A for annuity b for bequest c for charitable remainder trust
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A for Annuity, B for Bequest, C for Charitable Remainder Trust …. The ABCs of planned giving – the most commonly used vehicles, their benefits to the donor and to your charity, the assets with which they can be funded and other practical considerations. We’ll Cover. Definition of Common Types

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A for annuity b for bequest c for charitable remainder trust

A for Annuity, B for Bequest, C for Charitable Remainder Trust…

The ABCs of planned giving – the most commonly used vehicles, their benefits to the donor and to your charity, the assets with which they can be funded and other practical considerations.


We ll cover

We’ll Cover

  • Definition of Common Types

  • How They Work

  • Assets/minimums to Fund

  • Benefits

  • Practical Considerations

  • Relevance/Importance

  • Q & A


B as in bequest

B as in Bequest

  • a legal provision in one’s will (or living trust) that names charity as the recipient of a portion or all of a donor’s estate


Common types

CommonTypes

  • Specific: charity is beneficiary of a particular asset or dollar amount

  • Residuary: charity is beneficiary of the remainder of the estate once expenses & specific bequest obligations met

  • Contingent: charity is beneficiary if all of the beneficiaries pre-decease the donor


Assets to fund

Assets to Fund

  • Cash

  • Real estate

  • Securities

  • Personal property


Benefits for the donor

Benefits For the Donor

  • Easy to understand

  • Control of asset distribution

  • Revocable

  • Possible estate tax deduction; no current charitable income tax deduction

  • No minimum to fund

  • Costs nothing during lifetime


Benefits for the charity

Benefits For the Charity

  • Market to everyone – no age/wealth limitations

  • Often, a donor’s largest gift

  • Can be used to ‘endow’ annual gift

  • Steady, future stream of income


Practical considerations

Practical Considerations

  • After donor dies, distribution won’t be immediate

  • Disgruntled relatives, children, etc. may contest

  • Bequest administration

  • Be prepared to respond to donors’ requests for information


Relevance

Relevance

  • 8% have included a charity in will

  • 42% die without a will

  • 21% had no prior affiliation with charity

  • Most popular -- 80% of all mature planned gifts

  • Only 1 in 3 told charity about bequest in advance


B as in beneficiary designation

B as in Beneficiary Designation

  • a provision outside the will naming charitable organization as beneficiary of a portion or all of a particular asset


Assets to fund1

Assets to Fund

  • Insurance policy

  • Retirement plan and IRA

  • Brokerage or bank account


Benefits for the donor1

Benefits For the Donor

  • No age minimum

  • Easy to do -- beneficiary designation form

    • Control of asset distribution

    • Revocable

    • No dollar minimum

    • Doesn’t require an attorney

    • Costs nothing during lifetime


Benefits for the charity1

Benefits For the Charity

  • Relatively easy to administer

  • Market to everyone – no age/wealth limitations

  • Distribution may be faster because asset not going through probate


Insurance policy

Insurance Policy

  • Policy that is no longer needed

  • Make charity owner and beneficiary of paid-up policy

    • Donor gets charitable income tax deduction

    • Removes asset from gross taxable estate

    • Charity receives policy benefits upon death of donor


Retirement plan assets

Retirement Plan Assets

  • Most retirement plans income-tax deferred

  • Donor avoids income and estate tax

  • Even if estate not subject to estate tax, income from IRA is taxable upon transfer to heirs [income in respect of decedent (IRD)]

  • Gift IRA assets to charity; leave non-taxable assets to heirs

  • Donor still makes withdrawals during lifetime


Financial accounts

FinancialAccounts

  • Transfer on Death Investment Account (TOD)

  • Assets remaining in account pass directly to named beneficiaries

  • Beneficiaries must provide original death certificate (usually, to a brokerage firm)

  • If beneficiaries predecease owner, remaining funds become part of owner’s probate estate


Financial accounts1

FinancialAccounts

  • Payable on Death Bank Account (POD)

  • Money left in account will be paid to named beneficiaries

  • Beneficiaries must provide original death certificate to bank

  • If beneficiaries predecease owner, remaining funds become part of owner’s probate estate


  • C as in charitable gift annuity cga

    C as in Charitable Gift Annuity (CGA)

    • Contractual arrangement

    • Individual transfers cash or marketable securities to charity in exchange for fixed, annual payments for up to 2 annuitants for life

    • Charitable income tax deduction for portion of gift in year gift was made

    • Remaining balance passes to charity when contract terminates


    Cga cont d

    CGA, cont’d.

    • Annuity payments are part taxable and part tax free; possible capital gains tax portion

    • Payout rates recommended by American Council on Gift Annuities (ACGA)

    • Charity sets funding minimums


    Types of cgas

    Types of CGAs

    • Immediate: payout to annuitant/s begin immediately

    • Deferred: payout to annuitant/s begin on a pre-determined future date

    • Flexible: payout to annuitant/s begin in a future date range, but not for at least one year after the gift has been made


    Assets to fund a cga

    Assets to Fund a CGA

    • Cash

    • Appreciated securities - a portion of capital gains tax is avoided

    • Real estate [unencumbered]

      • The capital gains is allocated between what the charity receives at donor’s death (the gift portion); and what donor receives in payments (the annuity portion) and taxed over the lifetime (s) of the annuitant (s)


    Cga benefits for the donor

    CGA Benefits for the Donor

    • Annual fixed payments for life; amount doesn’t fluctuate with the market

    • Professional asset management

    • Provide for selves, aging parents, college tuition, others

    • Immediate charitable income tax deduction; possible estate tax deduction

    • Diversify portfolio to produce fixed income


    Benefits for the charity2

    Benefits for the Charity

    • Often, good “starter” gift

    • Donors often create more than one

    • Can re-engage lapsed donors


    Practical considerations1

    Practical Considerations

    • Charity should be registered in each state in which it is offering CGAs

    • Backed by all of the general assets of the institution

    • Optimal to use third party to administer

    • Forms required – application, contract, disclosure statement

    • Obligation to pay annuitants for life


    Relevance1

    Relevance

    • Great way to begin cultivating a donor

    • Very popular with lots of charities

    • Your donors may already know about them from their other charities – good news for you

    • Marketing opportunity when rates change


    Cga example

    CGA Example:

    • Donor, age 80, donates $10,000

    • Gift date - 3/6/14

    • Charitable deduction - $5,020

    • Payout rate - 6.8%

    • Annual payment - $680


    Charitable remainder trusts crts

    Charitable Remainder Trusts (CRTs)

    • Trust created by the donor that stipulates a payout from the assets to the donor & or donor’s beneficiary for life or term of years

    • Donor selects a trustee (sometimes charity)

    • Donor sets payout rate, but 5% minimum

    • Lawyer drafts trust documents

    • Irrevocable


    Two main types of crts

    Two Main Types of CRTs

    • Charitable Remainder Annuity Trust [CRAT]

      • Established during life or inter vivos

      • Payout is fixed amount, regardless of value of trust principal

      • Donor selects annuity amount at trust’s creation

      • Donor cannot add assets to the trust


    Crts cont d

    CRTs, cont’d

    • Charitable Remainder Unitrust [CRUT]:

      • Can be established during life or inter vivos

      • Pays a fixed percentage (at least 5%) based on annual fair market valuation of the trust

      • Amount of payout can change annually

      • Donor can add to the value of the trust

      • May be a hedge against inflation


    Crts cont d1

    CRTs, cont’d.

    • Works well in conjunction with bequests

      • Donor establishes a CRT during her life to fund department Chair upon her death

      • Balance of Chair funded through a bequest; both mature at same time, funding Chair


    Assets to fund2

    Assets to Fund

    • Typically, $100,000 minimum due to costs associated with set up/administration

    • Cash

    • Highly appreciated, low yield property

    • Real estate


    Benefits for the donor2

    Benefits For the Donor

    • Possible reduction in taxable estate

    • May bypass taxation of capital gains

    • May increase income

    • Diversification of assets

    • Charitable income tax deduction for ultimate gift

    • Doesn’t require involvement of charity

    • Flexibility as to income recipients

    • Helpful in retirement planning


    Benefits for charity

    Benefits for Charity

    • Trust is irrevocable

    • Typically six-figure gifts or more

    • Support for mission


    Practical considerations2

    Practical Considerations

    • Although trust is irrevocable, charitable beneficiary selection may not be

    • Principal can be invaded if trust earnings are down – be conservative in your trust illustrations for donors

    • Involves professional advisors – at least an attorney (typically cost to donor)


    Residence with retained life estate

    Residence withRetained Life Estate

    • Donor makes irrevocable gift of residential real estate

    • Donor retains the right to live in & use property for life

    • Donor still responsible for maintenance, taxes, insurance, other costs

    • Donor gets charitable income tax deduction


    Practical considerations3

    Practical Considerations

    • Burden of out-of-town property management until property sold

    • Selling property

    • Real estate market [fluctuating]

    • Real estate gift acceptance policy


    Q and a

    Q and A


    Gayle s union manager planned giving marine corps heritage foundation

    Gayle S. UnionManager, Planned GivingMarine Corps Heritage Foundation

    [email protected]


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