For those of you who want to offer a larger donation and help Children’s Center continue its work for many years to come, consider writing Children’s Center into your estate plan.
What is Planned Giving?
Planned giving refers to several specific gift types that can be funded with cash, equity, or property. Planned gifts are referred to as such because they require more planning, negotiation and counsel than an outright gift. These gifts involve an arrangement between a donor and a non-profit organization, whereby the donor takes a partial tax deduction for the gift and then receives an income stream from the non-profit.
Potential Benefits of Planned Gifts
- Increase current income for the donor or others
- Reduce the donor’s income tax
- Avoid capital gains tax
- Pass assets to family at a reduced tax cost
- Make significant donations to Children’s Center
Types of Planned Gifts
When you decide to leave assets to charity in a will, you are making a bequest. Your estate will receive a charitable estate tax deduction at your death when the gift is made to charity.
There are two kinds of gifts that can be named in a will. A restricted gift is one in which a specific program is named. For example: if the PARC program is named, all assets will be allocated to that program, only. An unrestricted gift allows Children’s Center to allocate assets to the program with the greatest need. The following types of assets are typically given:
• Life insurance proceeds: This is one of the most effective ways to maximize giving. If you have a policy that is:
- no longer needed to provide for the survivors of the one insured
- will add to the size to a taxable estate without benefit to the survivors
- an old policy that does not provide good economic return
then consider passing this on to Children’s Center. Our organization would receive the large gift at the death of the insured and the potential of using the cash value of the policy for current needs, if this cash value exists. In return, you would gain a tax deduction for the amount of that cash value and a reduction in taxable estate, if applicable.
• Stock: If you donate stocks to a charity, you can take a tax deduction. The amount of the deduction depends on how long you have held the stock, and how much it has grown or declined in value, over that period. According to Kiplinger.com, if the stock has increased in value since you bought it, then you’ll be better off donating it to charity instead of selling it. If the stock has decreased in value, though, it’s better to cash it in first so you can deduct the loss.
• Personal property: The federal government encourages donations of property to public, non-profit charities. The same tax deductions are permitted for donations of property as for cash donations.
• Real estate: A gift of real estate can be a very efficient way for you to give. When appreciated real estate that has been owned for a number of years is sold, it is probable that you will be faced with a substantial capital gains tax burden.
By gifting real property that has been held at least a year and a day, you are entitled to a charitable tax deduction for the fair market value on the date of the gift and will bypass the capital gains tax due on the appreciation. However, when the property has declined in value it is better to sell the property outright and gift the proceeds from the sale. In this way, a capital loss can be established and will offer a tax deduction in addition to the charitable tax deduction for the amount of the cash gift.
The disposition of assets held in IRAs and retirement plan accounts, such as 401(k), 401(a), 403(b) or 457 plan accounts, is governed by beneficiary designations for the accounts. You can give the assets or a portion of the assets in these accounts to Children’s Center by naming us as a beneficiary on the appropriate form provided by your plan administrator. Using retirement assets to make charitable gifts at death avoids the expense of revising a will or revocable trust agreement. Also, it has the advantage that long-deferred, usually significant income tax on highly-appreciated retirement assets will not be incurred either by you or your family.
A gift annuity involves a contract between a donor and a charity, whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income
from the charity. When the donor dies, the charity keeps the gift. The amount of the income stream is determined by many factors including the donor’s age and the policy of the charity.
The name describes this planned gift well—Children’s Center accepts gifts from many donors into a fund and distributes the income of the fund to each donor or recipient of the donor’s choosing. Each recipient receives income in proportion to his or her share of the fund. When making a gift to a pooled fund, a donor receives a charitable income tax deduction and will not have to pay capital gains tax if the gift is of appreciated property. When an income beneficiary dies, Children’s Center receives the donor’s portion of the fund.
This is a Planned Giving vehicle that entails a donor placing a major gift of cash or property into a trust. The trust then pays a fixed amount of income each year to the donor or the donor’s specified beneficiary. When the donor dies, the remainder of the trust is transferred to the charity.
Charitable lead trusts are often viewed as the opposite of a charitable remainder trust. A donor transfers property to the lead trust, which pays a percentage of the value of the trust assets, usually for a
term of years, to Children’s Center. At the end of the trust term, the remaining assets in the trust and any growth it has realized are passed to your heirs. Although there is no income tax deduction when you create a charitable lead trust, your gift or estate tax is greatly discounted and any growth is passed to your heirs, gift and estate tax free. It is one of the only transfer devices currently used that can discount the value of the original assets and result in little or no taxes. At the same time, you fulfill your charitable desires.
A donor may make a gift of his personal residence or farm to Children’s Center and retain the right to live there for the remainder of his or her life. The donor receives an immediate income tax deduction for the gift. At the donor’s death, Children’s Center can use or sell the property.