Planned Giving

Many people desire to benefit a charity, but cannot donate property to the charity while still alive. For example, an individual may need certain property to cover their living expenses or rising health care costs. A bequest is a gift to a charity at the time of one’s death. It is the simplest type of planned gift and one of the easiest to implement. Donors can leave property to a charity by including a bequest in their will or trust, or, in the case of property that passes by beneficiary designation, a gift can be made by designating specific charities as beneficiaries.

With a bequest, donors can retain ownership and use of the property during their lifetime and still benefit the charity by leaving the property to them upon their death. The charities benefit by receiving cash or property, the donors’ heirs benefit, because the amount given to charity is not subject to federal estate tax, and the donors benefit through the flexibility of being able to use and control the property while alive.

With a CGA, in exchange for a gift of cash or property, a charity agrees to make fixed payments for life. This benefits donors who want to make a gift to charity, but need regular payments to supplement their income. The charity benefits through the receipt of the cash or property.

By entering into a CGA agreement, the donor receives fixed payments to one or more individuals for life, a portion of each gift annuity payment is tax-free, the annual gift annuity payouts are based on the donor’s age (rates are higher for older donors), and the donor receives a current federal income tax deduction.

CGAs especially help older donors who desire fixed payments for life. CGAs are also attractive to donors with cash or appreciated property that produce little or no income.

In a CGA, payments are not dependent upon the charity’s rate of return. Instead, they are based on a rate schedule. Many charities use a rate schedule set by the American Council on Gift Annuities (ACGA). Under the ACGA’s schedule, the older a person receiving gift annuity payments, the higher the rate.

A CGA contract can begin making payments immediately (“current gift annuity”), or defer payments for at least one year (“deferred gift annuity”).

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Annuity payments are backed solely by the full faith and credit of the issuing organization and are not insured or otherwise guaranteed by any government agency.

A CRT receives cash or property from a donor, makes payments for a lifetime or term of years, and then distributes the rest to charity. This benefits donors who want to turn appreciated property that produces little or no income into a productive asset without paying capital gains tax at the sale of the property. The charity benefits through the receipt of the cash or property upon the end of the term or the donor’s death.

In a CRT, the appreciated property is sold tax free, with donors receiving payments for life or for a term of years. Not only do they receive a percentage of the CRT’s value, but they also receive a current federal income tax deduction. A CRT especially benefits those with cash or appreciated property with a value of at least $100,000 and who want increased income.

An attorney drafts a CRT, after which the donor transfers cash or appreciated property to it. The CRT is a tax-exempt trust that can sell the appreciated property without paying capital gains tax. It can last for the lifetimes of one or more beneficiaries or for a specific term of years.

Each year, a CRT pays either an annuity amount or unitrust amount to its beneficiaries. A charitable remainder annuity trust (CRAT) pays a fixed dollar amount each year. By contrast, a charitable remainder unitrust (CRUT) pays a percentage of the account value each year.

A CLT receives cash or property from a donor, makes payments to charity for a specified period, and distributes the rest to a specified beneficiary, usually family members with no additional tax. This is ideal for donors who want to give property to family members and pay as little gift or estate tax as possible.

The charity benefits through the payments, and the donors benefit through the property and its growth being passed to family members. They also benefit through receiving a current federal gift or estate tax deduction for the present value of the payments to charity.

A CLT is especially beneficial to a donor who wants to pass along specific property that is expected to grow substantially in value. CLTs are ideal for those with estates of $2 million or more who want to pass property to family members, so as to minimize gift or estate tax costs.

An attorney drafts a CLT, after which the donor transfers cash or property to it. Unlike a charitable remainder trust (CRT), a CLT is a taxable trust. Every year of the trust term, the CLT will report its income and then take a deduction for the amount that it distributes to charity; any excess is subject to tax.

Life insurance is a common choice of planned gifts. Making a gift of a life insurance policy to one’s favorite charity appeals to a variety of donors, because it is a flexible, cost-effective and, in many cases, tax-advantaged way to make a major gift that will benefit the nonprofit after the donor dies. Life insurance can also be used as an asset-replacement strategy. Under this strategy, a donor makes a gift of an asset (such as real estate or appreciated securities) to the nonprofit and replaces the value of that asset to benefit his/her heirs with a life insurance policy owned in a way that eliminates estate taxes on the benefit that is paid to the donor’s heirs.

The use of life insurance as a charitable gift doesn’t have to be a boring choice, however. There are many ways to “change it up” to suit the needs of the nonprofit organization and a donor’s planning goals. Most donors and nonprofit organizations think of life insurance only as an asset that produces a future benefit for the nonprofit organization. However, by using the wealth-replacement strategy and/or the life settlement solution the needs of the donor’s family and the nonprofit can be met.