and Means Committee member Thomas M. Reynolds, R-N.Y., announced his intention to introduce a bill, the Art and Collectibles Capital Gains Tax Treatment Parity Act, that would increase deductions for charitably donating art and would lower the capital gains tax rate for art.

Attention Shifts Toward Simplification of Tax Code - 6/9/2005 Washington Post
With progress on Social Security slowing to a crawl, the House Ways and Means Committee turned its attention to the subject considered to be committee Chairman Bill Thomas's true passion: an overhaul of the tax code. Thomas (R-Calif.) gave only subtle hints of his intentions at the first hearing on comprehensive tax changes in a decade. For instance, he spoke favorably about testimony that described a flat tax as potentially progressive and little different in economic effect from a value-added tax. Value-added taxes -- widely in use in Europe -- levy sales taxes on each level of a product's production.
Economic policymakers were intrigued less by the contents of the hearing than the fact that Thomas held it. President Bush's Advisory Panel on Federal Tax Reform is not due to release its recommendations until July 31, and White House officials are expected to put those recommendations on the back burner until Congress finishes with a Social Security overhaul.
Congressional Democrats have also suggested they could get behind Thomas on a push to dramatically simplify the tax code. Rep. Rahm Emanuel (D-Ill.), chairman of the Democratic Congressional Campaign Committee, proposed collapsing five existing educational tax breaks into a single, $3,000 tuition tax credit; unifying the earned-income credit, the child credit and the dependent-care tax credit; and drafting a single pension plan out of the 16 different tax incentives that now encourage retirement savings.

ACGA Requests IRS Withdraw Rev. Proc. 2005-24 - 6/8/05 Planned Giving Design Center
The American Council on Gift Annuities has written to Treasury and the IRS asking them to withdraw Rev. Proc. 2005-24 (requiring waivers of spousal rights of election against inter vivos CRUTs and CRATs) for further study. Unless its requirements are met for CRTs created on or after June 28, 2005, inter vivos CRUTs and CRATs are disqualified-retroactively to the date of creation-if a spousal right of election now exists under state law, exists in the future, exists if the grantor of a CRUT or CRAT moves, marries or remarries.
But spousal rights of election are rarely exercised. Thus waivers shouldn't be required regardless of when a CRT is created. In the rare case that a right of election is exercised, the government should be protected and we give our suggestions for accomplishing that later in this letter. The ACGA has made the following suggestions to the IRS: Treat CRATs and CRUTs whenever they were or will be created, the way Rev. Proc. 2005-24 treats pre-June 28, 2005 trusts. Thus no waiver of the right of election should ever be required.
In the rare case that a right of election is exercised, the estate should, on the grantor's final income tax return, be required to include as income any income tax charitable deduction taken by the grantor when the grantor created the trust (the tax benefit rule). In the rare case that the right of election is exercised, the estate tax charitable deduction should be reduced. It should only be allowed to the grantor's estate for the value of the assets that actually go to the charitable remainder organization at the grantor's death. Thus the deduction would be reduced by the value of the assets going to the spouse. If at the grantor's death, trust payments are to continue for the life of a successor recipient(s) before the charity gets its remainder interest, the estate tax charitable deduction should be reduced to take into account the amount that went to the spouse from the CRT at the grantor's death.

Donating The Use Of Real Property
When considering making a charitable gift, most people think in terms of donating of cash, securities, or other property. However, a gift of the "use of" real or tangible property can be just as valuable to the charitable donee.
For example, Dr. Ben Walters purchased some vacant land adjacent to the hospital campus where he worked and he then built a three-story medical office building. In addition to housing his own practice, the balance of the building is rented to other physicians, a pharmacy, and a medical lab.
Dr. Walters has decided to retire after a successful career and is appreciative of the hospital and his community and has decided he would like to give something back. The hospital is expanding its "Healthy Beginnings" pre-natal education program and is looking for space for its staff and to conduct classes. Dr. Walters will execute a five-year lease of his former medical suite to the hospital for the sum of $1 per year. The hospital will be responsible for any tenant improvements and for utilities just as the building's other tenants. At the end of the five-year term, the hospital and Dr. Walters will assess the program and the hospital's needs, at which time he may renew the lease.
Unlike gifts of cash or property, the Internal Revenue Code does not allow a charitable income tax deduction for donations of the rent-free use of property. The reason is that such gifts represent a gift of other than the donor's entire interest in the property. To allow a deduction would be to allow a double tax benefit: a charitable deduction and avoidance of recognition of rental income.
The hospital, however, doesn't consider this donation an "un-gift" at all. For donor recognition purposes, the hospital plans to recognize Dr. and Mrs. Walters for the fair market value of their contribution because, to the hospital, this significant donation is just as valuable as cash!
Other examples cited include rent-free use residential real property to charity; a free loan of artwork to a museum; and the rent-free use of automobiles to an educational organization for use in driver education programs.
www.pgdc.org

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Help is on the Way for Mutual Fund Investors-in the Form of Lower Fees
Over the past year or so, hundreds of mutual funds, big and small, have moved to cut the fees they charge shareholders. Among them have been the three largest mutual fund companies: Vanguard Group, American Funds and Fidelity Investments. The price war means investors now have more low-cost options, giving them a chance to find better prices when looking for comparable funds.
Many investors don't think twice about the fees charged by their mutual funds, but in doing so, they are ignoring a critical van-able for determining how well they'll do on their investment. Fund expenses-which are expressed as an annual percentage of assets known as the expense ratio-are deducted directly from fund assets and essentially come out of investors' pockets. The higher the expenses, the less money returned to investors. In fact, a recent report on fund fees by mutual fund researcher Morningstar Inc. said that expense ratios "are the best predictor of performance-way better than historical returns."
Critics of the mutual fund industry say it's about time fees started to come down. Morningstar's Russel Kinnel says its study found that between 1989 and 2004 the average expense ratio for mutual funds aimed at individual investors edged up to 0.96% from 0.94%, once the data are adjusted to account for where investors have the most money. Though small, the increase is striking, Morningstar says. The reason: As a fund's assets increase, the cost of managing that money doesn't grow as fast, an effect called "economies of scale." And during the 15-year period in question, the amount of money invested in mutual funds soared to $6.2 trillion from $550 billion.
Wall Street Journal Sunday 5/8/05

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Passage of Major Charitable Reforms by Memorial Day?
According to Capitol Hill staff, Sen. Chuck Grassley (R-Iowa), chair of the Senate Finance Committee, is seeking to have his charitable reform measures passed by Memorial Day. These measures likely will include:

• changes to the noncash gift deduction rules, dramatically limiting the deduction a donor could take;
• the implementation of a federal accreditation program;
• the creation of Form 990 filing fees to be imposed on charities;
• state enforcement of federal laws that likely would result in 50 different interpretations;
• restrictions on the size of boards; and
• a requirement compelling charities to submit extensive and detailed information justifying their tax-exempt status to the IRS every five years.

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