Fillable Montana Form Qec Draft - Qualified Endowment Credit

Form QEC General Instructions

What is a qualified endowment?

contribution you make. If your contribution is a planned

gift, you may claim the 40% amount and if it is a direct

A qualified endowment means a permanent, irrevocable

contribution to a permanent endowment, you may claim

fund established for a specific charitable, religious,

the 20% amount. Any amount not used by an estate

educational, or eleemosynary (philanthropic) purpose that

can be attributed to each beneficiary of the estate in the

is held by:

same proportion used to report the beneficiary’s income

• A tax-exempt 501(c)(3) corporation formed under the

from the estate for Montana income tax purposes. The

laws of Montana, or

maximum credit for each beneficiary is $10,000.

• A bank or trust company holding an endowment fund on

Can unused credit be carried forward or carried back?

behalf of a Montana or foreign 501(c)(3) organization.

No. The credit can only be applied to the tax year in which

What is a “permanent irrevocable fund”?

the contribution is made.

This is a fund that is comprised of one or more assets

What types of planned gifts qualify for this credit?

that are invested for the production or growth of income,

The types of planned gifts that qualify for this credit are

the principal of which must be retained and the income

irrevocable contributions to a permanent endowment held

of which may be added to the principal or expended.

by or for a tax exempt organization when the contribution

Investment assets may include cash, securities, mutual

uses any of the following:

funds, or other investment assets. A “building fund” or other

fund that is used to accumulate contributions that will be

• Charitable remainder unitrust. This is a trust in which

expended is not a permanent irrevocable fund. A fund from

property is transferred and invested by the trustee who

which contributions are expended directly for constructing,

each year pays a fixed percent of the unitrust value,

renovating or purchasing operational assets, such as

revalued annually, to one or more private income

buildings or equipment, is not a permanent irrevocable

beneficiaries for the life of beneficiaries, a term of

fund.

years, or both, with the remainder interest in the trust

transferring to, or for the use of the charity, or retained by

Who is entitled to the qualified endowment credit and

the trust for the use of the charity. The trust agreement

how much is the credit?

must provide that the trust may not terminate and the

• Individuals. You are entitled to a credit against your

beneficiaries’ interest in the trust may not be assigned

tax liability equal to 40% of the present value of the

or contributed to the qualified endowment sooner than

charitable gift portion of a planned gift. Only contributions

the earlier of the date of death of the beneficiaries or five

in the form of a planned gift qualify for the credit.

years from the date of the contribution.

The maximum credit you may claim against your

• Charitable remainder annuity trust. This is a trust

individual income tax liability for all contributions you

in which property is transferred and invested by the

make is $10,000, whether you are single or married.

trustee who each year pays a fixed dollar amount to

• C corporations. If you a C corporation engaged in an

one or more private income beneficiaries for the life

active trade or business, you are entitled to a credit

of the beneficiaries, a term of years, or both, with the

equal to 20% of your charitable contributions to a

remainder interest in the trust then transferring to, or for

qualified endowment. Your contributions do not have to

the use of the charity, or retained by the trust for the use

be in the form of a planned gift.

of the charity. The trust agreement must provide that the

A C corporation’s credit cannot exceed the lower of its

trust may not terminate and the beneficiaries’ interest

corporation license tax liability or $10,000.

in the trust may not be assigned or contributed to the

qualified endowment sooner than the earlier of the date

• S corporations, partnerships and limited liability

of death of the beneficiaries or five years from the date

companies. If you are an S corporation, partnership,

of the contribution.

or limited liability company engaged in an active trade

or business, you are entitled to a credit equal to 20% of

• Pooled income fund trust. This is a trust in which

your charitable contributions to a qualified endowment.

property contributed by donors is pooled together with

Your contributions do not have to be in the form of a

other investors. All the assets transferred to the fund are

planned gift.

added together and invested. This pooled fund creates

a diversified portfolio in which all participants receive a

The credit for the contributions of an S corporation,

share of the earnings.

partnership, or limited liability company is attributed

to its shareholders, partners, or members in the same

• Charitable lead unitrust. This is a trust in which

proportion used to report the corporation’s, partnership’s

property is transferred and invested by the trustee who

or limited liability company’s income or loss for Montana

each year pays a fixed percentage of the unitrust value,

tax purposes; and the maximum credit that each

revalued annually, to the charity for a term of years

shareholder, partner, or member may claim against their

or during the lives of specified linear descendants,

tax liability is $10,000.

with the remainder interest then transferring to private

beneficiaries named by the donor.

• Estates. The credit you may claim, and unused amounts

your beneficiaries may claim, depend on the form of

Montana Form Qec Draft - Qualified Endowment Credit - 2011 Page 2

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