Frequently Asked Questions
Charitable Giving Law and Issues
Q: What is a charitable gift?
A: For the purposes of qualifying for a charitable deduction from U.S. income or estate tax, charitable gifts are defined by the Internal Revenue Service. The IRS attributes several characteristics to charitable gifts:
- A clear and unmistakable intention on the part of donor absolutely and irrevocably to divest himself or herself of title, dominion, and control of the property;
- The irrevocable transfer of the present legal title and dominion and control of the entire gift to the donee so that the donor can exercise no further act of dominion and control over it;
- A delivery by the donor to the donee of the gift or of the most effective means of commanding dominion over it; and
- The acceptance of the gift by the donee.
Further, to be eligible for the charitable deduction, the contribution must be made to an organization recognized as charitable by the IRS. Charitable organizations are exempt from paying tax, but not all tax-exempt organizations qualify as charitable organizations. The University of Michigan is recognized by the IRS as a charitable organization.
Q: What limitations apply for the income tax charitable deduction?
A: The amount of an individual’s deduction may be limited to 50%, 30%, or 20% of his or her adjusted gross income depending on the type of organization the donor gives to and the type of property given. Except as provided below, an individual’s deduction for gifts to the University of Michigan is limited to 50% of that donor’s adjusted gross income (“50% Organizations”) and for gifts to other qualified charitable organizations, such as private foundations, is limited to 30% (“30% Organizations”).
Gifts of appreciated property made to 50% Organizations, such as the U-M, are generally limited to 30% of adjusted gross income. Gifts of appreciated property made to 30% Organizations are generally limited to 20% of adjusted gross income.
When a taxpayer gives a gift that is greater than the deduction limit that year, the taxpayer may carry the excess deduction forward for five (5) years.
A corporation that files its own tax return can deduct charitable gifts up to 10% of its taxable income. Taxable income for this purpose is calculated without the following.
- The deduction for charitable contributions.
- The dividends-received deduction.
- The deduction allowed under section 249 of the Internal Revenue Code.
- The domestic production activities deduction.
- Any net operating loss carryback to the tax year.
- Any capital loss carryback to the tax year.
Corporations are also entitled to carryover unused deductions for five (5) years.
For more information on these limitations, consult IRS Publication 526.
Q: Can I put restrictions on my gift?
A: You can place some restrictions on your gift but they must be discussed with the U-M to be sure that such restrictions are legal and acceptable to the U-M. An example of a common restriction that is both legal and acceptable to the U-M is to give money for scholarships. Another restriction donors and the U-M commonly agree upon is to restrict gifts to endowment, which permits the U-M to invest the gift in perpetuity and spend a percentage of it.
Q: How does the U-M substantiate charitable gifts that it receives?
A: The U-M issues receipts that contain the information that the IRS requires to allow taxpayers to substantiate their charitable gifts. For example, our official receipts include the following information:
- Amount of cash received by the U-M or a description of non-cash property received (but not the value), and
- A statement as to whether the U-M provided anything of value in return for the contribution, and if necessary a description and good faith estimate of the value of any goods or services the U-M provided in return for the contribution.
Q: How do I name the U-M in my will or trust?
A: When naming the U-M in a will or trust, please note that the legal name of the U-M is as follows: “the Regents of the University of Michigan, a Michigan constitutional corporation having the control and management of the University of Michigan”.
You may provide for a bequest or trust distribution of a specific dollar amount or asset, a percentage of your estate or trust, or the balance or residue of your estate or trust. If your proceeds are intended for a specific school, college or other unit within the U-M, the bequest or other language should clearly specify your intent. Further, the U-M spends the full amount of gifts it receives unless the language specifies that the gift should be retained in an endowed account.
Additional information about naming the U-M in a will or trust, including sample bequest language, can be found on the U-M’s website on Giving: https://leadersandbest.umich.edu/. But, when drafting any language for a will or trust, the Office of the Vice President and General Counsel strongly recommends that you seek your own legal counsel. Once legal counsel has been retained, OGC attorneys, whose area of practice is estate and charitable planning, will be pleased to work with your attorney to draft the appropriate language to accomplish your charitable goals.
Q: What methods of giving to the University of Michigan are available?
A: You can give outright gifts using cash, checks, credit cards, publicly traded securities, tangible personal property, and other types of property acceptable to the U-M. You can also make planned gifts, such as a bequest, trust distribution, or name the U-M as beneficiary of your life insurance policy or retirement plan. Your planned gifts can also include methods of giving that provide you or your designated beneficiaries with income. For example, the U-M:
- Offers charitable gift annuities;
- Has a pooled income fund;
- Can act as trustee for certain types of charitable remainder trusts; and
- Is an eligible recipient for distributions from a charitable lead trust.
For information about any of these gift options, please see the U-M’s web site on Giving: https://leadersandbest.umich.edu/.
Q: What assets work best in making a charitable gift?
A: By far the most common asset given to charity is cash, in the form of a check, money order or credit card charge. Gifts of cash are easily made and avoid complications that might be present with noncash gifts, such as the need to establish the proper value for income or estate tax charitable deduction purposes.
However, from a tax perspective, the most advantageous assets for lifetime gifts are appreciated securities held for more than one year or other long-term capital gain property. Generally such gifts entitle the donor to an income tax charitable deduction for the full fair market value of the donated property. Further, the donor avoids entirely the capital gain tax that would otherwise be realized on the sale of the asset. For gifts to private foundations, some limitations apply. However, these limitations do not apply to public charities such as the University of Michigan.
For donors wishing to defer their charitable gifts until the time of death, the best assets to use are accumulated retirement plan balances, individual retirement accounts (“IRA”) or other assets upon which income tax has been deferred during the donor’s life. By using such assets for charitable gifts, all the accrued income tax liability can be avoided on the portion donated to the U-M.
For more information about any of these gift options, see the U-M’s web site on Giving: https://leadersandbest.umich.edu/.
Q: I do research at the U-M. Can I make a gift to a U-M account that I control to support my research?
A: While a transfer to a U-M account over which the donor has expenditure control is permissible, it is not considered a charitable contribution under federal tax rules. Consequently, the U-M does not consider it as a charitable gift, and a U-M gift receipt will not be issued.
Under federal tax rules, a transfer of the type described in this question is considered to have an element of private benefit. For this reason, the transfer does not qualify as a charitable contribution. The following each have elements of private benefit and are not considered to be charitable contributions for which U-M gift receipts are issued:
- For financial aid to a specified student;
- For contributions to provide compensation for a named faculty or staff person;
- For contributions directed for the purchase of equipment, or furnishings for offices or laboratories of specified individuals; or for their travel or sponsored activities;
- For contributions to an account over which the transferor/donor has expenditure control. (from Standard Practice Guide 602.02)