The government and the ruling party are reviewing the introduction of a charitable gift annuity program in which donors transfer cash or property to a charity in return for tax deductions and pension contributions.

The Grand National Party’s policy committee is looking into both charitable gift annuity and donor-advised funds in a bid to encourage charitable donations, a member of the committee said.

Under such programs in the U.S., the donor gets up to 50 percent of his donations back in lifetime annuity. The mechanism is similar to a reverse mortgage where homeowners with no specifiable income can draw the mortgage principal in a lump sum by receiving monthly payments and repayment is deferred until their death.

As the reverse mortgage engenders several taxation and accounting problems pertinent to the transfer of home ownership, the party plans to devise rules to prevent them.

The charitable giving of smaller amounts can be accommodated by a donor-advised fund. Donors deposit cash and equities in the fund, donate the profits and principal, after a certain period, to charity.

Both models are applicable in Korea, according to Lee Ki-il, the Welfare Ministry official in charge of policies to promote philanthropy.

“The charitable gift annuity system works well for assets of large value such as real estate, while the donor-advised funds can spur donations by the middle class,” Lee said.

Many Koreans donate their wealth after death upon their will or set up personal foundations for philanthropic purposes, but posthumous donations are often restricted by family members’ property claims, and under current rules, management costs for personal foundations can be minimized only if they are worth over 3 billion won.

The government and the GNP plan to streamline bills related to donations and push for steps to incorporate philanthropic education in regular school curriculum.

Recent news reports shed light on a businessman’s legal struggle with the tax authorities after he was slapped with some 14 billion won ($11.8 million) in taxes for his donation of shares worth 18 billion won.

Hwang Pil-sang, who set up the Guwon Scholarship Foundation, won in his first lawsuit against the Suwon District Tax Service last year, but lost in the appellate court trial in August. Hwang is seeking to appeal and is even considering a constitutional appeal.

By Kim So-hyun (sophie@heraldcorp.com)