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 How They Work Assets/minimums to Fund Benefits Practical Considerations Relevance/Importance Q & A

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

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

Cash Real estate Securities Personal property

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

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

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

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

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

Assets to Fund

Insurance policy Retirement plan and IRA Brokerage or bank account

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 Charity

Relatively easy to administer Market to everyone – no age/wealth

limitations Distribution may be faster because

asset not going through probate

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

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

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 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

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.

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

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

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

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 Charity

Often, good “starter” gift Donors often create more than one Can re-engage lapsed donors

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

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:

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) 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

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

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’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 Fund

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

Cash Highly appreciated, low yield property Real estate

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

Trust is irrevocable Typically six-figure gifts or more Support for mission

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 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 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

Gayle S. UnionManager, Planned GivingMarine Corps Heritage Foundation

union@marineheritage.org