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Planned GivingWhy Give? The mechanisms for planned giving are
created by the tax code and frequently offer attractive tax breaks.
They provide an opportunity for you, the donor, to honor another person
or an event in a meaningful way. Perhaps the most profound impact is one of legacy.
Trusts, pooled income funds and charitable gift annuities create
long-term relationships between a donor and an organization.
Perhaps even more profound is the bequest: through the last will and
testament, you are making an irrevocable comment on the value and trust you have
in your organization. Whatever the
tax break, the you are leaving a legacy: choosing to make a specific mark on the
world – that is, to leave a significant portion of your life’s earnings for
the benefit of a specific organization. The term “planned giving” refers to a
collection of mechanisms, defined by tax laws, through which you can transfer
wealth to nonprofit organizations in a way that results in a tax benefit during
your lifetime and an income stream for the organization before and after you are
gone. Types of Donations/Gifts Methods of Planned Giving include: The most common form of planned giving,
bequests are gifts set up through a person’s last will and testament.
Bequests may include gifts such as property, cash or stock and they are
attractive because even people of modest means can donate a portion of their
estate to a nonprofit. A trust is an “arrangement whereby one
person owns property but holds and manages it for the use of someone else”.
The property (or funds) in a trust may be transferred during the life of
the holder, or upon the holder’s death, to a nonprofit.
The trust may revocable (i.e., the holder can revoke the terms of the
trust) or irrevocable. The trustor
may determine at what point the funds or property will be released to the
beneficiary, or the trustor may ask the beneficiary to make that decision. Charitable remainder trusts allow a donor
to transfer appreciated assets into a trust owned by the nonprofit and draw on
those funds throughout his or her lifetime. Two types of charitable remainder trusts exist:
the unitrust, whereby the payment hinges on the assets value at
yearly intervals, and the annuity trust, whereby a fixed amount is paid
each year regardless of the asset’s value.
Whatever “remains” upon the donor’s death belongs to the nonprofit. This is an arrangement whereby the donor
gives an irrevocable gift and the nonprofit, in turn, pays a fixed dollar amount
to the giver each year for life. The
payment amount depends on the donor’s age at the time of the gift and is
backed by the organization’s entire assets – not just the donor’s gift.
A large amount of each payment is tax-deductible, and upon the donor’s
death (or that of a survivor), the remainder of the gift goes to the
organization. These are nonprofit managed trusts that
commingle gifts from several donors. The
organization invests the pooled income and makes yearly payments from the
overall investment income – not from the body of the fund.
Earnings are fully taxable. The
benefit to donor and nonprofit is increased interest because the principle is
larger and, again, at death of the donor, the gift belongs to the nonprofit. When you give to a charity, the charity
benefits and so do you. Giving to OPTIONS
feels good, because you are helping people with disabilities live and work in
the community. It also feels good
because you are also helping yourself to lower taxes.
It is one of the best provisions of the tax code and well worth
considering. According to the U.S. Master Tax Guide: 1062. Gifts Appreciated Property The
amount deductible for a charitable contribution of appreciated property depends
on whether it is ordinary income property or capital gain property, or a
combination of both. (Code Section 170(b)) and (e); Reg. 1.170A-4.
Ordinary
Income Property.
Ordinary income property is property that, if sold at
its fair market value on the date of contribution, would give rise to ordinary
income or short-term capital gain. The
deduction for such property is limited to the fair market value of the property
less the amount that would be ordinary income.
Such property includes inventory and stock in trade, artworks and
manuscripts created by the donor, letters and memoranda, capital assets held for
less than the required holding period for long-term capital gain treatment, and
Code Sec. 306 stock (Code Sec. 170(e)(1)(A); Reg. 1.170A-4).
Capital Gain
Property (Stock). Capital gain property includes any asset on which a long-term
capital gain would have been realized if the taxpayer had sold the asset for its
fair market value on the date of contribution. As a general rule, gifts of
capital gain property are deductible at their fair market value on the date of
the contribution. However, an individuals contribution must be reduced by
the potential long term gain (appreciation) if:
1)
The property is contributed to certain private non-operating
(grant-making) foundations (see, however, “Qualified Appreciated Stock,”
below) (Code Sec. 170 (e)(1)(B)(ii));
2)
The gift is tangible personal property put to a use that is unrelated to
the purpose or function upon which the organization’s exemption is based; or
3)
The taxpayer elects to disregard the special 30% capital gains limitation
in favor of the 50% limitation.
Qualified
Appreciated Stock.
A deduction equal to the fair market value of
qualified appreciated stock contributed to private non-operating foundations is
allowed (Code Sec. 170(e)(5)). Qualified
appreciated stock is publicly traded stock that is capital gain property.
The
decision to make a sizeable charitable gift requires expert help to ensure that
you receive your maximum tax benefit. We
recommend that you contact your financial advisor or a tax professional.
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