2019 edition the ultimate quick reference planned giving ... · you can also receive special tax...
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$19.95
2019 EDITION
The UltimateQuick ReferencePlanned GivingPocket GuideFor Board Members,Volunteers & Philanthropists
In simple
conversational English!
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Introduction
Welcome to your handy, practical Guide to what planned gifts, through philanthropic planning, can do for you, your family and your heirs as well as the nonprofit organizations you wish to support .
In this Guide we purposely cover the basics without getting bogged down in technical details. Each gift description features a helpful visual illustration, a quick summary, and a discussion of how the gift works, all developed with you in mind.
Our goal with this publication is to illustrate the different choices so you can consider your options. Outright, estate, or life income gifts? You don’t have to be a lawyer or an accountant to understand them when you have this Guide in hand.
We explain in everyday language how planned gifts can help you make a more transformational difference in the lives of others while securing your future as well as that of your loved ones.
Please contact your professional advisors or favorite charities for more information.
AuthorsBrian M. Sagrestano, JD, CFREViken D. Mikaelian, CEO, PlannedGiving.com
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CopyrightPublisher: PlannedGiving.ComCopyright © 2014-2018, PlannedGiving.ComAll rights reserved.
Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to PlannedGiving.Com.
DisclaimerThis publication is designed to serve as an educational tool, not as a legal guide. The publication is intended to provide an accurate overview of certain charitable gift plans. It is not intended to provide legal, tax, investment, or other professional advice, and it may not be relied on for such advice. For assistance in specific cases, obtain the services of a competent attorney or other professional advisor.
Revised November, 2018
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Table of Contents
Gifts Anyone Can Make ................................. 6
Gifts From Your Will or Trust (Bequests) ............ 7
Gifts of Stock and Appreciated Assets .................. 8
Life Insurance – Lifetime Gifts .............................. 9
Gifts of Personal Property ........................................ 10
Real Estate ....................................................................... 11
Retirement Plan ........................................................... 12
Gifts that Pay Income ..................................... 13
Charitable Gift Annuities – Immediate ............... 14
Charitable Gift Annuities – Deferred .................. 15
Charitable Gift Annuities – Flexible .................... 16
Charitable Remainder Trusts ................................. 17
Pooled Income Funds ................................................. 18
Gifts that Protect Assets ................................ 19
Charitable Bargain Sales ......................................... 20
Charitable Lead Trusts ............................................. 21
Retained Life Estates .................................................. 22
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Videos of these gift plans available at:PlannedGiving.Com/video
6 Gifts “Anyone Can Make”
Gifts “Anyone Can Make”You can designate a nonprofit organization to receive estate assets in the future, or you can make immediate gifts of assets that are “out of sight, out of mind.”
We call these Gifts “Anyone Can Make” because you can make them now without impacting your cash flow, lifestyle, or family security.
You can take advantage of a gift that costs nothing during your lifetime by naming an organization as a beneficiary of a will or trust or a life insurance policy.
You can also receive special tax benefits by naming an organization as a beneficiary of a retirement plan.
You may also make a gift from current, “out of sight, out of mind” assets that will produce an immediate benefit in the lives of others.
By donating unused real estate, tangible personal property, appreciated stock, a life insurance policy, or business interests, you may enjoy current tax benefits while providing the organization immediate assets.
These gifts carry special tax savings for you, which means that your real cost of making a gift is usually much less than the benefits you provide to others.
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7Gifts “Anyone Can Make”
Gifts From Your Will or Trust (Bequests)
Make a simple designation in your will. It does not affect your cash flow during your lifetime and is easy to revoke if your situation changes.
Have you ever dreamed about making a significant gift to support your favorite charity? Well, you can, and with a gift that does not affect your cash flow. It’s as simple as naming the nonprofit as a beneficiary of your will or living trust, traditionally known as a “bequest.”
It’s an easy way to make a significant impact by supporting the charitable mission in which you believe.
Your assets remain in your control during your lifetime; you can modify your gift at any time should circumstances change; and you can direct your gift to the area of the nonprofit’s mission which is most important to you.
How do you get started? It’s easy. Your favorite charity can provide model bequest language for your will. And if you already have a will, you can add the charity as a beneficiary by executing a simple, one page amendment called a “codicil.” You can get codicil language from the nonprofit or your attorney.
Over the years, many individuals make gifts both large and small through their estate. Each is unique to the person making it. Yet all are important.
By naming a nonprofit as a beneficiary of your will or trust, you add to your legacy and ensure that they can continue to do the good work that you admire and support for years to come.
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Name favoritenonprofits asbeneficiaries
A gift that costs you nothing during your lifetime
Family heirs
WILL ORTRUST
NON-PROFIT
DONOR
Wills & Bequests
8 Gifts “Anyone Can Make”
Gifts of Stock and Appreciated Assets
Did you know giving stock can be more beneficial than giving cash?
If you want to support a nonprofit’s charitable mission with a gift that doesn’t affect your cash flow, consider making a gift of stocks, bonds, or mutual funds that have increased in value.
Usually, a cash gift and a gift of stocks or mutual funds of equal value generate the same income tax charitable deduction.
But if you make a stock gift, you also receive an additional tax benefit: The IRS will allow you to avoid all the capital gains tax on any increase in value since you bought the stock.
Since you save capital gains taxes, it actually costs you less out of pocket to make your charitable gift by using stock instead of cash. It truly makes sense to “buy low and give high.”
It’s a great way to support a charitable mission far into the future without affecting your cash flow today.
Donating stock is simple… just contact your broker or the nonprofit.
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Nonprofit sellssecuritiesNo capital gains tax
Tax deduction
Gift of securities
STOCKMARKET
NON-PROFIT
DONOR
Stock and Appreciated Securities
9Gifts “Anyone Can Make”
Life Insurance — Lifetime Gifts
Donate a policy, take a deduction for its cash value, deduct future premium payments, if any, and make an extraordinary gift. If you own the policy on your own life, you’ll also remove the value of the policy from your taxable estate.
Life insurance is a wonderful tool to protect family against risk. Typically, policies help care for loved ones, pay for college, or meet other needs should we die unexpectedly.
But if you’re carrying fully-paid life insurance that your family no longer needs or more insurance coverage than your family obligations now require, consider transferring ownership of the policy to a nonprofit organization whose mission you support.
In addition to making a significant gift, you’ll receive an immediate income tax deduction for approximately the cash surrender value of the policy. Any future premium payments are also deductible.
Making a gift of life insurance – even for younger donors – is a great way to support that charitable mission and secure the nonprofit’s future.
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NON-PROFIT
DONOR
Nonprofit cashes it in or holds it for later
Insurance Paid Up Policy
Gift of Insurance
Tax deduction
10 Gifts “Anyone Can Make”
Gifts of Personal Property
Give valuable assets that you no longer want to insure or maintain. You may get a deduction for your generosity.
Here’s a giving opportunity that may have never crossed your mind!
• Do you have artwork, antiques, or other collectibles that you no longer enjoy?
• How about equipment or other items that could be useful to a nonprofit’s mission but are no longer of any use to you or your family?
Taxes on the sale of personal property which has increased in value are even higher than the taxes on appreciated stock. When you donate the property to charity instead, you can avoid both the tax on the increase in value and benefit from an income tax charitable deduction. Two great tax savings by donating something you no longer want.
Now, there are some special rules about the taxes on these types of gifts that you will want to go over with your advisors and the nonprofit. But these gifts are a lot easier than they sound. A properly-executed gift of personal property will not only be well worth your while, but will represent a philanthropic gift that will make a real difference!
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Personal property
Nonprofit keepsthe property or sells it
Tax deduction
NON-PROFIT
Personal Property
11Gifts “Anyone Can Make”
Real Estate
Make an extraordinary gift, transfer the burden and expense of managing the property, and remove a large asset from your taxable estate at the same time.
Do you own property that is a burden to manage, such as rental real estate? Property that you don’t use anymore, maybe a vacation home? Property that if you sell, you will owe significant taxes? Or even a home you are currently living in that your children or heirs will not want when you are gone?
If the answer is “Yes” to any one or more of these questions, consider donating that property to charity.
You’ll avoid capital gains tax and even receive an income tax charitable deduction – a two-fold benefit.
There are several ways to donate real estate, each with different benefits to you. And they’re not complicated.
Just remember: a gift of real estate enables you to make a larger, more transformational difference in supporting the nonprofit’s mission and securing its future.
Contact your advisors or your preferred charity to review the options available to you when you make gifts of real estate.
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Real estate
Nonprofit sells property or uses it for charitable mission
Tax deduction
NON-PROFIT
Real Estate
12 Gifts “Anyone Can Make”
Retirement Plan
Retirement funds paid to your children at your passing can get hit with heavy income and estate taxes, but are tax-free to charity.
Did you know that your retirement plan is potentially subject to double taxation if passed on to your heirs – sometimes costing them 50% or more in taxes? Most people don’t, making it a very costly estate planning mistake.
Instead of naming your heirs as beneficiaries of your retirement plan, name your favorite charity. Because they’re a qualified nonprofit, there’s no income or estate tax due on your retirement plan assets passing to them. It’s as simple as that.
Then, use your will or living trust to pass other assets that are not as highly taxed – things like stocks, bonds and real estate – to your heirs.
The nonprofit gets the maximum amount. Your loved ones get the maximum amount. It’s a win-win.
Making a gift of your retirement plan is a great and easy way to ensure the most efficient distribution of the assets in your estate – and to help the charity of your choice do what they do today even better in the future.
About the IRA Charitable Rollover
If you’re 701/2 it is also possible to make current gifts totaling up to $100,000 per year from your IRA to a nonprofit using the IRA Charitable Rollover provision. While you do not receive an income tax charitable deduction, you also do not have to count these withdrawals as income on your tax return and they count towards your minimum required distribution for the year.
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Names nonprofitas beneficiary
Nonprofit receives balance of plan tax free
NON-PROFIT
RETIREMENTPLAN
DONOR
Retirement Plan
13Gifts That Pay Income
Gifts That Pay IncomeSometimes you would like to make a charitable gift, but you need the income being provided to you by the assets you want to donate.
Fortunately, there is a charitable solution.
Gifts That Pay Income enable you to make substantial gifts to a charity while increasing your income!
A Charitable Gift Annuity provides you with a fixed income for life. Many donors convert assets that produce very little income into gifts that pay them greater income for as long as the donor and/or a loved one lives.
Need more income for retirement? Younger donors can use a Deferred Gift Annuity to add to retirement savings, while a Flexible Gift Annuity provides an option for donors who aren’t certain about when they will retire.
Other Gifts That Pay Income include three types of Charitable Remainder Trusts that allow you to place resources into a tax-favored trust that pays income to living individuals and donates the remainder to charity.
While a Charitable Remainder Annuity Trust pays a fixed dollar amount each year for the trust’s term, a Charitable Remainder Unitrust pays a fixed percentage each year, so the amount paid to the lifetime beneficiaries goes up or down depending on the value of the trust’s assets. And a Flip Unitrust enables you to create income from illiquid assets while making a gift to the nonprofit organization of your choice.
Although fewer charities are promoting Pooled Income Funds than in the past, you should know that this gift also pays variable income each year to donors and passes the remainder to the nonprofit.
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14 Gifts That Pay Income
Charitable Gift Annuities / Immediate
You can make a gift and receive guaranteed fixed payments for life. Payments may be much higher than your return on low-earning securities or CDs.
How does it work? You give cash or securities. The nonprofit pays you, or you and your spouse, or any two beneficiaries you name, a regular fixed income for life.
That’s right, for life.
Later, when the annuity ends, the charity will apply the balance left over to support the area of its mission that you’ve designated as most important to you.
And guess what – the payout rate for Charitable Gift Annuities is much higher than the interest rate on commercial certificates of deposit, also known as CDs. So you can receive more income than you are getting now and support the mission!
What other benefits do you receive? First, an immediate income tax charitable deduction for a percentage of your gift amount, and second, a portion of your annuity payments will be tax-free.
Supplementing your retirement income doesn’t get any better than that!
A Charitable Gift Annuity is a great way to both give and receive – enabling you to fulfill your dream of supporting charitable work while providing for your own future.
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Assets
Remainder goesto nonprofit
Fixed income + deduction
NON-PROFIT
GIFTANNUITY
Charitable Gift Annuity
DONOR
15Gifts That Pay Income
Perhaps you need to save more for retirement. Or maybe you want the money to help pay for your grandchildren’s education.
If you are facing these challenges, or any other that could be solved by making a gift now and receiving in return a fixed income in the future, with a Deferred Gift Annuity you can.
And the best part, because you make the gift now and don’t start to receive payments until later, you enjoy a much higher payment rate than you might have thought possible!
How does it work? You give cash or securities. The charity pays you, or you and your spouse, or any two beneficiaries you name, a regular fixed income for life beginning at a set time in the future.
Later, when the annuity ends, the nonprofit applies the balance left over to support the area of its mission that you’ve designated as most important to you. It’s easy as can be.
What other benefits do you receive? First, an immediate income tax charitable deduction for a percentage of your gift amount, and second, a portion of your annuity payments will be tax-free.
You can make a gift and receive guaranteed fixed payments for life. Deferred payments are higher than an immediate payment annuity and many securities and CDs. It’s ideal to supplement future retirement income.
Charitable Gift Annuities / Deferred
19Deferred Gift Annuity
Assets
Remainder goesto nonprofit
Deduction now+ fixed income later
NON-PROFIT
DEFERREDGIFT ANNUITY
DONOR
16 Gifts That Pay Income
Charitable Gift Annuities — Flexible
Not sure when you’re going to retire? You can still make a gift and receive guaranteed fixed payments for life. Flexible deferred payments may be much higher than your return on low-earning securities or CDs.
The Flexible Gift Annuity provides you with the best of all worlds – a Deferred Gift Annuity which helps you make a gift now and receive payments in the future plus the advantage of flexibility – because you don’t have to decide when those payments start until you are ready.
Let’s face it – it is an uncertain world. You want to make a gift to support the charitable mission of your choice, but you’re worried that you might not have enough income in retirement, or you need to pay for your grandchildren’s education. If you make that charitable gift now, and those needs arise later, you’re concerned that you’ll be in trouble.
But it doesn’t have to be that way. You can set up a Flexible Gift Annuity instead. You make a charitable gift now and reserve the right to start payments during a fixed window of time in the future. Once the payments start, they continue for life. You simply inform the charity and they start the fixed payments directly into your account. The longer you wait to start the payments, the higher the payment amount to you will be.
But there’s more: With a Flexible Gift Annuity,
• You can receive an immediate tax deduction for a percentage of the gift amount
• And you can also set up a Flexible Gift Annuity for loved ones.
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Gift of property
Remainder goesto nonprofit
NON-PROFIT
FLEXIBLEGIFT ANNUITYDeduction now
+ fixed income later
Flexible Gift Annuity
DONOR
17Gifts That Pay Income
Charitable Remainder Trusts
A great way to make a gift, receive fixed payments, and defer or eliminate gains tax. It provides a steady cash flow and can be more beneficial than keeping an asset or selling it outright.
A Charitable Remainder Trust allows you to make a charitable gift now while providing payments to one or more people, including yourself, for life or a term of years. It can be funded with any asset – cash, stock, real estate, collectibles, or even an interest in your closely-held business.
Not only is the Charitable Remainder Trust flexible in how it is funded, it also is flexible in how payments are made. Your advisors and the nonprofit can help you decide which options are best for you.
Whether you’re looking to pass a family business to your children, get out from under the management of commercial real estate, or simply make a gift now and provide yourself with a stream of payments in retirement that have the potential to grow over time, there’s a specific Charitable Remainder Trust for you.
When you set up a Charitable Remainder Trust, you benefit from an income tax charitable deduction for a portion of the gift amount. Any capital gain associated with assets going into the trust is deferred or forgiven. Two great tax benefits with one Charitable Remainder Trust! When the trust ends, the balance remaining goes to the area of your preferred nonprofit’s mission that is most important to you.
Charitable Remainder Trusts are simple to set up, flexible and ideally suited to help meet your needs while making a significant donation to charity.
23Remainder Trusts - General
Gift of property
Remainder goesto nonprofit
NON-PROFIT
TRUSTTax deduction + fixed income
DONOR
18 Gifts That Pay Income
Pooled Income Funds
A Pooled Income Fund works like a mutual fund by pooling and investing donations and paying the beneficiary an income for life. And if you donate appreciated assets, you pay no capital gains tax.
A Pooled Income Fund allows you to make a gift now while you or others you name receive income back for life. It is similar to investing in a principal and income charitable mutual fund.
How does it work? A nonprofit accepts contributions from multiple donors like you and invests the gifts jointly, in a mix of stocks and bonds. Just like a mutual fund, it is managed by experienced investment management firms.
For the rest of your life, you receive your share of the fund’s dividends and interest, depending upon the fund’s performance. When your interest ends, your share of the fund is transferred to the charity to be put to work in the area you designate.
You can contribute appreciated stock to a Pooled Income Fund without having to pay capital gains tax, allowing you to put the entire amount of your gift to work earning income for you. Plus, you also receive an income tax charitable deduction for a portion of your gift.
And by the way, sometimes your income can exceed dividends you were receiving on the securities you donated. Over time, if the principal of the pooled income fund grows, your income may grow with it.
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Gift of property
Remainder goesto nonprofit
NON-PROFIT
POOLEDINCOME FUNDTax deduction +
variable income
Pooled Income Fund
DONOR
19Gifts That Protect Assets
Gifts That Protect AssetsYou may be concerned about how to deal with highly appreciated property or a growing family business — looking for ways to shield the results of a lifetime of hard work or the inheritance you received from your parents, from estate, inheritance, and gift taxes.
Gifts That Protect Assets help you maintain the benefits of an asset, or transfer assets to heirs at a reduced cost, while making a gift to your preferred charity at the same time.
Through a Charitable Bargain Sale, you can sell property to a nonprofit organization for less than market value, count the difference as a charitable gift, and use the cash for any financial need.
You can also fund a Charitable Lead Trust that will make regular contributions to a charity and pass the remainder to heirs at greatly reduced estate and gift tax costs.
Through the use of a Retained Life Estate, you may donate a piece of real estate to a nonprofit organization and continue to use it as a primary residence, farm, or vacation home for as long as you live.
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20 Gifts That Protect Assets
Charitable Bargain Sales
You can sell your property at a discount, deduct the difference, and receive a lump sum or installment payments.
Do you have marketable property or a collection you no longer want? Are you concerned about donating it because you won’t have proceeds to buy something else?
What if instead of giving it to a nonprofit outright, the charity paid you a percentage of what it was worth?
Then you could go and buy something else with the cash, invest it, pay for college, whatever your need might be – and take an income tax charitable deduction for the difference between what the nonprofit paid you and the fair market value of the item.
And, by the way, you would also avoid a portion of the capital gains tax on the asset!
The Charitable Bargain Sale is the only gift plan that will give you a lump sum of cash and a charitable deduction.
(Almost sounds too good to be true.)
Contact your advisors or favorite nonprofit to find out more about the Charitable Bargain Sale and the modest requirements it entails.
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Sell property to nonprofitbelow market value
Deductionplus cash
Nonprofituses or sellsproperty
THIRDPARTY
NON-PROFIT
DONOR
Bargain Sale
21Gifts That Protect Assets
Charitable Lead Trusts
You greatly reduce or avoid possible gift and estate tax on assets passing to family... if some trust income goes to charity for a few years.
Do you expect to be subject to gift and estate tax? Has your estate-planning attorney recommended that you fund a Grantor Retained Annuity Trust? Do you believe in a nonprofit’s cause but don’t want to make a gift that disinherits your children or grandchildren?
If so, then the Charitable Lead Trust might be just the gift for you.
Imagine: You can greatly reduce or completely avoid gift and estate tax on assets that you pass on to your family, simply by placing them in a trust and directing enough of the trust income to go to a charitable organization over a period of years!
The trust makes payments to the nonprofit first, and then returns the remaining assets to you, your family, or others you designate at the end of the trust term.
It could be right for you if:
• You hold appreciating assets that you want to pass on to the next generation.
• You want to reduce your gift and estate taxes.
• Your primary planning objective is to maximize the inheritance you pass to your heirs.
There are several types of lead trusts. Contact your advisors or favorite nonprofit to learn more.
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Transferproperty
Fixed yearlypayments
Remainder toyou or family
NON-PROFIT
LEADTRUST
Charitable Lead Trust
DONOR
22 Gifts That Protect Assets
Retained Life Estates
You can deed your home, farm or vacation house, save taxes with a current deduction, and still use the property for the rest of your life.
Have a home or vacation property your family has told you they don’t want when you’re gone? Want to avoid burdening heirs with cleaning out and selling your second home as part of your estate? If so, the Retained Life Estate may be the ideal way to support a charitable mission and meet your needs.
You can donate your home, save taxes with an immediate income tax charitable deduction for a significant portion of its value, and continue to live in the house, rent-free, for life.
Yes, for life.
As a matter of fact, you can donate anything qualifying as a personal residence or farm, including vacation homes – and continue using them. Again, for life.
It is one of the most popular charitable gifts that you never hear about.
You may be wondering, “What happens if I don’t want to use the property any more, then what?” In that case, the nonprofit would work with you to rent it, sell it, or terminate your interest. In fact, depending on how you conclude the arrangement, you may receive an additional income tax charitable deduction, rental income or a portion of the sale proceeds.
All this with the pride and satisfaction of knowing that you’re helping that nonprofit to do what it does today even better tomorrow.
Transfer futureinterest in property
Nonprofit owns the property in the futureContinue using property
and get a deduction
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NON-PROFIT
Retained Life Estate
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Notes
The UltimateQuick ReferencePlanned GivingPocket GuideFor Board Members, Volunteers & Philanthropists
[email protected] in Valley Forge, PA
1288 Valley Forge RoadSuite 82Valley Forge, PA 19460
2019 EDITION
Three versions available at PlannedGiving.com.
Videos of these gift plans available at:PlannedGiving.Com/video