Making charitable contributions is an art — a creative process that adapts to the changing needs and wishes of the donor. Planned giving enables a donor to arrange charitable contributions in ways that maximize personal objectives while minimizing the after-tax cost.
Below, we discuss the benefits of various forms of planned charitable gifts. We will be delighted to work with you and your advisors in arranging the planned gift that best suits your objectives.
Cash is the simplest, most direct, and most popular type of charitable gift. You may consider your gift of cash made on the date you hand-deliver or mail it; and because of the charitable tax deduction, your net cost is much less than the gift’s actual amount.
Securities and Real Estate
A gift of appreciated property such as securities or real estate is a popular alternative to a gift of cash and generates a double tax benefit. In addition to receiving a charitable tax deduction for its full fair-market value, you escape tax on the capital-gain element in the property. Note: To qualify for this double tax benefit, you must have held the property for more than one year.
Gifts of Closely Held Stock
If you are a business owner who wishes to contribute closely held C corporation stock to us, you will be allowed a charitable deduction for the fair-market value of the stock. In addition, both you and our organization will escape potential capital-gain tax on any appreciation in the value of the stock.
Subsequent to the gift, the corporation could purchase the stock from the charity for cash. This not only enables the donor to retain complete control over the company, it also makes cash available to the charity for its current needs. As long as the charity is not obligated to sell the stock to the corporation, the transaction should produce no adverse tax
Since 1998 an outright gift of S corporation stock to a charity does not result in the loss of the corporation’s S status. Unlike gifts from a C corporation, S corporation income attributable to its shares will be taxable to the charity. The gain from the shares will also be taxed to the charity when the shares are sold. Nevertheless, such gifts can be beneficial to a charity and are welcomed.
Caution: A gift of S stock to a charitable remainder trust or pooled income fund will continue to result in the automatic termination of S status and reversion to a C corporation.
The Charitable Gift Annuity is among the oldest, simplest, and most popular of the charitable life-income plans. In exchange for a transfer of cash, marketable securities, or, in some circumstances, real estate, we contractually guarantee to make specified annuity payments to you and/or another beneficiary for life, with the payout rate depending on the age and number of beneficiaries. You can claim a current charitable deduction for the portion of the transfer that represents the charitable gift element. Income from a gift annuity receives favorable tax treatment in that a portion of each income payment is considered a tax-free return of principal over the donor’s life expectancy.
Charitable Remainder Trust
With a charitable remainder trust, a charitable beneficiary receives the remainder interest (i.e., what’s left in the trust after it terminates).
• Charitable remainder unitrust — The primary feature of a unitrust is that it provides a variable stream of income to the beneficiary(ies).
The variable nature of unitrust payments may provide a hedge against inflation — assuming a growth in the value of the assets comparable to the inflation rate.
You are allowed a charitable deduction equal to the present value of our remainder interest in the unitrust based on the fair-market value of the asset you transfer, the payout rate you choose, and the ages and number of beneficiaries (or the term of years).
These trusts have enabled many donors to support our work while augmenting their current income.
• Charitable remainder annuity trust — While this trust shares many common features with a charitable remainder unitrust, the principal difference is the manner of calculating the beneficiary’s payout. Instead of a variable payout, the annuity trust provides a fixed payout of not less than 5% of the initial fair-market value of the gift in trust.
The fixed-payout feature of the annuity trust makes it particularly suitable for a beneficiary who needs the security of a specified fixed payment.
A Gift Under Your Will or Living Trust
Each year, thousands of individuals designate a portion of their assets via bequests in their wills or directions in their living trusts to benefit philanthropy. Such gifts have become an important part of the American philanthropic tradition because they enable many individuals to make significant gifts that they could not have made during life.
Testamentary Charitable Gifts from Your Qualified Retirement Plan or IRA
Naming us as a beneficiary of an IRA or qualified retirement plan is doubtless the most cost-effective way to make a charitable gift. Here’s why: These assets are subject to double taxation at your death. Regardless of the size of an estate, the noncharitable beneficiary(ies) will have to pay federal income tax on any distributions.
Gift of Your Home with Retained Life Estate
Your gift of a remainder interest in your personal residence or farm provides you with a charitable deduction for the present value of the remainder interest and permits you to escape potential capital-gain tax on the built-in appreciation. What may be more important from your point of view is that you may continue to occupy your home or operate the farm without disrupting your lifestyle.
Life Insurance and Charitable Giving
While most people own some form of life insurance because of its unique ability to meet a variety of needs for financial protection, its role in charitable giving is frequently overlooked. You may use life insurance as the direct funding medium of a gift, permitting you to make a substantial gift for a relatively modest annual outlay. Planning pointer: You may use insurance to replace the value of an asset you give to support our work.
Gifts to Fund the Future
In addition to personal satisfaction, planned gifts offer major planning opportunities to minimize federal and state taxes, increasing the possibilities for effective distribution of assets. The wide degree of flexibility permitted in arranging a planned gift while still obtaining favorable tax benefits has contributed significantly to making such gifts popular and potent estate-planning tools.
The information contained herein is offered for general informational and educational purposes. You should seek the advice of an attorney for applicability to your own situation.