May 24, 2013
A Guide to Planned Giving
Please note that this guide is intended to inform, not advise, and is not a substitute for the advice of a lawyer or financial professional about your particular legal, tax, or financial situation. Please consult a professional for complete legal or technical information about the topics discussed below.
Will or Bequest - By making a bequest to the Foundation, you reduce the size of your estate, saving considerable taxes if your net worth is above the estate tax exemption limit allowed by law. (The exemption is $675,000 in 2001, rising to $1 million by 2006. Married couples may double this amount with proper planning.)
These gifts perpetuate their interest and support the role the Foundation plays in the lives of others. You may designate a dollar amount or a percentage of your estate after provisions for family members or other beneficiaries have been made.
Gift of Insurance - During the many stages of life, your financial planning needs change and your life insurance policy may outlive its usefulness. Providing a planned gift of life insurance is quite simple and may allow you to make a more meaningful gift than you ever thought possible.
Merely assign the policy to the Foundation as both the owner and beneficiary. If the policy is paid up, you will be eligible to receive a charitable deduction for the replacement value or cash value of the policy at the time of donation.
If you contribute a new or current policy, you may deduct all annual premium payments you make as a contribution to the Foundation. Upon your death, the Foundation receives the benefit allowed by the policy.
Gift of Securities - This may be one of the most profitable means of charitable giving. By donating an appreciated security, which you have held for more than one year to the Foundation, you earn a charitable deduction for the present full fair market value of the stock. This deduction is limited to 30% of your adjusted gross income in any one year. As with gifts of cash, deduction amounts exceeding this limit may be carried forward for up to five additional years. Donors of closely held stock can enjoy the same benefits, as gifts of publicly traded stock but will need a formal appraisal if the value of the gift exceeds $5,000.
Gift from IRA and/or other Pension Plan - If you are over the age of 59 1/2 and have retirement accounts, you may make withdrawals from these accounts and contribute an equal amount to the Foundation. Although you must report the withdrawal as income, the contribution deduction will generally offset the income, subject to certain limitations, and will result in a wash for tax purposes. Ultimately, you will be utilizing your retirement funds in a way that, in effect, makes them not subject to estate, gift, or income tax.
Additionally, you may name the Foundation as the beneficiary of the assets that remain in your qualified retirement plan after your death and provide one of the most tax-advantageous gifts to the Foundation. This is because assets remaining in these plans will be taxed more heavily than the rest of your estate. In some instances, as much as 70% of the assets in a retirement plan can be consumed by taxes -- both income taxes and estate taxes on funds distributed to heirs. The amount the Foundation receives is far more than would otherwise go to your heirs, and you avoid sending a substantial portion of your savings to the government.
Funding a charitable gift to the Foundation with these assets generates an estate tax charitable deduction. Further, because the Foundation is tax exempt it will not have to pay income tax on the assets when they are received.
You can also make a testamentary transfer of remaining pension plan assets to a charitable trust. Your estate receives a tax deduction for the remainder interest coming to the Foundation, and your heirs are taxed only on the annual income they receive from the trust.
Charitable Gift Annuity - For a minimum of $10,000, you can donate an irrevocable gift to the Foundation in return for guaranteed income, at a fixed rate comparable to most commercial investments, for the rest of your life. Depending on your age at the time of your gift, a portion of the annuity income is treated as a tax-free return of principal. You can receive payments at your choice of intervals.
Joint annuities are available for couples. You may also designate the income stream to another person, such as a parent or grandparent. This designation is treated as a taxable gift of the income stream.
Charitable Remainder Trust - This vehicle enables you to contribute to the Foundation while providing an income for you and/or another beneficiary at a fixed dollar amount of income (annuity trust) or at a fixed percentage of the trust's assets (unitrust) each year for life or a term of years. This gives you the flexibility to establish specific objectives and meet personal financial circumstances.
A charitable remainder trust is an independent trust that holds assets. You transfer your assets, such as cash, stock, bonds, real estate or other marketable property into the charitable remainder trust, reserving an income interest for one or more beneficiaries. Depending upon the assets used to fund trust, the trustee may sell the assets and reinvest the proceeds to generate income for the beneficiaries. When the trustee sells the assets, no tax is due on the sale, thereby preserving the maximum amount of principal for reinvestment. If you sell the assets outright, without using the trust, state and federal taxes may devour as much as 35% of the gain. With a charitable remainder trust, you also benefit by gaining an income tax deduction in the year the trust is funded.
Usually the trustee makes quarterly payments to the income beneficiaries that may continue either for the lives of the beneficiaries or for a fixed term up to 20 years. After the income interest ends, either by death or the conclusion of the term, the trust terminates. The trustee then pays the remaining assets to the Foundation.
A charitable remainder trust is most useful when you own substantial resources, often highly appreciated assets, that earn a low rate of return (like stock) or may even cost you money to maintain (like land).
Charitable Lead Trust - This is a powerful gift planning device, and is an option for high net worth individuals interested in providing the Foundation with income from a transfer of $200,000 or more for a specified number of years. Income is paid to the Foundation, and you receive a charitable gift tax deduction for the present value of the income stream. At the end of the trust term, the remaining assets are returned to you or your heirs. If you chose to designate your heirs as the remainder beneficiaries, the asset is "frozen" - for gift/estate tax valuation purposes - at the value on the date the trust is established.
Pooled Income Fund - This offers an excellent opportunity to provide a significant future gift to the Foundation while enjoying lifetime income and important tax advantages similar to a Charitable Remainder Trust.
Your gift is invested with the gifts of other participants. Every three months the income earned by the funds is distributed to the participants based on their proportional share of the total fund. After a predetermined time or when the last person named to receive the income passes away, contributed assets are passed to the Foundation.