Montana Form Qec - Qualified Endowment Credit

Form QEC General Instructions

All the assets transferred to the fund are added together and

invested. This pooled fund creates a diversiﬁ ed portfolio in

What is a qualiﬁ ed endowment?

which all participants receive a share of the earnings.

A qualiﬁ ed endowment is a permanent, irrevocable fund that is

• Charitable lead unitrust. This is a trust in which property is

held by:

transferred and invested by the trustee who each year pays a

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

ﬁ xed percentage of the unitrust value, revalued annually, to the

Montana, or

charity for a term of years or during the lives of speciﬁ ed linear

• A bank or trust company holding an endowment fund on behalf

descendants, with the remainder interest then transferring to

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

private beneﬁ ciaries named by the donor.

What is a “permanent irrevocable fund”?

• Charitable lead annuity trust. This is a trust in which property

A permanent irrevocable fund is deﬁ ned as a fund comprised

is transferred and invested by the trustee who each year

of cash, securities, mutual funds or other investment assets

pays a ﬁ xed dollar amount to the charity for a term of years

established for a speciﬁ c charitable, religious, educational or

or lifetime(s), with the remainder interest then transferring to

eleemosynary (relating to charity) purposes and invested for the

private beneﬁ ciaries named by the donor.

production or growth of income, or both, that may either be added

to the principal or expended. The term does not include a fund

In order for the following two annuities to qualify for a charitable

held by or for a tax-exempt organization for the direct expenditure

deduction or the qualiﬁ ed endowment credit, these annuities

for constructing, renovating or purchasing operational assets such

have to be given to a charitable organization that, at the time

as buildings or equipment.

the annuity is issued, have:

Who is entitled to the qualiﬁ ed endowment credit and how

• a minimum of $300,000 net worth or a minimum $100,000

much is the credit?

in unrestricted cash, cash equivalent or public traded

If you are an individual, a beneﬁ ciary of an estate or trust or a C

securities;

corporation, or an estate, you are entitled to a credit against your

• been in business for at least 3 years; and

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

• one-half of the outstanding annuity is maintained in a

portion of a planned gift.

separate annuity fund

If you are a C corporation, an S corporation, partnership, trust,

If the above requirements are not met, the gift annuity must

estate or a limited liability company, you are entitled to a credit

be commercially insured by a licensed insurance company

against your tax liability equal to 20% of the outright charitable

qualiﬁ ed to do business in Montana.

contribution to a qualiﬁ ed endowment.

• Charitable gift annuity. This is the transfer of cash or property

The maximum credit that you may claim for contributions made

from all sources in the year is $10,000. If you are married and

to a charity in exchange for the charity’s promise to pay the

both spouses gave a qualiﬁ ed gift, each spouse is entitled to a

donor and, if applicable, the surviving annuitant, a lifetime

maximum $10,000 credit. Your credit cannot exceed your tax

annuity. This type of annuity is considered a bargain sale that

liability and you cannot carry back or carry forward any unused

results in part taxable gain and a charitable deduction.

credit.

• Deferred charitable gift annuity. This is an annuity in which

If you are an S corporation, partnership, or limited liability

payments to the donor do not begin until a future date.

company your credit is attributed to your shareholders, partners,

• Charitable life estate agreement. This is a gift to a charity of

members or managers in the same proportion used to report the

a personal residence that is subject to a reserved life estate.

corporation’s, partnership’s or limited liability company’s income or

loss for Montana tax purposes.

• Paid-up life insurance policy. This is a life insurance policy in

What types of planned gifts qualify for this credit?

which all the premiums have been paid that usually entitle the

donor to a current deduction equal to the cost of replacing the

In order to qualify for the endowment credit, an individual must

contribute an irrevocable planned gift with the remainder to a

policy with a single premium life insurance policy at the donor’s

permanent endowment. The types of gifts that qualify for this

current age.

credit and a description of these gifts are:

If I claim the qualiﬁ ed endowment credit, can I also take a

• Charitable remainder unitrust. This is a trust in which

charitable deduction for the amount of the gift?

property is transferred and invested by the trustee who each

No. The amount of your contribution that is used to calculate

year pays a ﬁ xed percent of the unitrust value, revalued

your qualiﬁ ed endowment credit cannot also be claimed as a

charitable contribution on your Montana tax return. You can claim

annually, to one or more private income beneﬁ ciaries for the

a charitable deduction for that portion of the contribution not used

life of beneﬁ ciaries, a term of years, or both, with the remainder

to calculate this credit.

interest in the trust transferring to, or for the use of the charity,

What happens if I recover my charitable gift this year?

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

If a charitable gift is recovered in the current year, you will have to

• Charitable remainder annuity trust. This is a trust in which

include as income the amount previously deducted, to the extent

property is transferred and invested by the trustee who each

it reduced your individual income tax or corporation license tax,

year pays a ﬁ xed dollar amount to one or more private income

and increase the amount of tax due by the amount of the credit

beneﬁ ciaries for the life of the beneﬁ ciaries, a term of years, or

previously allowed.

both, with the remainder interest in the trust then transferring

To learn more about the endowments state-wide, visit the

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

Governor’s Task Force on Endowed Philanthropy website at

use of the charity.

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

If you have questions, please call us toll free at (866) 859-2254

contributed by donors is pooled together with other investors.

(in Helena, 444-6900).

Montana Form Qec - Qualified Endowment Credit - 2008 Page 2

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