Outright Gifts

Cash – Cash is the simplest, most direct, and most popular type of charitable gift. A gift of cash is considered made on the date it is hand-delivered or mailed, and because of the charitable deduction, the net cost to a donor can be much less than the actual amount of the gift.

A cash gift is deductible up to 50% of a donor’s adjusted gross income (AGI). Any amount in excess of the 50% ceiling can be carried over for five years.

Security and Real Estate – Popular alternatives to csh are gifts of appreciated property, such as securities and real estate. Such gifts generate a double tx benefit. In addition to receiving a charitable icome-tax deducation for the full fair-market value of the property, the donor escapes any potntial tax on the caital-gain element in the property. Note: To qualify for this double tax benefit, the property must have been held for more than one year.

The full fair-market value of gifts of long-term appreciated property is deductible up to 30% of a donor’s AGI. Any amount over the 30% ceiling can be carried forward up to five years.

Note: A donor considering a gift of property that has declined in value would be better off selling the property to realize a deductible loss and then contributing the proceeds to us. This ensures recognition and deductibility of the loss.

Tangible Personal Property – As with gifts of securities or real estate, a donor is entitled to a charitable deduction for gifts of tangible personal property such as works of art, rare books or stamp or coin collections. The allowable deduction for such a gift held long-term depends on the standard of “related use.”

If the use of the contributed property is related to the exempt purposes of the charitable organization (e.g., a painting to a museum, the donor is entitled to a charitable deduction for the full fair-market value of the property – subject to the 30% ceiling and carryover.

If the use of the contributed property is unrelated to the exempt purposes of the charity (e.g., a stamp collection to a hospital to sell and use the proceeds), the donor is entitled to a deduction only for his or her basis in the property.

As with gifts of securities and real estate, long-term tangible property is property held for more than 12 months. However, unlike securities and real estate, the maximum capital-gain tax rate for tangible personal property is 28%

Note: If the donor created the contributed asset (e.g., a painter who gives his or her own art work), the deduction is limited to the actual cost in producing the asset.

Deferred Gifts

Life-Income Plans
A life-income plan can allow you to make a substantial gift to charity while still providing for your personal financial needs. There are several types of such plans, all of which combine payments for life for one or more beneficiaries designated b the donor with a gift to charity. These plans are attractive to many donors because they offer substantial tax benefits and may increase cash flow to the donor or other beneficiary, depending on the asset contributed.

Charitable Remainder Trusts – Introduced by the Tax Reform Act of 1969, the charitable remainder trust is a popular plan because of the financial- and estate-planning flexibility it offers. This trust is similar to other types of trusts, except that a charitable beneficiary receives the remainder interest. A donor transfers property under a trust agreement that specifies how trust income and principal are to be distributed, and the trust may be created to become effective during life or at death.

An irrevocable trust qualifies for special tax consideration if it is in one of the following forms:

Charitable Remainder Unitrust – The primary feature of a unitrust is that it provides income to the beneficiary(ies) of an amount that may vary. The payment must equal a fixed percentage of the net fair-market value of the trust assets as valued annually. The donor determines the fixed percentage when creating the unitrust in consultation with financial or legal advisors and the trustee. Payment must be at least 5% of the value of the trust assets. Depending on the donor’s estate-planning objectives, he or she may emphasize the charitable deduction (by choosing a lower rate ) or the annual return (by selecting a higher rate).

The unitrust payment must be made at least annually (may be more frequently) to the beneficiary(ies). The unitrust may be set up for life or a term of years not exceeding 20.

The donor is allowed a charitable deduction equal to the present value of the charitable organization’s remainder interest in the unitrust based on the fair-market value of the asset transferred, the payout rate chosen, and the age and number of beneficiaries (or the term of years). Funding the unitrust with appreciated, long-term, capital-gain securities or real estate can increase the tax benefits.

These trusts have enabled many donors to support our work while augmenting current income.

Net-Income Unitrust – This variation of the straight unitrust facilitates the acceptance of illiquid assets (real estate, closely held stock) by permitting the trustee to distribute the lesser of the stated percentage or the net income of the trust. In the absence of income, the trust makes no distribution for that year. This enables the trustee to dispose of the illiquid asset in an orderly fashion to realize its full fair-market value.

The addition of a make-up provision can provide for the make-up of any prior years’ deficiencies (the difference between the stated percentage rate and the net income of the trust) to the extent the trust income exceeds the stated rate.

Flip Unitrust – This version is tailor-made for the donor who either does not need current income or wants to transfer illiquid assets to the unitrust but nevertheless desires to receive stated percentage of payout from the unitrust at some time in the future.

The flip unitrust starts as a net-income unitrust but switches to a straight unitrust with payouts based on the then-value of the trust upon the occurrence of a “triggering event.” The three permissible triggering events are a specific date, a specific event (marriage, divorce, birth, or death), and the sale of illiquid assets (e.g., real estate or closely held stock).

Charitable Remainder Annuity Trust – The annuity trust shares may common featirues with a unitrust, the principal difference being the manner of calculating the payment to the beneficiary. Instead of a payout that may vary, the annuity trust provides a fixed payout of not less than 5% of the initial fair-market value of the gift in trust.

Among the benefits to the donor contributing to an annuity trust are a deduction for the present value of the charitable remainder interest and avoidance of capital-gain tax on the transfer of appreciated, long-term, capital-gain property. The fixed payout feature of the annuity trust makes it particularly suitable for a beneficiary who needs the security of a specified payment.

The Charitable Lead Trust

While annuity trusts and unitrusts are often used by donors when planning deferred gifts to charitable organizations, the charitable lead trust may appeal to individuals who wish to make a gift but retain the property in their family.

There are two types of charitable lead trusts: the grantor lead trust and the more poular nongrantor lead trust, which was made famous by Mrs. Jackie Kennedy Onassis.

A grantor lead trust provides a donor with a charitable income-tax deduction for the present value of the payments the charity is to receive from the trust for a specified period of time. The donor, however, continues to be taxed on the income earned b the trust each year—including the amount distributed to charity. (To avoid this negative tax result, donors often fund grantor lead trusts with tax-exempt securities.) At the end of the trust term, the assets are returned to the donor.

A nongrantor lead trust created during life does not provide the donor with a charitable income-tax deduction, but neither is he or she taxed on any of the income earned by the trust. At the end of the specified trust term, the assets remaining in the trust are distributed, usually to children or grandchildren.

The principal advantage of the nongrantor lead trust is that—because of the charitable gift- and estate-tax deduction attributable to the value of the payments the charity is to receive from the trust-it can significantly reduce or even eliminate (depending on when it is set up) the gift and estate taxes on the value of the assets used to fund the trust. (The longer the term of the trust and the greater the amount of the payments to charity, the larger the charitable deduction.) In addition, any appreciation in the trust’s value will avoid transfer (gift and estate) taxes when the assets are received eventually by the beneficiary(ies).

Gift Annuities

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, the charity contractually guarantees to make specified annuity payments to the donor and/or another beneficiary.

The payout rate depends on the age and number of beneficiaries. Information about sample rates of return for both men and women can be found on the website of the American Council on Gift annuities (http://www.acga-web.org/giftrates.html) or you could contact Patricia Shapella for additional information.

The donor can claim a current charitable deduction for the portion of the transfer that represents the charitable gift element – the amount by which the value of the property transferred to the charity exceeds the value of the annuity received. Another important tax benefit is that, as with other types of annuities, a portion of each annuity payment is income-tax-free over the life expectancy of the annuitant. (This portion is treated as a return of the original investment for tax purposes.)

Annual payments may begin immediately or, with a deferred-payment gift annuity at a set time in the future—at retirement, for example. This type of annuity is particularly attractive to donors in the 40- to 60-year age bracket who have a high current income, who can benefit from a current tax deduction, and who are interested in augmenting potential retirement income on a tax-favored basis.

Gifts Under Your Will

Each year, thousands of individuals designate a portion of their assets by bequest to benefit charities

Gift under wills have become an important part of the American philanthropic tradition because they enable individuals to make significant gifts that they may not have been able to make during life. Charitable bequests can take various forms:

A specific bequest directs that a charitable organization is to receive a specific piece of property.

A general bequest directs that the charity receive a specified dollar amount.

A residual bequest designates all or a portion of whatever remains after all debts taxes, expenses, and all other bequests have been paid.

A contingent bequest takes effect only if the primary intention cannot be met.

While all of the above bequests provide for unrestricted support of the charity any of them may be designated as a restricted bequest for a specific purpose. For example, if you wish to memorialize a family member or an honored colleague, you can establish a named fund that will provide support for a program of special interest to you or the honored person.

A charitable bequest can also provide payments for life for a selected beneficiary by establishing a testamentary charitable trust (established under the donor’s will) that provides payments to the beneficiary for life with the principal then being paid to the charity. If at is an annuity trust or a unitrust, the estate will be allowed a charitable estate-tax deduction for a portion of the initial value of the trust. The deduction will be calculated in a manner similar to that for a living trust.

Gifts of Real Estate with Retained Life Interest

A gift of a remainder interest in a personal residence or farm provides the donor with a charitable deduction for the present value of the remainder interest and permits the donor to escape the potential capital-gain tax on the built-in appreciation. What may be more important from the donor’s point of view is that he or she can continue to occupy the residence or operate the farm without disruption.

Making such a gift does not require that the donor remain in the residence. A donor who moves has several options: renting out the property and retaining the rent; converting the retained life interest to a stream of income for life; selling and dividing the proceeds with the charity in proportion to the respective interests in the property; or making an additional gift of the retained interest.

Life Insurance

While most people own some form of life insurance because of is unique ability to meet a variety of needs for financial protection, its role in planned charitable giving is frequently overlooked. Life insurance itself can be the direct funding medium of a gift, permitting the donor to make a substantial gift for a relatively modest annual outlay.

Gifts to Fund the Future

Through the years many individuals have found planned gifts to be excellent vehicles for benefiting their favorite charitable organizations. In addition to personal satisfaction, such 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.

While this information highlights a variety of planned-gift options, there are alternatives plans available to realize the greatest personal and financial satisfaction from making your charitable gift. We will be delighted to work with you and your advisors in arranging the planned gift that best suits your objectives.

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