Qualified Appraisals

Giving up the life interest or lead trust remainder interest in an existing planned gift can be a great gift to charity earning the donor an additional charitable deduction. The IRS requires a qualified appraisal for non-cash, non-publicly-traded-property gifts where the charitable deduction is over $5,000. Even though the planned gift was originally made with or may now be invested in cash or publicly traded securities for which no appraisal would be required for a new planned gift, the life interest or lead trust remainder interest in an existing planned gift is not itself a publicly traded security. Failure to obtain a qualified appraisal and attach an IRS Form 8283 appraisal summary to the tax return claiming the charitable deduction can result in denial of the deduction.

There are some situations where we can provide a qualified appraisal of a remainder interest for an initial gift where opinions differ as to whether one is required. We’ve gotten several requests to value the charitable remainder interest for newly established retained life estates - see Q4 about also getting a real estate appraisal, which will be needed at a minimum. Some practitioners advise their clients to get an appraisal of the charitable remainder interest when a charitable remainder trust or pooled income fund gift is established - see Appraisals for Gifts of Remainder Interests to CRTs and PIFs for a discussion of the issues involved.

The appraisal package from PG Calc will include an appraisal letter, a Non-Charitable-Interest Actuarials chart, an IRS Form 8283 completed and signed by PG Calc, a Deduction for Gift Annuity Termination chart, for a charitable gift annuity, and an Applicable Mid-Term Rate Election statement, if the IRS discount rate for one of the two months prior to the date of termination is being elected.

You should allow 5 to 7 business days from when we receive the complete documentation, and we’ll let you know at the time of receipt if it might take longer due to scheduling issues. If you are running up against the April 15 tax filing deadline, you should consider putting your tax return on extension.

Unlike a real estate gift, where it is common to get the appraisal before making the gift, we ordinarily perform the appraisal only after the planned gift has been assigned or terminated, as we want to review the complete documentation including final values in making the appraisal. We do need all documentation before we begin work.

If you are still considering whether to assign or terminate the planned gift in favor of the charity and want a preliminary calculation as to what the life interest or lead trust remainder value would be, which can be useful in determining whether deduction is over the $5,000 threshold and for other planning decisions, we are happy to provide that to appraisal clients by phone or email. Often the charity can perform that calculation for you.

No. If the planned gift being assigned or terminated involves real estate (such as a home or farm in a retained life estate), life insurance contracts, closely-held business interests, or non-publicly-traded securities that need to be appraised, you will need to find an appraiser qualified to value that type of property. If the appraiser is not qualified in also appraising the life interest or lead trust remainder interest, you may still want to engage PG Calc for that part. In that case, you will need to give consideration as to which appraiser or both will sign the Form 8283 and provide PG Calc the other appraisal.

Your gift is not the full amount in the trust or fund or otherwise held at the charitable organization, but rather the value of the life interest (or lead trust remainder interest) you are transferring to the charity as part of the assignment or termination. This value will be a percentage of the full value determined using actuarial formulas pursuant to IRS regulations.

For a charitable gift annuity, it is our interpretation that the charitable deduction on termination is limited to the lesser of the appraised value of the life estate or the unrecovered tax-free portion of the investment in contract plus unreported long term capital gain. The appraisal will be prepared on that basis unless otherwise requested.

For a pooled income fund, the highest rate of return for the last 3 years determined under the IRS regulations is used to perform the valuation. For other gift types, in the absence of instructions otherwise, PG Calc will use the IRS discount rate for the month of termination or the two prior months that produces the highest appraised value.

For a gift annuity, we will enter your unrecovered investment in contract as provided by you or determined from the Deduction for Gift Annuity Termination chart.

For a charitable remainder trust, pooled income fund, or retained life estate, unless you inform us otherwise, we will assume the cost basis is $0 pursuant to section 1001(e)(1) of the Internal Revenue Code regarding the determination of gain or loss from the sale or other disposition of a term interest in property.

PG Calc will prepare Form 8283 Section B Part I, Information on Donated Property and will sign Section B Part III, Declaration of Appraiser. The donee charitable organization will also need to sign Section B Part IV, Donee Acknowledgment. The donor will need to obtain that signature, but if that has been arranged with the correct contact person at the charitable organization, we can send the Form 8283 directly to the charitable organization with a request they sign and forward to the donor.

Yes, a competent tax preparer can be essential to securing the full tax benefits of your charitable deduction. In addition to the Form 8283, the charitable deduction itself is claimed on Form 1040 Schedule A, on the line for gifts to charity other than by cash or check. There are decisions such as what forms, statements, and other documents to include with your return and how to complete them, how to apply the AGI percentage limitations, how to determine or apply potential carryovers into future years or from past years, and whether you can file electronically using Form 8453 to mail the Form 8283 and related documents, or should file on paper.

No. The Form 8283 requires the donor taxpayer identification number but, for privacy and security reasons, we would prefer the donor or donors enter that number themselves after they receive the Form 8283 from us. It should also be entered on the Applicable Mid-Term Rate Election statement, if needed to elect the IRS discount rate for one of the two months prior to the date of termination.

IRS regulations require use of special factors if one of the individuals whose life measures the life interest is subject to a terminal illness, defined as being known to have an incurable illness or other deteriorating physical condition where there is at least a 50% probability that the individual will die within 1 year. There is a presumption of no terminal illness if the individual survives for 18 months or longer from the transaction date. But, if the individual dies during that 18 month period, that might give the IRS grounds for a substantial reduction of the charitable deduction by application of a special factor. Best practice, particularly for large gifts, would be to obtain a letter or affidavit from a doctor for each measuring life as to the individual’s good health. While relative good health not subject to terminal illness might be established in the event of a later IRS dispute by other documentary evidence, such a letter or affidavit may easy to obtain at the time of the transaction but hard or impossible to obtain later if in the intervening time a person has passed away due to the complications of a preexisting medical condition. If such documentation is obtained and provided to PG Calc for review, it can be considered in the appraisal letter. Please consult your tax advisor concerning what documentation should be obtained in your situation.

As charitable deduction property reported on Form 8283 Section B, the charity must file Form 8282 if it is disposed of within 3 years. For a gift annuity termination, the charitable deduction property is the contract right to receive the annuity payments which is extinguished as a liability by the termination, so it does not seem possible to have a subsequent disposition for which a Form 8282 would need to be filed. For a charitable remainder trust or pooled income fund termination, the income interest being given merges with the charitable remainder interest the charity already owns, and the Form 8282 would be filed when the trust is distributed to the charity. For surrender of a retained life estate in a home or farm to charity, the Form 8282 would be filed when the home or farm is sold. A Form 8282 is not required if the subsequent disposition is after 3 years.

Some charities pay the appraisal fee as a fundraising cost incident to the gift, not unlike other costs that a charity might incur for document preparation, legal or accounting assistance, or gift administration. Others feel the appraisal fee is a tax preparation expense that should be borne by the donor.

Most charities do not pay for appraisals of real estate, life insurance, artwork, or other property. What distinguishes an appraisal for the early termination of a planned gift is that the charity also has an interest in the property being given such as a liability for ongoing annual payments and/or the remainder value of a trust or retained life estate, it is harder for a donor to find an appraiser for this type of gift on his or her own, and a charity may worry that a donor failing to get an appraisal and losing the charitable deduction may have an adverse reputational effect on the charity’s planned giving program.

If the charity pays the appraisal fee, there is no IRS guidance directly on point as to the treatment of appraisal fees under the quid pro quo rules. Disclosure on the contemporaneous written acknowledgement is required if the charity provided any goods or services in whole or partial consideration for the donation. Unlike the more typical quid pro quo situations, a donor isn’t making the gift in order to get an appraisal, so in that sense the appraisal is not being provided in exchange or in return for the donation, but the IRS could argue otherwise. A middle ground is for the charity to disclose what it paid for the appraisal on the gift acknowledgement, and leave it up to the donor’s tax advisor whether that should reduce the amount of the charitable deduction claimed.

If multiple charities are receiving a portion of the termination, the extra charge is $50 per additional Form 8283.

For multiple gift annuity contracts, where the name and number of annuitants are the same and can be appraised as a combined annuity payment, the fee is $350 for the first contract and a discounted $50 each for the second and subsequent contracts. For other gift types, where separate appraisals are needed for the same set of beneficiaries, the appraisal fee would be $500 for the first appraisal and $300 (a 40% discount ) for the second and subsequent appraisals. Separate appraisals can be needed if terminating the separate interests of divorced spouses, spouses filing separately rather than jointly, or children or other non-spouse beneficiaries.

For trust terminations, if the trustee is not able to provide a statement of financial account balances or holdings showing account totals as of the assignment or termination date, there would be an added fee for analysis or reconstruction of financial account statements.

In accordance with IRS regulations, our fee is not based on the appraised value, and it takes roughly the same amount of work to do an appraisal for a $6,000 life interest as a $60,000 life interest. For a gift between $5,000 and $10,000, you might consider making a gift of an undivided 50% of your life interest in the current tax year and the remaining 50% in January of the next taxable year. If the two gifts in separate tax years are each $5,000 or less, a qualified appraisal and Form 8283 Section B may not be required and instead Form 8283 Section A can be used. In making that decision, you should consider legal and tax preparation costs associated with splitting the gift between taxable years, your overall tax situation, and the potential change in value from year to year.

While a qualified appraisal and IRS Form 8283 is not needed if no charitable deduction is being claimed, and you can calculate the values yourself if you have our PGM software, to assure the charitable and noncharitable beneficiaries that the cashout is fair, you may want a third-party valuation from PG Calc.

This raises a question as to whether a charitable deduction can be claimed for the value of the survivorship interest, or just for the primary life interest. Having the donor disclaim the right to revoke before the termination may help support a deduction for both. We recommend discussing this issue with the legal counsel drafting the termination paperwork.

Yes. These need to be tailored to the particular agreement or trust, and to the requirements of your state law, but can be a helpful starting point for the legal counsel being asked to draft the termination paperwork.