A for Annuity, B for Bequest, C for Charitable Remainder Trust… The ABCs of planned giving – the most commonly used vehicles, their benefits to the donor and to your charity, the assets with which they can be funded and other practical considerations.

We’ll Cover Definition of Common Types How They Work Assets/minimums to Fund Benefits Practical Considerations Relevance/Importance Q & A

B as in Bequest a legal provision in one’s will (or living trust) that names charity as the recipient of a portion or all of a donor’s estate

Common Types Specific: charity is beneficiary of a particular asset or dollar amount Residuary: charity is beneficiary of the remainder of the estate once expenses & specific bequest obligations met Contingent: charity is beneficiary if all of the beneficiaries pre-decease the donor

Assets to Fund Cash Real estate Securities Personal property

Benefits For the Donor Easy to understand Control of asset distribution Revocable Possible estate tax deduction; no current charitable income tax deduction No minimum to fund Costs nothing during lifetime

Benefits For the Charity Market to everyone – no age/wealth limitations Often, a donor’s largest gift Can be used to ‘endow’ annual gift Steady, future stream of income

Practical Considerations After donor dies, distribution won’t be immediate Disgruntled relatives, children, etc. may contest Bequest administration Be prepared to respond to donors’ requests for information

Relevance 8% have included a charity in will 42% die without a will 21% had no prior affiliation with charity Most popular -- 80% of all mature planned gifts Only 1 in 3 told charity about bequest in advance

B as in Beneficiary Designation a provision outside the will naming charitable organization as beneficiary of a portion or all of a particular asset

Assets to Fund Insurance policy Retirement plan and IRA Brokerage or bank account .

Benefits For the Donor No age minimum Easy to do -- beneficiary designation form Control of asset distribution Revocable No dollar minimum Doesn’t require an attorney Costs nothing during lifetime

Benefits For the Charity Relatively easy to administer Market to everyone – no age/wealth limitations Distribution may be faster because asset not going through probate

Insurance Policy Policy that is no longer needed Make charity owner and beneficiary of paid-up policy Donor gets charitable income tax deduction Removes asset from gross taxable estate Charity receives policy benefits upon death of donor

Retirement Plan Assets Most retirement plans income-tax deferred Donor avoids income and estate tax Even if estate not subject to estate tax, income from IRA is taxable upon transfer to heirs [income in respect of decedent (IRD)] Gift IRA assets to charity; leave non-taxable assets to heirs Donor still makes withdrawals during lifetime

Financial Accounts Transfer on Death Investment Account (TOD) Assets remaining in account pass directly to named beneficiaries Beneficiaries must provide original death certificate (usually, to a brokerage firm) If beneficiaries predecease owner, remaining funds become part of owner’s probate estate

Financial Accounts Payable on Death Bank Account (POD) Money left in account will be paid to named beneficiaries Beneficiaries must provide original death certificate to bank If beneficiaries predecease owner, remaining funds become part of owner’s probate estate

C as in Charitable Gift Annuity (CGA) Contractual arrangement Individual transfers cash or marketable securities to charity in exchange for fixed, annual payments for up to 2 annuitants for life Charitable income tax deduction for portion of gift in year gift was made Remaining balance passes to charity when contract terminates

CGA, cont’d. Annuity payments are part taxable and part tax free; possible capital gains tax portion Payout rates recommended by American Council on Gift Annuities (ACGA) Charity sets funding minimums

Types of CGAs Immediate: payout to annuitant/s begin immediately Deferred: payout to annuitant/s begin on a pre-determined future date Flexible: payout to annuitant/s begin in a future date range, but not for at least one year after the gift has been made

Assets to Fund a CGA Cash Appreciated securities - a portion of capital gains tax is avoided Real estate [unencumbered] The capital gains is allocated between what the charity receives at donor’s death (the gift portion); and what donor receives in payments (the annuity portion) and taxed over the lifetime (s) of the annuitant (s)

CGA Benefits for the Donor Annual fixed payments for life; amount doesn’t fluctuate with the market Professional asset management Provide for selves, aging parents, college tuition, others Immediate charitable income tax deduction; possible estate tax deduction Diversify portfolio to produce fixed income

Benefits for the Charity Often, good “starter” gift Donors often create more than one Can re-engage lapsed donors

Practical Considerations Charity should be registered in each state in which it is offering CGAs Backed by all of the general assets of the institution Optimal to use third party to administer Forms required – application, contract, disclosure statement Obligation to pay annuitants for life

Relevance Great way to begin cultivating a donor Very popular with lots of charities Your donors may already know about them from their other charities – good news for you Marketing opportunity when rates change

CGA Example: Donor, age 80, donates $10,000 Gift date - 3/6/14 Charitable deduction - $5,020 Payout rate - 6.8% Annual payment - $680

Charitable Remainder Trusts (CRTs) Trust created by the donor that stipulates a payout from the assets to the donor & or donor’s beneficiary for life or term of years Donor selects a trustee (sometimes charity) Donor sets payout rate, but 5% minimum Lawyer drafts trust documents Irrevocable

Two Main Types of CRTs Charitable Remainder Annuity Trust [CRAT] Established during life or inter vivos Payout is fixed amount, regardless of value of trust principal Donor selects annuity amount at trust’s creation Donor cannot add assets to the trust

CRTs, cont’d Charitable Remainder Unitrust [CRUT]: Can be established during life or inter vivos Pays a fixed percentage (at least 5%) based on annual fair market valuation of the trust Amount of payout can change annually Donor can add to the value of the trust May be a hedge against inflation

CRTs, cont’d. Works well in conjunction with bequests Donor establishes a CRT during her life to fund department Chair upon her death Balance of Chair funded through a bequest; both mature at same time, funding Chair

Assets to Fund Typically, $100,000 minimum due to costs associated with set up/administration Cash Highly appreciated, low yield property Real estate

Benefits For the Donor Possible reduction in taxable estate May bypass taxation of capital gains May increase income Diversification of assets Charitable income tax deduction for ultimate gift Doesn’t require involvement of charity Flexibility as to income recipients Helpful in retirement planning

Benefits for Charity Trust is irrevocable Typically six-figure gifts or more Support for mission

Practical Considerations Although trust is irrevocable, charitable beneficiary selection may not be Principal can be invaded if trust earnings are down – be conservative in your trust illustrations for donors Involves professional advisors – at least an attorney (typically cost to donor)

Residence with Retained Life Estate Donor makes irrevocable gift of residential real estate Donor retains the right to live in & use property for life Donor still responsible for maintenance, taxes, insurance, other costs Donor gets charitable income tax deduction

Practical Considerations Burden of out-of-town property management until property sold Selling property Real estate market [fluctuating] Real estate gift acceptance policy

Q and A

Gayle S. Union Manager, Planned Giving Marine Corps Heritage Foundation union@marineheritage.org