Strategies for Planned Giving
The following information is intended to give an overview of gift planning, and should be shared with your professional advisors in considering the method of gifting to be used. Those listed are in addition to outright gifts of cash or assets and may be of great benefit to many estate plans.
Bequests
Perhaps the simplest form of planned giving, the bequest is a provision in the Last Will and Testament that provides for a distribution from the estate of some property, to an individual or organization. Bequests to a qualified charity are deductible for estate tax purposes, against the total value of the estate of the decedent. Bequests can include any type of property, including cash, real estate, stock or any tangible or intangible property. A bequest can also be included in a codicil to a Will that has already been executed.
SUMMARY FOR BEQUEST:
Document that creates: Will or Codicil Revocable? Yes Ultimate Beneficiary? To benefit charities of choice Lifetime Beneficiary? Not Applicable Annual Benefit: Not Applicable
Trusts
Charitable Remainder Trust
A charitable remainder trust pays the donor (and/or another beneficiary) either a fixed or variable income for the beneficiary's life or for a fixed term not exceeding 20 years, or a combination of the two. When the trust term expires, the remainder is then distributed to a charitable beneficiary. Charitable remainder trusts offer a great deal of flexibility. Payments may be made to the donor for life and then may be directed to a spouse or another beneficiary after death. A charitable remainder trust may be set up during one's lifetime or may be established by a will. The eventual distribution to the charity will take effect only at the death of the trust's income beneficiaries.
If donors place highly appreciated securities in the trust, the trustee can sell them without having to pay the capital gains tax realized on the profits of the sale. Low-yielding stocks can be sold and the proceeds reinvested to produce higher income for the income beneficiary. By creating a charitable remainder trust, one can enjoy a number of benefits, including professional management of the assets in the trust and a degree of financial protection. Additionally, one may receive a charitable income tax deduction depending on his/her age, or the length of the trust term, payout rate, frequency of payments, and applicable federal discount rate. Creating one of these trusts frequently enables donors to realize greater disposable income.
SUMMARY FOR CHARITABLE REMAINDER TRUST
Document that creates: Trust Revocable? No, but may change charitable beneficiary Ultimate Beneficiary? To benefit charities of choice Lifetime Beneficiary? Donor or others Annual Benefit: Variable
Charitable Lead Trusts
A charitable lead trust is the reverse of a charitable remainder trust. Under a charitable lead trust, which can be created by a trust or will, donors can provide that an annuity or unitrust payment be made to a fund at the charity for a term of years, after which the principal is paid to the donors or to any other non-charitable beneficiary.
Donors do not receive a charitable deduction for federal income tax purposes on the creation of a lead trust unless they choose to be taxed on the trust income (i.e., the income that will be paid to the charity). Some people may find that the chance to take a federal income tax deduction in the initial year outweighs the disadvantage of paying taxes on the trust's income in later years. Donors can negate the tax impact by funding the lead trust with tax-exempt securities.
A charitable lead trust allows the ultimate transfer of the property to be made at a lower transfer tax cost. This mechanism is especially useful for property with the capacity for appreciation. Charitable lead trusts are most sensible for a donor whose family can afford to relinquish the income from the gifted property during the term of the lead trust.
It is possible to establish a lead trust either during one's lifetime or in a will. A charitable lead trust can substantially reduce the estate taxes payable at the time of death because of the charitable deduction for the charity's charitable interest in the annuity or unitrust payment. The value of the charitable interest depends on the length of the trust and the amount to be paid out each year. The saving in estate taxes may mean that family members receive substantially more than if the property were left to them.
SUMMARY OF CHARITABLE LEAD TRUSTS
Document that creates: Trust or will Revocable? No Ultimate Beneficiary? Individuals selected by Donor Lifetime Beneficiary? To benefit charities of choice Annual Benefit: Fixed or Variable
Charitable Gift Annuities
The charitable gift annuity is a simple contract between the donor and the charity. It gives a donor the opportunity to make a charitable gift and secure a stream of income for life. Under this arrangement, donors transfer assets (usually cash or securities) to the charity in exchange for a commitment by the charity to pay them (and a second annuitant, if the donor so chooses) a fixed and guaranteed payment for the remainder of their lifetime(s). The total annual payment, which can be paid monthly, quarterly, semiannually, or annually, does not change. On the death of the annuitant(s), the remaining principal is retained by the charity to carry out the donor's charitable intentions.
SUMMARY FOR CHARITABLE GIFT ANNUITY:
Document that creates: Annuity Contract Revocable? No Ultimate Beneficiary? To benefit charities of choice Lifetime Beneficiary? Donor and/or other Annual Benefit: Fixed
Remainder Interest following a Life Estate
A life estate involves deeding real property to a charity and retaining the right to continue living in the property. This allows the donor to take a charitable income tax deduction for the present value of the remainder interest and to avoid potential capital gains tax on the property's appreciation. Upon the death of the donor, the property is owned by the charity and can be sold and the proceeds used to support those organizations or purposes the donor has indicated.
SUMMARY FOR LIFE ESTATE:
Document that creates: Deed Revocable? No Ultimate Beneficiary? To benefit charities of choice Lifetime Beneficiary? Donor Annual Benefit: Retained Life Estate
Other strategies for planned giving include:
IRA or Qualified Plan
At death, retirement plan or IRA balances are included for estate and income taxes - often up to 85 percent. Funding a charitable bequest with an IRA or retirement plan prevents the bequest from becoming a liability of the estate, and the gift is made with pre-tax dollars.
Life Insurance Policy
Life insurance makes it possible for virtually everyone to make a meaningful gift. Policies that were never used for their original purpose can make excellent gifts when given to a charity. The donor can deduct the replacement value of the policy or the cost basis. Some people find they can make a much larger gift by purchasing a life insurance policy and naming the charity as owner and beneficiary.
Real Property for Lifetime Use
A gift of real estate can be made to a charity while providing the donor with lifetime use of the property. At time of death, the property is an asset of the charity and is excluded from the donor's estate.