Make a Gift Tomorrow – Planned Giving
“Planned giving” generally means planning for a gift to be made in the future, usually through the donor’s estate plan. Planned giving provides you the opportunity to make a significant contribution to support Butler while still meeting your personal estate and tax planning goals. Moreover, by engaging in planned giving, you might actually increase the wealth of your estate. By visiting with your lawyer or tax advisor, you can establish the most appropriate method of planned giving for you and your family. Here are just some of the methods you might consider.
The Foundation’s planned giving society, the Circle of the Gold, recognizes those who have honored Butler with their legacy through bequests, life insurance policies, trusts, estates and other planned giving options.
Providing for Butler Upon Your Death
Bequest in a Will or Trust
A bequest is a gift of money or other assets to a beneficiary expressed under the terms of the donor’s Will or Trust. This is the easiest and most common way for many of our supporters to make a planned gift. A bequest can be expressed as a dollar amount, a percentage or as a specific item or asset.
You can make a bequest for Butler by naming the Foundation in your Will or Trust. Because specific language is required for this type of gift to be effective, and to ensure the appropriate estate tax treatment, please see your lawyer to make sure your wishes are carried out. Several examples of bequests under a donor’s Will are:
As a fixed dollar amount:
I give and bequeath the sum of _________ Dollars ($_________) to the Butler Community College Foundation, 901 S. Haverhill Rd., El Dorado, KS 67042, to be used where most needed as determined by the governing board of such charity, without restriction.
As a percentage of the donor’s estate:
I give _________ percent (____%) of the rest and residue of my estate to the Butler Community College Foundation, 901 S. Haverhill Rd., El Dorado, KS 67042, to be used where most needed as determined by the governing board of such charity, without restriction.
By donating property in your Will or Trust, you not only experience the joy of giving, but also the potential benefit of your estate claiming an estate tax deduction upon your death.
Retirement Plans, IRAs, and Tax Sheltered Annuities
Retirement plans, retirement accounts, and tax sheltered annuities allow for the tax deferred growth of funds, and in many cases tax deductible contributions to the plan or account initially, to create a financial base to provide for you in your retirement years. Payments generally are required to be made from the plan to you upon reaching a specific age. If you die before the funds are exhausted, the remaining accumulated assets in the account go to your named beneficiaries. You can make a significant contribution benefiting Butler by naming the Foundation as one of the beneficiaries of your retirement account.
Due to the income tax deferred nature of retirement assets, these assets are generally taxable as income to the recipients (called “income in respect of a decedent” or “IRD”). If you plan to make a gift to charity upon your death, it is best to leave retirement assets with IRD to the charity. Unlike other recipients such as children or other loved ones, the charity will not have to pay income tax on the retirement plan assets it receives. Other assets which are not IRD can then be left to loved ones or other non-charitable beneficiaries or other arrangements can be made to replace the wealth that would have otherwise passed to your loved ones upon your death. A discussion of wealth replacement is summarized in the Wealth Replacement section.
Many annuities allow the owner to name a successor beneficiary after the current beneficiary’s death or designate a beneficiary to receive the annuity payments currently. Designating the Foundation as the beneficiary of the annuity upon your death ensures you will receive the income for life and Butler will benefit upon your death. For individuals that will not need the income from the annuity during their lifetimes, naming Butler as the current beneficiary may be an option. In order to transfer the ownership or name Butler as the beneficiary of an annuity you will need to contact your broker or account manager in connection with the annuity.
Life insurance policies can be used to benefit Butler in several ways.
- Adding a Beneficiary – Youmay modify your existing life insurance policy to add the Foundation as the primary or joint beneficiary. Or, you may name the Foundation as a contingent beneficiary. In that case, the charity receives the death benefits if the primary beneficiary dies before you do. By naming the Foundation as a beneficiary, you can make a sizeable future gift while retaining ownership over the policy during your lifetime. In this situation, you will not be able to receive a charitable income tax deduction because you retain ownership over the policy. However, your estate should benefit from an estate tax deduction.
- Giving an Existing Policy – Ifyour policy has outlived its purpose, a gift of an existing policy is a great way to contribute to Butler. By donating your existing policy to the Foundation, you can claim a charitable income tax deduction equal to the cost of replacing your coverage with a comparable policy and the cash value, if any.
- Buying a New Policy – Youcan establish a new life insurance policy and designate the Foundation as owner and beneficiary of the policy. This is a great way to make a significant contribution and receive additional tax advantages. The premium payments you make to sustain the policy are potentially deductible on your federal income tax return in each year premium payments are made.
Transfer-on-death (TOD) or pay-on-death (POD) Designations
Many states, including Kansas, allow for transfer-on-death (TOD) or pay-on-death designations (POD) for a variety of types of assets. Those assets include real estate, automobiles, bank accounts, CDs, brokerage accounts, and others. Under this approach, you retain the benefit of the asset for your lifetime and designated property passes to the Foundation only upon your death. If done properly, this arrangement operates outside or your Will or Trust and does not necessitate a probate proceeding to effect the gift. Although an income tax deduction is not available to you during your lifetime, your estate should be able to take advantage of the estate tax charitable deduction. The TOD and POD arrangement affords you great flexibility because you can change the designation at anytime as your circumstances change, without the cost or effort of modifying your estate planning documents such as a Will or Trust.
Providing for Butler While Supporting Yourself and Others
People can still make a significant contribution while ensuring their support and the support of their loved ones is met by retaining income from the property they choose to give in support of Butler. Under this approach, you would give certain assets now either directly to the Foundation or to a certain type of trust, and in return, you would be provided with income or set payments for your life, and if you so choose, the life of another. The most common examples of these arrangements are charitable gift annuities and charitable remainder trusts.
Charitable Gift Annuity
With a charitable gift annuity, the donor receives an agreement from the charity stating that the charity will give the donor lifetime income in exchange for a donation of cash or marketable securities. Under this arrangement the charity is guaranteeing the payments will continue for life.
When donating your assets, you can decide whether you want your income payments now or at a later date. An annuity which makes payments at a later date is a special type of annuity, called a deferred charitable gift annuity.
By donating your cash or other assets now, you can generally claim a charitable income tax deduction on your income tax return for the total gift less the value of the annuity you would receive. Each annuity payment will be treated partly as a return of principal and partly as ordinary income or capital gains.
A deferred charitable gift annuity gives you even more of a financial advantage. The payments are not paid out until the time period you designate has elapsed, so the amount of money in the account continues to increase. Once the payments do begin, they will be larger because there is more money in the account. Also, the deferred charitable gift annuity allows you to claim an income tax deduction now, while you are presumably in a higher tax bracket, and taxes you only upon your receipt of the payments, presumably at retirement when you are in a lower tax bracket. Many younger donors prefer this method because it increases their retirement income while providing a substantial contribution to charity.
Pooled Income Fund
When you contribute to a pooled income fund you are also making an investment. Your donation is placed into a fund with gifts from other participant donors to be held and invested by the charity. Every year, you would receive a proportionate share of income from the fund. Upon your death, your contribution is paid to charity. The Foundation does not presently offer this option as part of a planned giving strategy. We would be happy to discuss alternatives to the Pooled Income Fund that can accomplish most, if not all, of the same objectives. Many of the same tax benefits are potentially available to you as discussed under the Charitable Remainder Trust discussed above.
Charitable Remainder Trusts
Holding your property in trust for the benefit of Butler is a great way to provide a significant contribution while still meeting your personal financial needs. When you create a charitable remainder trust you donate your cash, property, or securities to a trust that pays you or your beneficiary income for life or for a fixed period of time.
When setting up a charitable remainder trust, you will need to make a number of choices. These choices include deciding what assets to put into the trust, determining the amount of income you would like to receive, and selecting who will administer the trust. One of the most important choices is the type of charitable remainder trust to use. There are two general types of charitable remainder trusts – the Annuity Trust and the Unitrust.
- Charitable Remainder Annuity Trust – Acharitable remainder annuity trust pays a fixed dollar amount which is defined as a percentage of the original value of the trust or as a stated dollar amount. If you’re looking for the security of a reliable stream of payments, this type of trust is ideal because it guarantees the payment of a fixed amount of money each year up to the total assets of the trust.
- Charitable Remainder Unitrust – Acharitable remainder unitrust pays a varied amount each year. The payment is determined by a fixed percentage of the fair market value of the assets, revalued annually. If you’re looking to receive larger payments in the long run, you might prefer this type of trust because the value of the trust should grow over time which should result in higher periodic payments.
Both types of charitable remainder trusts provide major tax benefits. When you put assets in the trust, you should be able to claim a charitable income tax deduction on your income tax return based upon the actuarially determined present value of the assets the charity will receive in the future. Further, the transfer of appreciated property to the trust gives you even more of a potential tax advantage. Selling the appreciated assets to increase your liquidity might force you to pay capital gain tax on the property. However, by first transferring the assets to the trust, the trust can then sell the assets without recognizing the tax and reinvest it at a higher rate of return. Please note that while we generally do not serve as the trustee of such trusts, we are happy to discuss with you or your professional advisors your various alternatives.
Charitable Lead Trust
A donor may set up a charitable lead trust by transferring his or her assets to a trust. Instead of providing for the income to be paid to the donor or other persons, it is paid to the charity for a specific time period or for the donor’s lifetime, etc. The trust assets are distributed at the end of the time period to either the donor or the beneficiaries named by the donor under the trust. This method of giving allows you to make a present gift to Butler of the income and later returns that gift to you or your loved ones.
The charitable lead trust is one of the most complex methods of planned giving, so if you think you want to use this method, make sure to talk to your lawyer or financial advisor. When setting up a charitable lead trust, you first need to determine which of your assets you wish to donate. Next, you can set the amount of income to be given to the charity, and finally, you should determine the period of time for which the charity receives that income.
When you set up a charitable lead trust, you reduce your taxable estate, resulting in decreased federal gift and estate taxes when the remaining trust assets are returned to you or your loved ones.
Retained Life Estate
A charitable deduction is allowed for the value of a remainder interest in a decedent’s personal residence or farm where the decedent bequeaths a life estate to an individual and designates a qualifying charity to receive the remainder. The personal residence is not required to be the decedent’s principal residence. In addition, a “farm” includes land and improvements used by the decedent or a tenant for the production of crops, fruits or other agricultural products or for maintaining livestock.
You can transfer your home or any other piece of real estate to the Foundation and retain a life estate. You continue to live in the home or have use of the property you transferred until your death. You are responsible for the taxes and maintenance of the property. Upon your death the property passes to the Foundation.
Among the benefits of the retained life estate is an income tax deduction for the value of the remainder interest given to the Foundation. You can terminate your life estate at any time and accelerate the date the Foundation receives the property, this also results in a further income tax deduction in the year you accelerate the transfer.
Charitable Bargain Sale
This gifting method is fairly simple. You sell a piece of your property to the Foundation for less than its market value and it results in a transaction that is part gift and part sale. Among your benefits is an inflow of cash for the purchase price, an immediate income tax deduction for the difference between the cash you received and the market value of the property, and the avoidance of capital gains tax on the gifted portion.
Wealth Replacement Alternatives
A gift to a charity may reduce the assets available to be inherited by your family and loved ones. Depending on the circumstances, however, the savings from an income tax deduction for a charitable gift might be used to purchase life insurance with death benefits payable to your family or loved ones. You may establish an irrevocable life insurance trust to own the life insurance and provide the desired benefits to the family and loved ones upon your death. This type of trust may remove the life insurance from your estate for federal estate tax purposes thus allowing these assets to pass with no federal estate tax liability. There are other wealth replacement strategies available and we would be happy to visit with you and your advisors about the various options.
* The foregoing discussion provides an overview of various charitable giving opportunities; is provided for informational purposes only; and, is not intended to serve as tax or legal advice. For specific information and planned giving opportunities, consult your tax advisor or lawyer.