Achieving Charitable and Estate Planning Goals Through Planned Giving

Over the past several years donors in the Charlottesville area have become increasingly familiar with various forms of planned gifts and have begun to use these powerful tools in their philanthropy.  Donors who make planned gifts may be able to increase their income stream, minimize capital gains and estate taxes, and realize significant income-tax deductions.  Of course, donors also experience the satisfaction of knowing they have done something of enduring value for their community.
   
There are many different kinds of planned gifts, and some of the more popular options are outlined below:

      Bequests

      One of the simplest ways to make a planned gift to your favorite charity is through a bequest in your will.  You may indicate that your favorite nonprofit organization is to receive a specific dollar amount, a percentage of your estate, or a particular piece of property.

      Gifts of Retirement Assets

      You can name a nonprofit organization as beneficiary of your 401K, IRA, pension fund, or other retirement plan.  When assets in these plans are left to an individual other than your spouse, they may be taxed heavily in your estate and incur income taxes when they are withdrawn.  However, naming a charitable organization as a partial or full beneficiary of your retirement plan may result in income tax and estate tax savings.

      Gifts of Life Insurance

      Similar to a bequest or retirement plan provision, you can make a charitable organization the beneficiary or owner of a life insurance policy.

      Charitable Lead Trusts

      This arrangement can be used to allow a nonprofit agency to have the benefit of an appreciated asset for a set number of years, before passing this asset to your children or grandchildren.  This type of trust may have very favorable tax consequences.

      Life Income Gifts
     
      By establishing a charitable remainder trust or gift annuity, you and/or other designated beneficiaries will receive favorably taxed income for life, qualify for a charitable tax deduction, and may avoid or postpone capital gains taxes.
     
      • A Charitable Remainder Trust will hold and invest assets and pay you and/or other beneficiaries a specified dollar amount or a percentage of the trust’s value each year for as long as you or the other beneficiaries may live.  Nothing is paid to the charitable beneficiary all the income rights have terminated.  At that time, the charity you name receives all the assets held by the trustee.

      Example:
      Bob is 65 years old and expects to retire in the next few months.  Over the years he has acquired company stock worth $200,000.  His cost basis is only $30,000.  The stock pays a very small dividend.  Bob wants to sell the stock and invest the proceeds for a high income, but selling the stock would result in hefty federal and state capital gains tax liability.

      Bob could transfer the stock to a Charitable Remainder Trust that, with a 5% payout, could pay him $10,000 a year for as long has he lives.  The gift in trust would result in an immediate charitable income tax deduction.

      • A Charitable Gift Annuity is another, more straightforward type of life income gift.  Working with a local nonprofit organization you may enter into an agreement where the charity pays you a set dollar amount each year in exchange for an irrevocable gift.  Many charities use rates set by the American Council on Gift Annuities, which are calculated based on life expectancy.  Because of potential capital gains tax savings, this type of arrangement can be especially attractive for donors who hold highly appreciated, low-yielding securities.

      Example:
      Emily is 70 years old.  With a $10,000 gift to a qualified charity, she can establish a gift annuity that pays her $650 a year for her lifetime.  Approximately 44% of the value of the gift will be deductible as a charitable contribution and 53% of each year’s annuity payment would be tax-free (at a 6.2% discount rate)

      Working with a donor’s attorney or financial advisor, CACF has helped a number of local individuals and families make planned gifts through the Community Foundation.  For more information, please call Kevin O’Halloran, CACF Director of Donor Relations at 434-296-1024.