WHAT IS IT AND HOW DO I BENEFIT? Planned gifts are typically intended to leave a legacy by the donor. While they can be gifts of cash or securities, more typically planned gifts are in the form of will bequests, charitable trusts and gift annuities.
Some feel that planned giving is only for the wealthy, but anyone can enhance their capacity to give by careful consultation. The donor can gain significant benefits by gift planning including making gifts that pay income for life or passing property directly to heirs without passing through, and being taxed as part of, an estate.
TYPES OF PLANNED GIFTS
ESTATE GIVING (THROUGH YOUR WILL) A current will provides the donor with the opportunity to distribute his or her estate assets according to predetermined wishes. It offers a final expression of the donor’s values to his or her heirs; a chance to address heirs’ special needs; and the occasion to make a gift or gifts to individuals or charitable organizations.
For donors with children or relatives that they would like to make provision for, a will is indispensable. Similarly if the donor wishes to leave a legacy for a charity, a will is required. A will should be prepared by an attorney and signed by the person or people creating it, and the signature(s) witnessed by two people who are not beneficiaries validating that it is the will of the person or people signing it. A will is revocable at any time until the donor’s death. The advantage of designating a gift to charity by bequest is that the donor has use of those assets or income until the will is final.
ESTATE GIVING (USING LIFE INSURANCE, IRAS, PENSIONS & PROFIT-SHARING ACCOUNTS) When IRA assets are given through an estate, the value is included in the estate’s assets, but the full charitable deduction offsets the value so no estate tax is due. If IRA assets are left to heirs, they can be subject not only to estate tax, but also income tax, taking a significant portion of the IRA’s value. The Pension Protection Act of 2006 also provides an exclusion from gross income for distributions to charities of up to $100,000 from a traditional IRA or Roth IRA, which would otherwise be included in income.
GIFTS OF APPRECIATED ASSETS OR PROPERTY
STOCKS OR BONDS - Donating appreciated securities eliminates capital gains taxes at the time the gift is made or the trust is established, and the charitable deduction for the donation in calculated from the full market value of the stock.
CHARITABLE LEAD TRUSTS - A donor can essentially lend an asset that yields income to CEM for a specified number of years. When the term of the charitable lead trust is complete, the asset, including any appreciation, passes to whomever the donor has designated, whether children or other heirs. The charitable lead trust offers substantially reduced estate taxation. If the assets return to the donor, then there is a charitable income tax deduction for the future trust income that is donated to CEM in the year the trust is established.
GIFTS OF REAL ESTATE A donor may deed his or her property to CEM, but retain responsibility for the property and the right to live there for the rest of the donor’s life. The value of the remainder interest in the property is determined and can be used for an immediate income tax deduction. In addition, no capital gains are paid on the appreciated value. Property can also be devised to CEM in a will with the value of the property deducted from the estate, thereby reducing the amount subject to estate tax.
CHARITABLE GIFT ANNUITIES
CHARITABLE REMAINDER TRUSTS - Charitable remainder trusts are created by placing assets in trust for CEM. During the donor’s lifetime the trust will yield income to the donor. If the trust is funded with appreciated assets, capital gains tax is avoided. In addition, the donor is entitled to a charitable tax deduction for the calculated remainder value of the trust. Annual income can either be a fixed dollar amount (a CRAT, charitable remainder annuity trust) or a predetermined fixed percentage rate (a CRUT, charitable remainder uni-trust).
CHARITABLE GIFT ANNUITIES - A charitable gift annuity is a gift to CEM that provides the donor or a person or persons that the donor chooses with guaranteed fixed payments for life. Investing in a charitable gift annuity offers a charitable tax deduction for the portion of the annuity that is a gift. In addition, the annuity can be structured so that a portion of the income is free from income tax. The income amount is based on the donor’s age; the older the door, the higher the monthly payment.