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A “Need to Know” Glossary for all Medical Professionals

Staff Writer’s

For most medial professional’s, charitable giving can either be a financial planning goal or an economic tool to achieve other goals more effectively.   

When charitable giving is viewed as a financial goal it becomes a very personal matter to the physician, much like an individual’s other lifestyle choices. 

For some doctors, charitable giving is a way of showing gratitude for their well-being. For others, it is a matter of social status. Still some physicians approach charitable giving as a discipline of their religious or philosophical view of life.  

Nevertheless, various charitable giving techniques are available to meet a physician’s unique financial planning requirements. These techniques generally fall into two broad categories: current gifts and planned or deferred gifts.  

Current gifts are rather simple techniques that can be completed at or near the current moment.

Planned or deferred gifts are generally complicated transactions that are to be completed in the future. 

Use of a particular charitable giving technique will depend largely on the doctor’s capacity to understand and evaluate complex alternatives – strength of donative intent – as well as his/her current and future cash flow needs, types of assets owned, strength of charitable intent, and income and estate tax considerations.

Glossary of Terms

5% probability rule: In general, charitable income tax deductions are disallowed when there is greater than a 5% chance that a noncharitable beneficiary will live long enough to exhaust the charity’s remainder interest. Charitable remainder unitrusts are exempt from this rule [Rev. Rul. 77-374]. 

Bargain sale: A sale of property to a charity for less than the property’s fair market value [Regs. §1.1011.2].

Charitable gift annuity: An arrangement under which a donor makes a gift to a charity in exchange for systematic payments of income for a period of time [Regs. §1.170A-1(d)]. 

Charitable income trust: A trust created by a donor doctor that provides for income payments to a charity for a period of time, after which the remainder is paid to a non-charitable beneficiary. Payments to the charity are limited to the amount of income earned by the trust [Rev. Rul. 79-223]. 

Charitable lead trust: A trust created by a donor that provides for payments to a charity for a period of time, after which the remainder is paid to a non-charitable beneficiary. Payments to the charity are either a fixed amount annually or a fixed percentage of the value of assets in the trust at the beginning of each year. Payments are not limited to the amount of income earned by the trust [IRC §664(a)]. 

Charitable remainder trust: A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed amount annually. Payments are not limited to the amount of income earned by the trust [IRC §664(a)].

Charitable remainder annuity trust (CRAT): A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed amount annually. Payments are not limited to the amount of income earned by the trust [IRC §664(d)(1)].

Charitable remainder unitrust (CRUT): A trust created by a physician-donor that provides for payments to a non-charitable beneficiary for a period of time, after which the remainder is paid to a charity. Payments to the non-charitable beneficiary are a fixed percentage of the value of assets in the trust at either the beginning or the end of each year, depending on the trust agreement. Payments are not limited to the amount of income earned by the trust [IRC §664(d)(2)].

Donative intent: The inclination of a physician-donor to make a gratuitous gift to charity.

Income in respect of a decedent: Amount due and payable to a decedent at his or her death because of some right to income. Examples of income in respect of a decedent include salaries, retirement benefits, annuity payments, interest, dividends, rents, and deferred gain on an installment contract, earned but not received by the decedent before his or her death [IRC §691(c)(2)].

Insubstantial rights: Rights to the use of donated property that is retained by a physician-donor when the retained rights do not interfere with the donee-charity’s unrestricted use or full ownership of the donated property [George v. U.S. 11/30/61, DC-MI]. 

Pooled income fund: A fund that commingles property gifted by several donors, where each donor designates a non-charitable person to receive income for life and a charity to receive the remainder interest [Regs. §1.642(c)-5].

Private foundation: A tax-exempt organization under IRC §501(c)(3) that does not enjoy a broad base of public support [IRC §§508, 509].

Public Charity: A tax-exempt organization under IRC §501(c)(3) that enjoys a broad base of public support [IRC §509(a)(2)].

Qualified appreciated stock: Stock for which a market price quotation is readily available and that would generate a capital gain if sold [IRC §170(e)(5)].

Qualified charity: An organization described in IRC §170(c). Gifts to these organizations can be deducted by donors for income, gift, or estate tax purposes. 

Qualified conservation contributions: A restriction on the use of real property, a remainder interest in real property, or a physician-donor’s entire interest in real property that is given to a qualified charity for conservation purposes [IRC §170(f)(3)(A)].

Quid pro quo: The expectation by a physician-donor that he or she will receive a bargained-for benefit in exchange for a gift to a charity [Rev. Rul. 76-185].

Reduction rules: Exceptions to the general rule that gifts to charity are deductible to the extent of the fair market value of the donated property [IRC §170(e)(1)(A)].

Supporting Organizations: A tax-exempt entity that is established by an individual or small group of donors for the purpose of supporting a public charity.

Remainder interests: Property rights that can be enjoyed only after prior rights have terminated. 

Undivided interests: Rights that joint owners share in the entirety of a property as opposed to rights they enjoy to segregated pieces of a property. 

For related information: www.HealthDictionarySeries.com 

Additional info: http://www.jbpub.com/catalog/0763745790/

Note: Feel free to send in your own related terms and definitions so that this section may be updated continually in modern Wiki-like fashion.

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