The Tax Law of Charitable Giving, 5th Edition

Chapter ElevenValuation of Partial Interests

1. § 11.1 Overview of Statutory Law
2. § 11.2 Standard Actuarial Factors
3. § 11.3 General Actuarial Valuations
4. § 11.4 Nonstandard Actuarial Factors

Critical to the various forms of planned giving are the charitable contribution deductions, for purposes of the federal income, estate, and gift taxes. These deductions, in turn, depend in whole or large part on the valuation of the interest in the contributed property that has passed to or is destined for charitable purposes.

The federal tax law contains methods of valuing for charitable giving purposes various partial interests in property, including remainder interests in charitable remainder trusts and pooled income funds. This valuation is done as part of the process of calculating the present value of an interest, used to determine the amount of the charitable contribution deduction involved.¹

§ 11.1 Overview of Statutory Law

The valuation of partial interests in property is the subject of legislation, which created a mechanism for determining a rate of return.² This legislation addresses the method for valuing an annuity, any interest for life or a term of years, or any remainder or reversionary interests—for income, estate, and gift tax purposes.

Under this approach, the value of these interests is determined by using (1) a floating interest rate (rounded to the nearest two-tenths of a percent) equal to 120 percent of the applicable federal midterm rate (used to determine the issue ...