Planned Giving

Generally, the phrase "planned giving" refers to the various methods available to make charitable gifts, typically as part of an individual's overall estate plan. There are many ways to make charitable gifts. This and future articles will discuss some of them.

The simplest method of giving to charity is an outright transfer of cash to the charitable organization, usually accomplished by writing a check to ensure that there is a record for income tax reporting purposes. Alternatively, the charity may supply a written receipt for the gift.

Donations of cash that land in the collection basket at Assumption Church each Sunday are technically deductible as charitable contributions on an income tax return (if the giver itemizes deductions). Unfortunately, though, the burden of proof to substantiate the deduction is on the taxpayer. Without a receipt from Assumption acknowledging the amount, the giver may find a claimed deduction for cash donations to the weekly collection basket will be disallowed on audit by the tax authorities. Hence the wisdom of writing a check. If, nevertheless, cash is the vehicle of giving, then regular use of the church envelopes allows Assumption to keep a record of donations for each parishioner for the year.

Questions? Call Dan Overbeck, Parishioner and Retired Finance Council Member, at 223-8963.

Last time, we discussed gifts of cash. But cash is not the only thing of value that can be given to charity. There is a particular advantage to giving common stock in a publicly traded company directly to the charity. This type of gift is known as a gift “in kind”.

Suppose you hold 100 shares of The Widget Company, Inc. that have a current fair market value of $10,000, or $100 per share. Suppose further that you originally paid $1,000 dollars to buy the shares, or $10 per share, presumably more than 1year ago. Lastly, suppose you wish to make a $10,000 gift to Assumption Church, but find yourself short of ready cash. You could sell the stock to obtain the cash to make the gift. If you did, though, you would realize a long term capital gain of $9,000 [$10,000 value - $1,000 cost]. The combined Federal and NYS tax on the capital gain would be about 25%, or $2,250. That would leave you with only $7,750 to donate [$10,000 proceeds - $2,250 tax due].

If, instead, you gave the stock directly to the church, no capital gain is realized! You will receive an income tax deduction for the full market value of the stock, $10,000. You do not have to pay any capital gains tax. And because Assumption Church is a qualified charity, it does not have to pay any income tax when it sells the stock either. Thus, Assumption may use the entire proceeds of $10,000 for whatever purposes it deems necessary.

This method of charitable giving works for any type of asset that has increased in value over time, not just common stock.

Questions? Call Dan Overbeck, Parishioner and Retired Finance Council member, at 223-8963.

In my first article, I indicated that “planned giving” refers to charitable gifts made as part of an individual’s estate plan. Let’s talk about ways to make charitable gifts at death.

The simplest form of a charitable gift at death is a bequest or legacy under a Last Will and Testament. Sample language would be: “I give $10,000 to Assumption Church of Fairport, New York, to be used for its tax-exempt purposes” OR “I give all of my common stock in The Widget Company, Inc. to Assumption Church of Fairport, New York, to be used for its tax-exempt purposes.”

Suppose you have made a charitable pledge during your life, but die before having satisfied it. Such a pledge is not generally enforceable by the charity after death; in other words, it is not a legal debt that can be collected through the courts. To ensure nevertheless that your intention is carried out, you might say in your Will: “I direct the Executor of my estate to satisfy any outstanding pledges that I have made to Assumption Church.”

It should be obvious by now that it is imperative for you to have a properly written and signed Last Will and Testament, if you wish to make a charitable gift at death. If you die without a valid Will, the law does not allow the estate to make any charitable gifts from your assets (with some exceptions to be discussed next time).

By the way, all gifts to charity under your Will are deductible in full for estate tax purposes.

Questions? Call Dan Overbeck, Parishioner and retired Finance Council member, at 223-8963.

In my last article, I emphasized that a person generally cannot make any charitable gifts that take effect at death, unless he or she has used appropriate language in a valid Last Will and Testament.

There are exceptions to most every rule, though, aren’t there? In this case, the use of properly worded beneficiary designations on various types of assets can cause money to be paid directly to a charity at your death, outside of your Will. The major examples are life insurance policies, Individual Retirement Accounts, 401(k) accounts, and certain trusts. It is perfectly legal to name your favorite charity as the beneficiary of a policy of life insurance on your own life. The premiums you pay annually may not be deductible for income tax purposes; but at your death, the life insurance proceeds will go directly to the charity [e.g. AssumptionChurch] and will qualify as a deduction for estate tax purposes.

The same is true for IRA’s or 401(k) retirement savings accounts. In fact, there is a “double benefit” to using such assets to make a charitable gift at death. The fair market value of such assets is counted as part of your estate for estate tax purposes. But such assets also represent previously untaxed income! So, in addition to estate tax, as and when such accounts are collected by an individual beneficiary, he or she must also declare the proceeds as taxable income and pay tax on the funds received. Suppose, however, that Assumption Church is named as your beneficiary. In that case, the account’s fair market value is still an asset for estate tax purposes, but it also qualifies for deduction on your estate tax return because it passes to Assumption. And, when the account is actually collected by the Church, income tax is also avoided because Assumption is a tax-exempt organization. Next time, I’ll talk about trusts.

Questions? Call Dan Overbeck, Parishioner and retired Finance Council member, at 223-8963.

The previous two articles discussed how to make charitable gifts at death, either through a Last Will and Testament or through a beneficiary designation on a life insurance policy, IRA, or 401(k) account. In this article, let’s talk a little about trusts.

Simply speaking, a “trust” is a financial arrangement in which the legal ownership of assets is transferred to a “Trustee” who holds the assets for the benefit of another person, known as the “income beneficiary”. After a stated period of time, the trust ends, or terminates. The assets are then paid to the ultimate beneficiary, known as the “remainderman”.

In the world of planned giving, one of the most popular techniques is use of a Charitable Remainder Trust (CRT). It is so named because, at the end of the trust, the assets pass outright to a charity. Generally, you transfer legal title to the assets which are to be held in the CRT to the Trustee. You then designate the current income beneficiary, who will receive a guaranteed cash flow, typically for the balance of his lifetime. When the income beneficiary dies, the trust terminates and the balance on hand is paid outright to your designated charity, for example, Assumption Church.

A CRT can be created in either of two ways: by your Last Will and Testament, in which case it doesn’t take effect until you die, or during your lifetime, by execution of a contract, known as a trust agreement, between you and the person or banking corporation who will serve as the Trustee. In the latter case, you yourself could then be the current income beneficiary.

There are several advantages to a CRT, especially if it takes effect during your lifetime and is funded with appreciated stock: immediate income tax deduction; increased cash flow; deferral or avoidance of capital gains taxes; estate tax deduction; and, last but not least, philanthropic accomplishment.

Caution: CRT’s are very technical and you need the advice of an expert.

Questions? Call Dan Overbeck, Parishioner and retired Finance Council member, at 223-8963.