Planned Gift Definitions Compiled by Maureen Mahoney Hill, CFRE April 2011

Charitable Lead Trust Definition: A donor irrevocably transfers property or assets to establish a trust whose income or “lead” interest is given to the designated charity and the remainder interest is given to one or more non-charitable beneficiaries, which can be the donor (grantor) or his or her heirs (non-grantor). Charitable lead trusts can be set up so that trust payments to the charity can be a fixed dollar amount (annuity) or a fixed percentage of the fair market value of the trust assets as revalued each year (unitrust). Benefit to donor: Reduces taxable estate Property to heirs at considerable tax savings Able to see positive impact of gift during lifetime Benefit to charity: Current gift Ongoing payments for a number of years Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Charitable Remainder Trust Definition: A donor makes an irrevocable gift of appreciated property to a trust that pays income to one or more persons for their lifetimes. At the termination of the trust (either at the death of the donor/named beneficiaries or a set term of years) the remaining trust assets go to support the designated charity/charities. Charitable remainder trusts can be established as annuity trusts (fixed income distributions) or unitrusts (income distributions that fluctuate with the value of the assets or the earnings of the trust) while the donor is living or through their estate (testamentary trust). Benefit to donor: Variable or fixed income for life/life of beneficiaries Convert low-yielding assets to a higher income stream Immediate income tax deduction Avoid capital gains on appreciated assets used to fund trust Charitable beneficiaries can be revocable Benefit to charity: Gift of remainder If notified can provide acknowledgement/recognition during lifetime Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Charitable Gift Annuity Definition: A contract between the donor and the charity in which the charity is obligated to make periodic payments to the donor as provided in the gift annuity agreement. The payment the donor receives depends on the amount of the gift and the donor’s age. If the donor is younger than 60 years of age, a deferred gift annuity can be created. Benefit to donor: Immediate income tax deduction Future deductions on income tax Fixed payments for life Benefit/Risk to charity: Remainder is retained - on average 50% of the original value Use of financial institution to manage annuities reduces time/resource obligation of charity Following ACGA rates/recommendations minimizes financial risk Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Real Estate Definition: Outright gifts of real estate can come in the form of undeveloped property, a personal residence or farm, vacation home, rental property or commercial property. Retained life estate agreements allow homes and property to be contributed to charity while the donor continues to live in and use the property. Retained life estate can be used with a personal residence, farm, vacation home or even a yacht but not with commercial or development property. Life tenants continue to pay property taxes, insurance and maintenance costs. Although the charity owns the property when the deed is transferred, the charity does not take control of the property until the death of the donor (or his or her survivor) or until the donor (or survivor) choose to relinquish the right to use. Benefit to donor: Outright gifts Immediate income tax deduction for FMV Reduction or elimination of capital gains tax Reduced estate tax Eliminates hassle of selling Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Real Estate Benefit to donor: Retained life estate Income tax deduction for portion of value Reduced estate tax Lifetime use of property Recognized as significant donor during lifetime Eliminates hassle of selling Benefit/Risk to charity: Potential large gifts for highly appreciated property Retained life estate - potential risk if property not maintained, taxes or insurance not paid (donor’s responsibility) Costs of selling the property or other unanticipated costs Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Bequest Definition: A will is a legal document disposing of a person’s property at the time of his or her death. A bequest is a gift from a donor’s estate as outlined in his or her will, to take effect when the estate is settled. Charitable bequests, which may be incorporated into a will when it is written, or added to an existing will by amendment (codicil), can take several forms: Specific dollar amount – with this type of gift it is especially important that the donor keep the will up-to-date. Percentage of the total estate – gift adjusts with changes in the size of the estate Contingent - only goes to charity if named heirs do not survive donor. Residue of their estate – after specific gifts to loved ones and other beneficiaries are made, all or a percentage of the residue can be gifted to charity. With this approach, the gift adjusts with changes in the size of your estate as well. Benefit to donor: Gift exempt from federal estate tax Gift is deferred until after your lifetime Maintain control of assets during your lifetime Creates charitable legacy for future generations Benefit to charity: Donors can make potentially larger gift than otherwise possible Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Pooled Income Fund Definition: A trust funded by a number of donors, each retaining an income for life. Each donor is paid a pro-rated share of the trust earnings. Each donor’s portion of the principal becomes the property of the charity at the death of the donor. Benefit to donor: Life income to you and/or other beneficiary A charitable tax deduction No capital gains tax on appreciated asset held long-term Benefit to charity: Gift of principal at death of donor Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Retirement Fund Assets Definition: Since retirement assets are subject to both inheritance tax and income tax, they are often the best asset to leave to a charitable organization. After taxes, any heir other than the owner’s spouse may receive as little as 30% of the assets. If the assets are gifted to charity, the charity will receive 100%. Donors may name charity as the primary, secondary or contingent beneficiary of their retirement assets. They may also choose to designate a certain dollar amount or percentage of the assets. If donors are over age 59½, they can use withdrawals from their retirement accounts to fund a current gift. The withdrawal is taxable, but the charitable gift will provide an offsetting deduction on the donor’s income tax. Benefit to donor: Avoid two-fold taxation on retirement fund assets (income and estate) if passed to heirs other than spouse Change in beneficiary easy gift to accomplish Current withdrawals over age 59 ½ taxable as income but can be offset with a current tax deductible gift to charity Benefit to charity: Potentially bigger gift than otherwise possible Large pool of potential assets to tap into, particularly among employees of universities and hospitals. Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

IRA Charitable Rollover Late in 2010 Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which extended the IRA Charitable Rollover for This unique gift opportunity allows individuals age 70½ and older to make direct transfers of up to $100,000 from their IRA tax-free to qualifying charities. Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Savings Bonds Many of our older citizens have a virtual treasure trove of US Savings Bonds, purchased at a discount and some even no longer accruing interest. These bonds are poor candidates for lifetime gifts because a transfer to charity causes the donor to recognize the deferred interest for income tax purposes. Conversely they make ideal assets to transfer on a testamentary basis because, like qualified retirement plans, they produce income in respect of a decedent and are therefore subject to income taxes in the hands of those who inherit them – unless they are bequeathed to charity. Older bonds accruing little or no interest can be cashed in during life to fund an outright charitable gift or fund a charitable gift annuity. The charitable deduction can in some cases exceed any income inclusion. Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Insurance There are several options for making a gift of life insurance to charity: Gift of existing policy – the donor can change the owner and beneficiary of an existing policy to charity Benefit to donor: Immediate income tax deduction equal to the policy’s cost basis or cash surrender value, whichever is less (current IRS rules prohibit the donor from claiming an income tax deduction for the policy’s face value) Reduces estate tax If the donor is still paying premiums they can be made through the charity and deducted by the donor on their income tax. Potentially bigger gift than otherwise possible Gift of a new policy- donor makes a tax deductible gift to the charity for the purchase of a new insurance policy. The charity is applicant, owner and beneficiary of the policy Benefit to donor: Immediate tax deduction Potentially bigger gift than otherwise possible. Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE

Insurance Designate charity as beneficiary – Charity is named as beneficiary only (primary, secondary or contingent) for all or part of the proceeds of a donor’s life insurance policy. No income tax deduction. Benefit to donor: Potentially bigger gift than possible Benefit to charity: Potentially bigger gift than possible from your donors Planned Gift Definitions compiled by Maureen Mahoney Hill, CFRE