The best plans for you will reflect your individual wishes; consideration of a gift of education may complement your planned giving design.
The planned gifts options outlined here are divided into two sections. Part I details revocable gift options (donors can take them back), and Part II details irrevocable gift options (donors relinquish control in return for tax deduction benefits). Follow links in the table below to find which gift option fits you best.
Revocable gifts give the donor complete control over ownership of all assets. If money or property is needed by the donor for any reason, it is accessible at all time. SCC need not be contacted.
In addition to being one of the simplest ways to distribute your estate, you can also be a creative vehicle through which to make thoughtful gifts. After providing for the needs of your loved ones, you may choose one of several ways to benefit causes you have admired during your lifetime.
By having your attorney revise your will or add a simple amendment, you can make a charitable bequest of a dollar amount, specific property, a percentage of your estate, or what is left after others have been taken care of. You may also wish to name one or more charitable recipients in case beneficiaries you have named do not survive you.
Donors have complete control and ownership of assets and documents that contain their bequests. The beneficiary has no ownership or control over the gifts or documents until after the donor's death. Hence, if donors want to use up any of the assets named as gifts in their wills at any time, for any reason, they may do so without notifying SCC (i.e., the nonprofit named to receive the gifts). Also, donors may change any beneficiaries named in their wills at any time, for any reason.
Bequests are very simple to set up and administer. Neither the donor nor SCC will have to produce any documents other than the will itself.
2. Revocable Living Trusts
Of the many forms of "will substitutes", revocable living trusts are increasing in popularity and credibility. Just as with bequests through wills, a living trust can be revoked or taken back if needed.
Through a revocable trust agreement, you can make gifts of property and/or income now, while retaining the rights to retrieve the property if necessary. Such a plan may result in estate settlement savings and avoidance of probate court proceedings. You may find this to be a convenient way to create a "living endowment" to which you can add each year. The earnings from the property will be paid to you, to others you name, or to fund charitable gifts - as you choose. If you require the property for any reason, it will be returned to you promptly on request.
As with any type of revocable gift, donors have complete control and ownership of all assets. In addition, bequests made through revocable living trusts usually are not subject to probate if the assets given are owned by the trusts at the time of the donor's death.
A revocable living trust allows donors to give in two ways. First, the earnings from the trust may be kept by the donor or paid to the nonprofit(s) designated as the recipient(s). In this manner, giving can take place while the donor is still alive. Second, at the time of the donor's death, the property in the trust will pass directly to the organization(s) which have been receiving the income or have been designated to receive the income.
3. Trust Savings Account
A trust savings account is an account at a bank, credit union, or savings and loan company. The account is held "in trust for" someone else - either a person or an organization other than the depositor of money in the account. Due to its revocable nature the depositor retains complete control and full ownership of the account. The beneficiary receives the money in the account either when the depositor signs over the account or at the time of the depositor's death. These accounts are also known as Totten trusts.
The trust savings account has advantages similar to the other types of revocable giving. Donors have complete control of the account as long as they live, and assets may be used at any time, for any reason. Donors may also change the beneficiary of the account simply by changing the account card at the institution where the trust savings is held.
The account is extremely simple to give as a gift. Donors of such accounts merely go to the bank and write a beneficiary's name on the account card. Rarely do donors of such accounts need professional help of any kind to establish or change the gift. Furthermore, trust savings accounts are not subject to probate. When the owner of the account dies, there is no need for the account to be placed in a trust, administered in any way, or placed in probate. Donors may also receive income tax deductions if all assets are given to the beneficiary before the time of the donor's death.
4. Life Insurance
Many people do not realize how convenient and welcome a gift of life insurance can be. Life insurance needs change as life goes on. Children become self-sufficient, and investments may provide unexpected income and security. After such developments, some life insurance coverage may no longer be needed for the reason it was originally purchased.
A charitable gift on an insurance policy essentially involves only one action: the naming of a nonprofit as the policy's beneficiary. The gift is established when the policy's owner completes a form provided by the insurance company, naming the nonprofit as the beneficiary of the policy's proceeds.
Gifts of insurance policies can be for part or all of the proceeds. Beneficiaries may be primary (the first ones to receive benefits) or secondary, receiving benefits only if one or all primary participants cannot receive benefits.
Another way to make a gift of insurance is to take out a new policy naming a favorite cause or causes as beneficiary or co- beneficiary. Many find this a convenient way to make a special gift on "the installment plan". You can assure a gift which may be much larger than its cost.
Donors can make large gifts by paying relatively small, regular premiums. Donors of insurance policies retain total control of the policies for as long as they remain owners of the policies. Also, donors may withdraw any cash value from the policy at any time, for any reason, and termination of the policy can take place if deemed necessary by the policy owner.
Gifts of insurance policies are not subject to probate, and the initial administration of such a gift is very simple. Neither donors nor beneficiaries need advice from financial professionals, and insurance agents will usually assist donors with the paperwork.
Irrevocable gifts almost always give the donor considerable tax benefits. By itemizing the gifts as charitable deductions on federal income tax returns, donors may "save" a sizeable portion of the original gift. Donors may save even more if savings from state income taxes are included.
1. Major Outright Gifts
Major outright gifts are donations given to a nonprofit organization. Relatively simple to establish, outright gifts may include cash, real estate, buildings, stocks, bonds, artwork, etc. The possibilities are wide and varied and donors can derive satisfaction from seeing their gifts immediately go to work for the nonprofits. Usually, such gifts are utilized as a tool for receiving income tax deductions. Sizeable tax benefits can be gained on federal and state income tax returns, and donors will cease paying expenses associated with major outright gifts. For example, donors no longer would pay taxes, insurance premiums, or maintenance expenses for buildings they have given as a major outright gift.
Donor almost always receive income tax deductions for such gifts. In addition, the elimination of the gifts from donors' estates usually reduces probate costs. Because of the simplicity associated with establishing such gifts, donors will generally pay lower fees to professional advisors for their help in executing major outright gifts.
Donors often may stipulate the uses to which their gifts may be put, and visible recognition for such gifts is immediately evident.
Examples of memorial gifts are endless. Many institutions and organizations enjoy buildings, equipment, scholarship and endowment funds, and a multitude of other services which have been made possible by gifts in memory of loved ones. Your imagination is the only limit to the ways in which you can honor a special person. We will be glad to assist you in choosing an appropriate commemoration for your gift.
Because of the simplicity associated with establishing such gifts, donors can eliminate the costs associated with using professional advisors. Stipulations may be made specifying the uses to which their gifts may be put, and visible recognition for such gifts is immediately evident. Due to its irrevocable nature, donors usually can take immediate income tax deductions for the present values of the assets placed in the memorial.
3. Annuity Trusts
A charitable remainder annuity trust is a way to make a gift which allows you to retain income from your assets for life. Your funds are held separately and invested to earn a fixed and regular income for you. This amount never changes regardless of the value achieved by your trust asset.
Trust income can be a welcome supplement to a retirement plan. Management of assets can be achieved for yourself and surviving loved ones. At your death (or at the death of your surviving spouse or other loved one, if you so designate), whatever remains in the trust is distributed to charitable beneficiaries.
The payments you receive each year will be at least 5% of the amount placed in the trust. The exact amount is determined by you when the plan is created. A tax deduction is allowed at any time you create your trust. Its size depends on your age, payment percentage, and other factors.
Donors or one or more of their family members will receive payments for as long as they live or for a specified period of time. The donor will never experience a decline in the amount of payments made by the remainder annuity trusts.
A remainder annuity trust can also be used as a supplemental retirement plan. Also, because assets placed in the trust are removed from the donor's estate, less estate tax will be paid and probate may be avoided.
Due to its irrevocable nature, donors usually can take immediate income tax deductions for the present values of the assets placed in a remainder annuity trust.
Like the annuity trust, the charitable remainder unitrust provides for a gift which returns an income. But unlike the annuity trust, the income from a unitrust rises or falls with the value of the assets placed in the trust.
You determine the percentage of payment when the gift is made. Each year, the percentage of the value of the trust assets is paid to you or others you select. When the value of the trust investments goes higher, more income is received. The income will be less if the value of the assets declines.
Additions can also be made to this trust, and a tax deduction is allowed for a portion of each amount contributed. For many taxpayers, deductions for Individual Retirement Accounts (IRA's) and other plans are now limited, so the unitrust could play a big role in planning for retirement years.
Donors or one or more of their family members will receive payments for as long as they live or for a specified period of time. Since payments are based on the annual value of assets in the trust (its principle), payments may increase. Donors may also make additional contributions to a unitrust - this is not possible with annuity trusts.
Investment decisions involving assets of the trust can be retained by the donor. A built-in "hedge" against inflation is possible due to the fluctuating nature of the unitrust's payment plan. Careful investing and added contributions may result in continued growth in value.
Donors usually can take immediate tax deductions for the present values of the assets they place in the trust. Because assets placed in the trust are removed from donors' estates, the estates will pay less estate tax, and the assets in the trust will avoid probate.
5. Charitable Lead Trusts
A charitable lead trust often is identified simply as the reverse of a charitable remainder trust. The reason being: the annual payments of the trust are received by the nonprofit, and the remainders (the assets) are received by other people - usually the donor and their family members.
The payments of charitable lead trusts may be either unitrust payments or annuity payments. People who wish to make a meaningful gift over a period of years, but assure that their property will ultimately pass to loved ones, may wish to consider a charitable lead trust. It can be one of the few ways to eliminate taxes which would otherwise be due on assets left to children or grandchildren.
Under the terms of a charitable lead trust, assets are transferred to a trust which pays income from the fund to named charitable recipients for a number of years you determine. At the end of the time period you set, the trust terminates and the assets are given back to the persons you name.
Donors do not pay income taxes on the income earned by these trusts, unless a donor wants to take an income tax deduction for the present value of the interest earned by the trust (and paid to the charitable recipient). In this case, the donor must include the trust's income in his/her tax return.
Donors may also stipulate the amount these trusts pay to nonprofit beneficiaries, as no legal requirements govern minimum payments. The interest payments received by the nonprofit institution may be deducted from the donor's federal income tax, and satisfaction can be gained from seeing the gift be put to immediate use by the nonprofit recipient.
Donors with heirs may want to consider the charitable planning strategy which uses life insurance to replace assets which are given to a charity. When considering charitable planning, a donor must usually choose between making a gift to a charity or making a gift (during lifetime or at death) to family members. Life insurance can provide the family or heirs with funds which replace the value of the assets which are given away. Charitable planning agreements can be written to include the purchase of life insurance by either the donor or the nonprofit.
The purpose of this booklet has been to highlight the wide variety of planned gift options available to individuals who wish to include their favorite charitable organizations in their financial and estate planning. Each year, thousands of people contribute their time, talents, and money to America's charitable, religious, educational, and health-care organizations. Indeed, private philanthropy is the foundation of every charitable endeavor, and it is our hope that you will want to continue this tradition.
We invite your inquiries and would be pleased to discuss with you and your advisors how a planned gift may be arranged to meet your objectives.
Rebecca S. Rump, Executive Director Southeastern Community College Foundation
1500 W. Agency Road, P. O. Box 180
West Burlington, IA 52655-0180
(319) 752-2731, ext. 5065
Toll-Free at (866) 722-4692, ext. 5065
Direct phone: (319) 208-5065
Neither the author, the publisher, nor this organization is engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of an attorney or other professional advisor should be obtained. The purpose of this publication is to provide accurate and authoritative information of a general character only. Watch for tax revisions. State laws govern wills, trusts, and charitable gifts made in contractual agreement. Seek advice from legal counsel when considering types of contracts. - Southeastern Community College Foundation
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