Ways to make a legacy gift
Goal: Defer a gift until after your
Benefit: Your donations are fully exempt from federal estate tax and you retain control of your assets
A bequest is a gift of property or assets to a beneficiary as defined in a will. There can be long-term tax benefits because charitable bequests can reduce estate taxes. In addition, there are the emotional rewards of knowing what a charitable gift means to the charity and how it can benefit society. There can be other tax benefits as well if the bequest involves appreciated assets.
Specific language (see bequest information) is used to effect a bequest. The examples provided here are for general information - please consult your attorney to make sure your wishes are properly carried out. There is some additional information available about the benefits of utilizing a charitable bequest and how bequests enable you to keep control of your assets.
A Living Trust is a trust set up to operate during the life (and can operate after the death) of the one setting up the trust. It can be revocable, or, in other words, you can change your mind and have some or all of the trust property returned to you during your life. An irrevocable trust cannot be changed except in certain legal circumstances (fraud, unlawful agreements, merger of interests, decision of the Court). Gifts may be made through a Living Trust upon the death of the trustor. See Living Trust for more information.
Goal: Avoid capital gains tax on securities sale
Benefit: No capital gains tax and charitable deduction based on fair market value
The gift of an appreciated asset, often common stock or mutual fund shares, is a valuable way to make a contribution to a charitable organization and receive tax benefits based on the value of the asset(s). Appreciated assets have a higher market value than their basis or tax purpose value (in most cases, their cost). Such assets would, if sold by an individual or non-charitable organization at a price higher than their basis, potentially generate taxable capital gains (either long-term or short-term depending on the holding period).
The donor receives a charitable tax deduction based on the current market value of the gift and avoids tax on any capital gains. The charitable recipient sells the asset, realizes the full market value, and as a nonprofit does not have to pay tax on any capital gains.
Another value to using appreciated securities instead of an anticipated gift of cash is to increase the cost or basis value of securities you want to hold for further appreciation. Suppose you hold a number of shares of a startup company and have a cost basis greatly below the current market value. Anything you sold would be subject to capital gains. But, suppose you gave some or all of the stock to charity and then purchased the same number of shares at the current value in the marketplace. It would be similar to giving that amount of money to charity. But instead, you now have shares of stock with a current basis and you have significantly reduced your future capital gains liability on those shares. And, you have a charitable gift deduction equal to the current value of the stock you gave.
While the gift of appreciated assets often is stock, other marketable assets (called tangible personal property) can be utilized as gifts with the possibility of tax benefits. These are assets such as real estate, antiques, coin or stamp collections, and art. However, these other assets are reviewed on a case-by-case basis. For more information about gifts of appreciated assets, please contact us so we can respond to your specific needs.
Goal: Reduce capital gains on appreciated property
Benefit: Cash to pay off mortgage or other loans and charitable tax deduction for the gift portion
A bargain sale occurs when a donor sells property to CHRISTUS Spohn for less than the property’s fair market value. The amount of fair market value over the sales price is the donor’s charitable contribution, which may be reduced by allocation of tax basis and reduction rules relating to unrealized gain. Almost any type of asset may be sold in a bargain sale, depending on the cash available for purchase and the suitability of the asset.
|Aneda Zablocki (right) with her friend
Sister Marjorie Muldowney (left).
Aneda Zablocki -
An Angel Among Us
What are the advantages? The charitable contribution portion qualifies for income tax deduction. It may be carried forward for five years if not fully usable in year of gift and it allows the donor to receive some cash sales proceeds while making a charitable gift. A bargain sale may avoid capital gain tax liability on highly appreciated property.
Goal: Receive guaranteed fixed income that is partially tax-free
Benefit: Current and future savings on income taxes, plus fixed, stable payments
A Charitable Gift Annuity is offered through a charity and used by many to provide income for the annuitant and a second beneficiary, if any. The annuitant (the person providing funds to the charity) receives a contract or agreement from the charity which states that the charity will pay the annuitant a fixed income for life (lives) with payments to start immediately or at some set future time. Probate or court involvement is avoided on these funds. The income paid under the annuity is secured by the assets of the charity. See Gift Annuity Benefits for more details. Please contact us for an illustration of how your gift can produce income for life.
A charitable gift annuity can provide tax benefits now and a lifetime income for the donor and a beneficiary if desired. A deferred gift annuity is a variation on a gift annuity. A gift is made and the charitable organization promises in return to pay you an income stream that begins on a future date you specify. Since the payments do not begin for a period of time, the fund will grow without withdrawals until the payments begin. With more money in the fund once payments begin, the payments will be larger than with an immediate annuity.
Rates on charitable gift annuities are based on age and whether the contract is immediate or deferred. If you would like an illustration of this life income to address your particular situation, please click here and fill out the response form and send us the appropriate information. To look at some specific rates on current gift annuities, click here. A generic example of a charitable gift annuity is available as well as a graphic example.
Deferred Charitable Gift Annuities
An attractive benefit of this arrangement is that it enables a donor to make a gift now and take a charitable income tax deduction now while in a high tax bracket. Income may be deferred, for instance, until after retirement, when the rate of tax will presumably be lower. Deferred gift annuities are creative ways to delay income to pay for children's or grandchildren's college expenses, supplement your retirement income, or assist with assisted-care living arrangements that may be inevitable.
A part of each payment, as in any gift annuity, may be tax-free for a period of years. However, the precise amount of each payment will depend on the tax rules in effect when the payments start.
Goal: Secure payments for life while reducing market risks
Benefit: Potential increased income and tax benefits
A Charitable Remainder Trust is established for the life of the donor (also trustor or grantor) and/or for the life of any beneficiary(-ies) and is irrevocable. While there are certain changes that may be made, once the trust is established, it cannot be revoked. If it is desired, the income period of the trust can be established for a specified period of time not to exceed twenty years. The twenty-year maximum does not apply if the trust life is based on the life expectancy of the income beneficiary(-ies).
A charitable remainder trust is an attractive planning tool for the disposal of highly appreciated assets. While the assets revert to the charity rather than the heirs of the estate, the use of an irrevocable life insurance trust in conjunction with a charitable remainder trust could replace the asset's value for the heirs.
There are two different types of charitable remainder trusts.
A charitable remainder unitrust (see example) is a popular way to achieve tax benefits as well as a fixed annual percentage on the value of the assets in the trust. The assets are revalued annually and, if the trust value changes, the payment to the beneficiary(ies) changes.
A charitable remainder annuity trust is set up to pay a fixed rate of return based on the initial valuation at the time the property is placed in the trust. The trust assets are never revalued.
Charitable Remainder Trusts provide a good degree of flexibility that is valuable in charitable gift planning. For example, a variation on remainder trusts can be an effective way to make gifts of real estate. A graphic example of a charitable remainder trust is available.
Goal: Pass assets to heirs at potential tax savings
Benefit: Charitable tax deduction, favorable estate tax circumstances
A charitable lead trust is often called the reverse of a charitable remainder trust. During the term or life of the charitable lead trust, an annuity or unitrust income interest is distributed each year to the designated charitable beneficiary and the assets are eventually transferred to the trustor's or grantor's designated non-charitable beneficiary(ies).
The Charitable Lead Trust (CLT) is a powerful way to make a future transfer of assets to your heirs at a significantly reduced gift and estate tax cost, while also providing CHRISTUS Spohn with income. During a specified number of years, the lives of one or more individuals, or a combination of the two, a contribution is paid to CHRISTUS Spohn. A lead trust may be structured to provide a fixed dollar contribution annually (CLAT) or a fixed percentage contribution (CLUT). At the end of the trust term, the assets pass to the beneficiaries the donor's name. The donors choose the trustee.
You can fund a charitable lead trust with cash, publicly traded securities, closely-held stock, income-producing real estate, partnership interests, or a combination of the above. You can establish a CLT during your lifetime, or as a testamentary trust through your will.
There are two basic types of Lead Trusts: Non-Grantor and Grantor.
In a non-grantor CLT, the most common type, the trust assets revert to your children, grandchildren, or other heirs at the end of the trust term. A non-grantor CLT provides a gift tax charitable deduction and is useful in reducing the cost of intergenerational wealth transfers.
In a grantor CLT, the trust assets revert to you, rather than to your heirs, at the end of the trust term. Donors creating grantor CLTs receive a large charitable contribution income tax deduction. Such a gift structure may be particularly useful if you wish to make a multi-year pledge and accelerate future deductions into the current year.
Donors establishing a CLT should be advised by an attorney who is experienced in the area of charitable trusts and estate planning. Please contact us by phone or e-mail so that we can assist you or use our response/request form.
Goal: Avoid capital gains tax on the
sale of a home or other real estate
Benefit: A charitable tax deduction and potential diversification with the possibility of reducing or eliminating capital gains tax
“It’s a win-win-win for everyone involved.”
Depending on the circumstances that are involved, gifts of real estate can be an effective means of planning a gift. Much of the individual wealth in America is invested in real estate. While the first thought often is a home or farm, real estate also can involve a vacation or second home, an apartment or commercial building, a shopping center, or undeveloped land.
Often our real estate holdings, be it our house, a second home or investment property, are a significant part of our net worth. Gifts of real estate, therefore, can enable us to make significant contributions. Each piece of property and its unique circumstances need to be reviewed to determine the suitability of the property as a gift. Generally speaking, a rule of thumb is that an acceptable piece of property is one that can be readily sold.
There are many ways to donate property. It can be an outright gift, a retained life estate, or placed in a trust . It may also be a 'bargain sale,' which is a part sale and part donation arranged between the donor and CHRISTUS Spohn. A person holding property that is not perceived as readily marketable and who wants an immediate cash return may use a bargain sale. Or the property may be mortgaged and the arranged sale/gift allows the donor to pay off the mortgage with the proceeds from the sale.
In any case, while we discuss some generalities here about donating real estate, if you are considering such a gift to CHRISTUS Spohn, please contact us. There can be significant benefits for you and CHRISTUS Spohn.
Goal: Make a large gift with little
cost to you
Benefit: Current and possibly future income tax deductions
There are several ways you can use life insurance as the basis for a charitable gift.
Making CHRISTUS Spohn a Beneficiary of Your Life Insurance Policy
You may wish to make CHRISTUS Spohn Health System Development Foundation the beneficiary (or a contingent beneficiary) of a life insurance policy as a way to make a sizeable future gift. You retain lifetime ownership of the policy, keeping the right to cash it in, borrow against it, and change the beneficiary. A gift of this nature is treated much like a bequest made through your will. Because you retain the ownership of your asset (the policy), you will not receive an income tax charitable deduction for this future gift or for your premium payments during your lifetime. The policy's proceeds will be included in your gross estate, and your estate can take an estate tax charitable deduction.
Making a Gift of Your Policy
You may wish to transfer ownership of a policy to the charity, or purchase a new policy with the charity as owner and beneficiary. If you make a charity the owner and beneficiary of a policy, you are entitled to certain tax advantages.
Wealth Replacement Using Life Insurance
A donor may make a current gift to charity and receive a charitable tax deduction. At the same time, the donor may purchase life insurance to replace the donated amount or perhaps, the amount after estate tax that the beneficiaries would have received. Depending on the circumstances, the charitable tax savings and any life income resulting from the gift may defray the cost of the wealth replacement insurance premiums.
Creating a Life Insurance Trust
You may want to set up an Irrevocable Life Insurance Trust (ILIT). An ILIT removes the life insurance from your estate to help reduce estate tax while providing other benefits. For example, upon one's death, the proceeds of the life insurance policy may remain in the trust to provide income for the surviving spouse, but stay outside of the spouse's estate for estate tax purposes. Or, the trust could be used to distribute proceeds to children of a previous marriage. Although ILITs can be expensive and more complicated than owning life insurance directly, they may be an attractive option in certain situations.
As with all matters concerning estate planning, please consult your estate and tax specialists.
Goal: Avoid the twofold taxation on
IRA or other employee benefit plans
Benefit: Lets you leave your family other assets that carry less tax liability
Contributions to retirement plans can provide an excellent opportunity for growth, as they grow tax-free, meaning that the growth or earnings are not taxed annually but can continue to grow pre-tax. The earnings are taxed when they are withdrawn, but this has allowed more dollars to be invested for more growth. Additional savings can occur if the recipient is in a lower tax bracket when the funds are withdrawn (for example, during retirement) than when the investments were growing.
However, careful planning concerning the withdrawals from retirement funds needs to be done. Not only is there a potential income tax burden, but if there is a balance in your retirement account at your death, there may be estate taxes as well. Estimates are that taxes could eat up as much as 75-80% of retirement assets under certain circumstances.
Using qualified retirement plan funds is an excellent source of assets to fund bequests. By designating CHRISTUS Spohn Health System Development Foundation as a beneficiary (it can be a contingent beneficiary after the death of a spouse - see sample bequest language), funds pass to CHRISTUS Spohn free of taxes. It is possible to set up the charitable beneficiary as the recipient of the entire remaining funds in the account or establish a percentage to fund the bequest.
Please note - the designation of CHRISTUS Spohn as a beneficiary of retirement fund assets cannot be simply written in your will or trust. CHRISTUS Spohn Health System Development Foundation must be designated as a beneficiary of the retirement plan.
The Foundation is devoted to helping you decide how to best leave a lasting legacy of support and can provide the proper documentation and language for your estate plans. Click here for more information or contact Linda Arnold, Director of Development, by phone at 361-881-3940 or by email at email@example.com.