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A Planned Giving Primer
Prepared by
Carolee Densley, Financial Consultant & VCS Board Member
Gifts of Cash.
If you itemize, you can lower
your income taxes simply by writing us a check. Gifts of cash are fully
deductible—up to a maximum of 50% of your adjusted gross income. For example, if
your adjusted gross income for this year is $50,000, up to $25,000 of charitable
gifts may be deducted this year. Any excess can generally be carried forward and
deducted over as many as five subsequent years.
Gifts of Stock.
If you own stock, it is often
more tax-wise to contribute stock than cash. This is because a gift of
appreciated stock generally offers a two-fold tax saving. First, you avoid
paying any capital gains tax on the increase in value of the stock. Second, you
receive an income tax deduction for the full fair market value of the stock at
the time of the gift.
Example: If you purchased some
stock many years ago for only $1,000, and it is now worth $10,000, an outright
gift of stock to us would result in a charitable contribution deduction of
$10,000. In addition, there is no tax on the $9,000 appreciation in value.
Make sure you have owned the
stock for a “long-term” period of time (this generally means that you have held
the stock for more than one year) to qualify for these significant tax
advantages. Gifts of appreciated stock are fully deductible—up to a maximum of
30% of your adjusted gross income. For example, if your adjusted gross income
for this year is $100,000, up to $30,000 of long-term appreciated stock and
other property gifts may generally be deducted this year. Any excess can
generally be carried forward and deducted over as many as five subsequent years.
Always check with your accountant
or other tax advisor for the advantages (and possible drawbacks) of making a
planned gift, based upon your particular circumstances.
Gifts of Real Estate.
A gift of real estate can also be
tax-wise. A residence, vacation home, farm, acreage, or vacant lot may have so
appreciated in value through the years that its sale would mean a sizeable
capital gains tax. By making a gift of this property instead, you would avoid
the capital gains tax, and, at the same time, receive a charitable deduction for
the full fair market value of the property. It is also possible to make a gift
of your home, farm, or vacation home so that you and your spouse can continue to
use it for your lifetimes—while you receive a current income tax deduction.
Example: Mr. and Mrs. Smith own a
vacation home in the mountains that they would like to continue using. Its fair
market value is $100,000. By contributing the home to us now, but retaining the
exclusive right to use it for the rest of their lifetimes, the Smiths are able
to achieve a current income tax charitable contribution deduction of
approximately $25,000. (The precise amount will depend upon their ages, the
useful life of the house, and other factors.)
Gifts of Life Insurance.
A gift of life insurance can
provide a significant charitable deduction. You could purchase a new policy or
donate a policy that you currently own but no longer need. To receive a
deduction, designate us as both the owner and beneficiary of the life insurance
policy. Check with your insurance agent for the details.
Example: Mr. Anderson owns a
$100,000 life insurance policy with a current cash value of $34,582. By
transferring the policy to us as the new owner and beneficiary, Mr. Anderson is
able to receive a current charitable deduction in the amount of $34,582. If Mr.
Anderson decides to continue paying the premiums on the policy after the gift is
made, these additional premium payments will be tax deductible each year.
Life Income Gifts.
This allows you
to increase your income, receive a charitable contribution deduction and avoid
capital gains taxes. If you own stock that is paying you low dividends, maybe
2% or 3%, a “life-income” gift may be an appropriate gift. You could transfer
the stock to us and establish a “charitable remainder unitrust” or “charitable
remainder annuity trust” that would provide you with a 5% or greater annual
return. This income would be paid to you and/or a loved one for life, after
which the assets would be distributed outright to us. Through such an
arrangement, you would be increasing your income and making a meaningful (and
tax-deductible) contribution to us at the same time.
Example: Suppose Mrs. Jones, age
70, purchased some stock many years ago for $10,000 and that the stock is now
worth $100,000. But, she receives only $2,000 per year in dividends, or a 2%
yield. By transferring the stock to a charitable remainder trust and specifying
that she wanted a 6% return for life, she could:
1. Triple her annual income (from
$2,000 to $6,000);
2. Avoid the capital gains taxes
she would otherwise incur on a sale of the stock; and
3. Be entitled to a charitable
contribution deduction of approximately $54,000. (The amount of the deduction
depends upon the age of the donor, the rate of return specified in the trust,
the size of the gift, and other factors.)
Charitable Leads Trusts.
Charitable lead trusts are
essentially the reverse of the life income gifts described above. The income
from the trust is first paid to us; the charity’s interest leads the way (hence
the name of the trust). Under this arrangement, you transfer assets to a trustee
who makes payments to us for a specified number of years, after which time the
assets are transferred to your heirs. The charitable lead trust allows you to
pass assets on to your children and grandchildren either completely free or
substantially free of all further estate and gift taxes! It can make good sense
for anyone in the top estate and gift tax brackets.
Bequests.
We can be named as a beneficiary
in your will in any one of a number of simple ways. An outright gift, either a
designated dollar amount or percentage of your estate, could be specified. We
could also be named as a remainder beneficiary to receive funds only after
specific sums have been paid to individual beneficiaries. It may be helpful to
know that you can easily add us to your will through an amendment to your will
called a codicil; thus your entire will does not have to be redrafted.
In Conclusion.
A
newsletter article cannot tell
you everything you need to know about planned giving and which method would be
the most advantageous for your particular financial and estate planning
situation. Check with your attorney, accountant, or other tax advisor for
additional information on how these general rules apply to your situation. Not
all of the available methods of giving could be included in this article, and
not all of the tax ramifications of each form of gift could be discussed.
We appreciate your interest and
support, and would be pleased to provide you with additional information on the
advantages of planned giving.
For more information, please
contact
Michelle Dietz of Village Community Services at (360) 653-7752
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