a for annuity, b for bequest, c for charitable remainder trust… the abcs of planned giving – the...
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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.
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We’ll Cover
Definition of Common Types How They Work Assets/minimums to Fund Benefits Practical Considerations Relevance/Importance Q & A
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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
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Common Types
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
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Assets to Fund
Cash Real estate Securities Personal property
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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
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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
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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
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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
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B as in Beneficiary Designation
a provision outside the will naming charitable organization as beneficiary of a portion or all of a particular asset
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Assets to Fund
Insurance policy Retirement plan and IRA Brokerage or bank account
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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
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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
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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
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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
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Financial Accounts
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
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Financial Accounts
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
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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
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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
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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
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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)
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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
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Benefits for the Charity
Often, good “starter” gift Donors often create more than one Can re-engage lapsed donors
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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
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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
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CGA Example:
Donor, age 80, donates $10,000 Gift date - 3/6/14 Charitable deduction - $5,020 Payout rate - 6.8% Annual payment - $680
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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
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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
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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
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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
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Assets to Fund
Typically, $100,000 minimum due to costs associated with set up/administration
Cash Highly appreciated, low yield property Real estate
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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
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Benefits for Charity
Trust is irrevocable Typically six-figure gifts or more Support for mission
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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)
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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
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Practical Considerations
Burden of out-of-town property management until property sold
Selling property Real estate market [fluctuating] Real estate gift acceptance policy
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Q and A