Planned giving is the integration of sound personal, financial, and estate planning concepts with the individual donor’s plan for lifetime or testamentary giving. As a general rule, planned gifts include any type of outright or testamentary provision made by a donor wherein the donor retains some kind of income or life estate interest either for oneself or someone else.
Types of Planned Gifts
Bequest
A bequest is a provision made in a donor’s will through which a charitable organization receives cash and/or other assets at the time of the donor’s death. That provision could be for a specific amount or a percentage of the residual estate (what remains after debts are paid and bequests to family and friends are made). Or it could be a contingent bequest – i.e., “If both my wife and son predecease me, their interests in the estate shall pass to Organization X”
Concordia Preparatory High School Association has established the Lamplighter Society to recognize the generosity of individuals who have made provisions in their wills or estate plans to benefit Concordia Preparatory School. These provisions include bequest intentions, testamentary trusts, gift annuities, charitable remainder trusts, real estate, life insurance benefits, and other deferred gifts.
A charitable bequest is deductible for federal estate tax purposes.
Life Income Plans
Life income plans benefit both the donor and the organization during the donor’s lifetime. In a typical life income plan, the donor transfers cash, securities, or other marketable assets in return for a life income for self, spouse, and/or others – with the remainder principal passing to the organization at the death of the last surviving beneficiary (or, in some cases, after a term of years).
Through a life income plan, it is often possible for donors to do well for themselves while doing good for an organization. The donor gains a current income tax deduction for the present value of the projected remainder interest (generally about half the value of the total transfer). And if appreciated assets are used to fund the life income plan, the donor avoids capital gains tax on the transfer.
Charitable Gift Annuities
A Charitable Gift Annuity pays a fixed income for one or two lives. If funded with cash, the annual payments are partly non-taxable. If funded with appreciated assets, there is no capital gains tax on the transfer, but part of the “non-taxable” portion of the annual payments is taxed as capital gift income.
Charitable Remainder Trust
A charitable remainder trust pays income to one or more beneficiaries for life or a term of years not exceeding twenty. Payments to beneficiaries are backed by the assets of the trust and are taxed according to the way the trust has earned income.
Retained Life Estate
A donor may receive a lifetime income tax deduction by putting a sentence in the deed to their residence or vacation home indicating that upon his/her death, that residence or vacation home shall pass to a charitable organization. The donor continues to live in the home, paying taxes and insurance and maintaining the residence; at death the property passes to the organization.
The donor receives an immediate income tax deduction for a portion of the current appraised value of the property.
Charitable Lead Trust
A Charitable Lead Trust is just the opposite of the Charitable Remainder Trust. The income from trust assets goes to the charitable organization for a term of years. At the end of this term, the principal typically reverts to the donor or family members. There are two types of Charitable Lead Trusts:
- Grantor charitable lead trust – the donor receives a large income tax deduction in the year of transfer, but must pay income tax each year on the trust’s income – even though it is paid to the organization.
- Non-grantor charitable lead trust – the income goes to the organization for a period of years, with the asset then passing to the donor’s children. There is no current income tax deduction, but if the trust is structured properly, all gift tax can be virtually eliminated. After the organization’s lead interest is paid, the assets pass to the children at a substantially appreciated value – with no gift or estate tax due.
Life Insurance Policy
There are two primary types of Life Insurance Policies:
- Existing Policy – Many donors hold fully paid up life insurance policies that they no longer need. By naming a charitable organization the owner and beneficiary of such a policy, donors can receive a current income tax deduction for the policy’s replacement value or premiums already paid whichever is the lower amount.
- New Policy – A policy can be purchased on the life of a donor or an insurable relative with a limited premium payment period. The organization may purchase the policy directly, or the donor may purchase it and assign it to a charitable organization. Premium payments are contributed to the organization and are therefore tax deductible.