1. Planned and Endowment Giving: Gifts that Help Later
Philip M. Purcell, JD
Ball State University Foundation
Copyright rights reserved. .

2. Planned Gifts that Help Later: Deferred Use Planned Gifts
Bequests in a will or trust
Beneficiary designations of qualified retirement plans
Owner and/or beneficiary designations of life insurance

3. Benefits of Deferred Use Planned Gifts to Donors
Leaving a legacy
Easy to establish
Revocable
Assets for current use
May be for a percentage
Can be combined with other planned gifts
Deferred use planned gifts are a primary means for donors to leave a legacy in support of their philanthropic passions! These planned gifts can be easy to establish. Attorneys can prepare a simple will or a more complicated trust depending on particular estate planning goals – including a relatively simple charitable bequest provision. Life insurance and retirement plan beneficiary forms may be obtained from the issuing company and easily completed. A charitable bequest provision in a will or trust, as well as beneficiary designations of life insurance and retirement plans are revocable and can be changed at any time depending on the goals of the donor. Also, since these gifts are deferred, assets remain available for current use as needs and plans may change. Since the value of deferred gifts can fluctuate over time, it is possible to be flexible and state the gift as a percentage rather than a fixed dollar amount. Further, as will be explained in future modules, deferred use planned gifts can be combined with other planned gifts to provide enhanced tax and income benefits.

4. Benefits of Deferred Planned Gifts to Charitable Organizations
Largest gifts that many donors may make
Transformational philanthropy
Often unrestricted
Can be endowed
Deferred use planned gifts are often the largest gifts many persons ever make. For many charitable organizations, the magnitude of these deferred gifts can be truly transformational for the organization. Also, many deferred gifts are unrestricted – possibly the largest unrestricted gifts a charitable organization may receive. Donors often designate their gifts for endowments as permanent charitable legacy.

5. Bequest in a Will or Trust
Bequests in a will or trust are the most important of all deferred use planned gifts! More revenue is received from this technique – so it is very important that your charitable organization promote bequests in wills and trusts as a fundraising priority!

6. Family, Loved Ones, Charity
How Bequests Work
Will or Trust
Donors
Family, Loved Ones, Charity
A charitable bequest is established in will or trust. Assets or property may be designated for family and loved ones as well as important charitable causes such as charitable organization! Plus a charitable bequest qualifies for an unlimited estate tax charitable deduction!

7. Wills Direct assets at death
Overseen by local court with probate procedure
Executor or personal representative responsible
Must comply with state law
Revocable
Generally public records

8. Revocable Trusts Ability to manage assets during life
Trustee oversees – ability to designate successor trustee
Direct assets at death
Not overseen by court subject to probate
Must comply with state law
Revocable
Private document

9. Opportunity of Bequests!
Almost 90% of all deferred use planned gifts are bequests!
Only 20% of bequests are reported to the charity in advance.
Less than 50% of Americans have a will.
7-8% of Americans have included a charity in their wills.
Recent research data reveals that charitable bequests represent significant opportunity for charitable organization! In fact, almost 90% of all deferred use planned gifts are bequests! And this undervalues the value of bequests since only 20% of bequests are reported to the charity in advance. There is even more opportunity since less than 50% of Americans have a will – and only 7-8% of Americans have included a charity in their wills - which highlights why charitable organization should promote estate planning to all its donors!

10. Types of Bequests
A bequest in a will or trust is a declaration of how property is to be distributed at the death of the person. Married couples often coordinate their wills and trusts so that the surviving spouse inherits everything when the first passes away. Specific gifts and distributions to family and charity will then take place at the death of the surviving spouse. While charitable bequests in a will or trust may be stated in identical ways, these are two very different types of legal documents.

11. Specific Bequests
A donor may make a bequest for a specific dollar amount or specific property.
“I give $10,000 to charity name”
“I give my home to charity name.”
A donor may make a bequest for a specific dollar amount or specific property. This type of bequest is not adjusted for inflation or market growth as the value of a donors estate changes over time. Furthermore, charitable organization must exercise due diligence prior to accepting property from an estate to make sure unwanted liabilities are debts are not accepted along with the property! Following gift acceptance policies and legal counsel review is often necessary prior to accepting property from an estate.

12. Percentage Bequests
A donor may make a bequest for a percentage of the estate.
“I give ___% of my estate to charity name.”
A donor may also make a bequest for a percentage of the estate. This is the most helpful bequest for charitable organization as it will be adjusted for market growth and inflation as the donor’s estate changes over time. Also, a percentage bequest avoids the problem of accepting specific items of property.

13. Contingent Bequests
A bequest may be contingent on the happening of an event .
“In the event that Uncle Jim predeceases me, I give his share to charity name.”
A bequest may be contingent on an event or chance. For example, a charitable bequest may be fulfilled only if another event happens first, such as the prior death of a loved one.

14. Residual Bequest
A bequest may be for all or a percentage of the estate remaining when all the heirs and creditors are paid.
“When all my other bequests and debts are satisfied, I give 80% of my remaining residual estate to charity name.”
Finally, a bequest may be for all or a percentage of the estate remaining when all the heirs and creditors are paid.

15. Beneficiary Designation of Retirement Plans
In addition to charitable bequests in a will or trust, beneficiary designation of retirement plans represents significant opportunity for deferred use planned gifts.

16. Opportunity of Retirement Plan Gifts
Plan Assets
11%
Life Insurance
Real Estate
27% 8%
Cash 5%
You have seen this pie chart before – in our first module. The importance of planned gifts from assets is represented by this illustration. As you can see, 12% of an individual’s wealth is in cash from current income, while 88% of personal wealth is represented by assets such as real estate, stock, bonds, retirement plans, life insurance and other assets. Retirement plans represent as much as 11% of a person’s assets – or more! Retirement plans include IRAs, 403(b) or 401(K) accounts, ESOPs and other qualified retirement plans.
Stock and Bonds
22%
Other 3%
Business Interests
24%

17. How a Retirement Plan Beneficiary Designation Works
Donors
IRA
Change of Beneficiary Form
Family & Loved Ones
To plan a deferred gift from a retirement account, a donor can submit a “change of beneficiary form” and add charitable organization as a beneficiary for all or a percentage of the retirement account. Family and loved ones may receive a percentage of the retirement plan too. These deferred use planned gifts are very easy to set-up! Upon the death of the donor, charitable organization would receive the generous gift.

18. Two Types of Retirement Plans
Defined Benefit Plan
Defined Contribution Plan
Pension.
Benefit provided by employer.
Specific monthly benefit at retirement.
Employee and/or employer contributes money.
May be “matched”.
Invested.
Examples: Regular and Roth IRA, 401(k), 403(b), and 457(b).
There are 2 types of retirement plans, and only one that is suitable for planned gifts. A defined benefit plan, funded by the employer, promises , as its name implies, a specific benefit or pension at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more often, it may calculate the benefit through a formula that includes factors such as salary, age, and the number of years worked at the company. For example, pension benefits might be equal to 1 percent of the employees average salary for the last 5 years of employment times the total years of service. On the other hand, a defined contribution plan does not promise a specific benefit amount at retirement. Instead, as its name implies. the employee or the employer contributes money to the employee’s account in the plan. In many cases, the employee is responsible for choosing how these contributions are invested, and deciding how much to contribute from their paycheck through pre-tax deductions. The employer may add to the account, in some cases by matching a certain percentage of the employee’s contributions. The value of the account depends on how much is contributed and how well the investments perform. At retirement, the employee receives the balance in your account, reflecting the contributions, investment gains or losses, and any fees charged against their account. Examples of this type of plan include IRAs as well as 401(k), 403(b) and 457(b) plans.

19. Charitable Planning with Retirement Plans
So which of the two types of retirement plans should be discussed with your donors? The defined contribution plan options are best suited to charitable giving for reasons that will be explained in the following slides.
Defined Contribution Plan: IRA, 401(k), 403(b)
Defined Benefit Plan: Pension

20. Taxation of Defined Contribution Plans
Deposits into these plans are deductible.
Income is taxed later as it is paid out – whether to original owner or his/her heirs.
Capital gain on the sale of assets within these plans is not taxed.
Exception: Roth IRA.
Full value of defined contribution plans are included in estate for estate tax purposes.
Most defined contribution plans are taxed as income is later paid out. Contributions to these plans are pre-tax deducted. In addition, capital gain on the sale of assets within these plans is not taxed. One exception is for a Roth IRA in which tax is paid before the contribution – and the income is tax-free as it is paid out of the Roth IRA. The full value of defined contribution plans are included in the taxable estate for estate tax purposes.

21. Benefits to Donors of Retirement Plan Designations
Up to 80% of retirement plan can be paid in taxes due to both deferred income tax plus the estate tax.
Ideal asset to bequeath at death.
Give other assets through estate to loved ones.
Revocable.
Can be combined with life income planned gifts.
If a retirement plan is given to loved ones at death, up to 80% of the retirement plan can be paid in taxes due to both deferred income tax plus the estate tax. As a result, the retirement plan is the ideal asset for a gift to charitable organization! It qualifies for an unlimited estate tax charitable deduction. The donor can give other assets to loved ones. Of course, beneficiary designation is revocable and can be changed at any time. Also, retirement plans can be rolled over at death to other planned gifts that pay income to loved ones. This technique will be explained in a future module.

22. Gifts of Current Income from Defined Contribution Retirement Plans
Donation of current income from a defined contribution plan is not tax-wise.
Taxed first, then off-setting charitable tax deduction.
Little, if any, net tax benefit.
Better tax-wise to donate appreciated assets such as stock.
Donation of current income from a defined contribution plan is not a tax-wise way to plan a gift. Why? Because the withdrawal from the plan will trigger income tax liability for the full amount of the income paid. Of course, the gift will allow for an off-setting charitable tax deduction that may or may not erase the entire income tax liability for the withdrawal. It is usually more tax-wise to donate appreciated assets such as stock to get a fair market value deduction and escape of capital gains tax.

23. IRA Charitable Rollover
Expired 12/31/11.
Allowed for tax-free transfers from an IRA directly to charity.
Tax-free withdrawal – but no additional income tax deduction.
May be reinstated! Stay tuned!
Check status at
You and your donors may be familiar with the popular IRA Charitable Rollover, which unfortunately expired on December 31, This rollover allowed for tax-free transfers from an IRA directly to charity such as charitable organization. The withdrawal was tax-free, meaning there was no additional income tax deduction for the gift. You should be aware that the IRA Charitable Rollover may be reinstated by Congress, so stay tuned to the law! Please contact charitable organization’s planned giving team for the latest news on the IRA Charitable Rollover’s reinstatement.

24. Gifts from Defined Contribution Retirement Plans at Death
A great way to plan a gift!
Charitable gifts at death qualify for unlimited estate tax charitable deduction.
Gifts also escape deferred income tax.
Charitable gifts from defined contribution plans are very tax-wise at death.
Better to leave other assets to children and other heirs!
The best way to plan a gift of defined contribution retirement plans is to name the charitable organization as beneficiary using the beneficiary designation form provided by the plan administrator. Charitable gifts to charitable organization at death qualify for the unlimited estate tax charitable deduction. Gifts to charitable organization also escape deferred income tax. As a result, gifts from defined contribution retirement plans are very tax-wise at death. Your donors should consider a gift of the retirement plan - while leaving assets other than the retirement plan to children and other heirs!

25. RETIREMENT BENEFICIARY DESIGNATION $100,000
Example of a Gift of a Retirement Plan at Death: Assuming No Estate Taxes
RETIREMENT BENEFICIARY DESIGNATION $100,000
BEQUEST $100,000
Minus Income Taxes= ~35%
No Estate Taxes
Let’ s review an example of why a bequest of a retirement plan is tax-wise. If a donor makes a bequest of $100,000 from assets other than a retirement plan to his or her children, then they will receive the full amount - assuming the estate is not subject to federal estate tax. If instead, the donor leaves his or her children a retirement plan of $100,000 at death, the children who inherit the plan will owe income taxes on this inheritance. Assuming an income tax bracket of 35%, this would mean only $65,000 would be received by the children with $35,000 paid in taxes. Therefore, many donors may consider planning gifts of retirement plans to charitable organization while leaving other assets to children from their estate.
$100,000 to children
$65, to children

26. Types of Retirement Gifts at Death
Percent
Specific Amount
You should also make donors aware that they are not required to name charitable organization as beneficiary of the entire retirement plan. As with a bequest from a will or trust, a donor can name charitable organization to receive a percent of the retirement account, or a specific dollar amount. Children and other loved ones can receive the remaining balance of the retirement plan at the death of the donor.

27. Who Plans Bequests from Retirement Plans
Donors looking to maximize estate given to children.
Donors who are looking to make a sizeable gift while avoiding taxes for their heirs.
Donors looking for convenience.
Donors who want flexibility – revocable at any time.
As we have explained, many donors may find bequests from retirement plans very attractive. For example, donors looking to maximize the value of their estate given to children – but who also wish to make a sizeable gift while avoiding taxes for their heirs – will find such a plan extremely useful. Also, since retirement plan bequests are easy to plan using a simple beneficiary designation form, many donors find such gifts convenient. Finally, given that retirement plan beneficiary designations are revocable and can be changed at any time will be very attractive to donors who want to keep their options open and flexible.

28. Owner and/or Beneficiary Designation of Life Insurance
In addition to retirement plans, life insurance is another popular form of deferred use planned gifts. Many donors own life insurance that they may no longer need – or may consider a gift of a new policy.

29. Opportunity of Insurance Gifts
Retirement
Plan Assets
11%
Life Insurance
Real Estate
27% 8%
Cash 5%
Life insurance represents up to 8% or more of a person’s net wealth. As a result, it represents an important opportunity for a deferred use planned gift!
Stock and Bonds
22%
Other 3%
Business Interests
24%

30. How Insurance Designations Work
Charity named as a owner and/or beneficiary to an existing or new policy.
Use Owner and/or Beneficiary Designation Form for an existing policy.
Insurance
For a bequest through an existing life insurance policy, a donor would typically complete a “change of beneficiary” or “change of ownership” form he or she can request from their insurance carrier. The gift can be stated as a percentage. These are very simple. This makes life insurance attractive as a donor does not have to incur expenses of updating a will or estate plan, and can make the change very quickly. Many aspects of planning a gift with life insurance will be explained in more detail in the next module.

31. Naming Charity as Beneficiary Only
Revocable
No income tax charitable deduction
Qualifies for unlimited estate tax charitable deduction

32. Naming Charity as Owner and Beneficiary
Irrevocable
Income tax charitable deduction for current cash value of an existing policy
Income tax deduction for premium payments made once policy is donated
Death benefit removed from donor’s estate

33. Tips for Charity Owned Insurance
Donor should make gift to charity which then pays the premium to assure timely payment
Check applicable state insurable interest laws to assure charity may own insurance

34. Benefits to Donors of Life Insurance Designations
Many life insurance policies are no longer needed.
Ideal asset as a charitable gift!
Give other assets to loved ones.
Revocable if named beneficiary only.
Life insurance is a valuable planning too because it offers several strategic benefits to donors. Many life insurance policies are no longer needed as children grow up – so the insurance may be the ideal asset as a charitable gift to charitable organization rather than allowing the policy to lapse. Other assets may be given to loved ones from the estate. The insurance gift is revocable if charitable organization is named beneficiary only. We will discuss additional benefits of naming charitable organization as owner of a policy in the next module.

35. Other Life Insurance Programs Promoted to Charities
Premium Financed Insurance
Charity Owned Life Insurance (CHOLI)
Group Insured Plans
Note: Charitable gifts may not be involved. Rather, these may be financial investment decisions by your organization
Resource: Life Insurance Valuation Guidelines at

36. Planning Deferred Use Planned Gifts
Deferred use planned gifts are some of the largest gifts your charitable organization may receive. They represent the primary way that many donors are able to leave their legacy to fulfill their philanthropic passions. There are many important planning considerations for you to understand.

37. What Motivates Deferred Use Planned Gifts?
Key drivers: helping others and giving back.
Changes in life situation.
Estate planning – age 45 and up!
Passion for charity: the largest gift possible.
First of all, studies have indicated that the key donor motivation for bequests and other deferred use planned gifts focus on helping others and giving back. Promotions of these gifts should be focused on assisting donors to help others and on helping them give back to the community. Also, according to recent research, the birth or death of a child or grandchild is the single most specific trigger for making a deferred gift. It is not surprising that the research found that 92% of those with children under age 18 say they made wills before turning 50. Finally, donors who are passionate about philanthropy are also very likely to consider a bequest or other deferred use planned gift.

38. Revocable Deferred Use Planned Gifts Offer Many Benefits
Increases annual support.
Can always be increased.
Great engagement opportunities.
People who make deferred use planned gifts or say that they would consider making a planned gift also give two times more current gifts than those who don’t. charitable organizations across the system find that donors who have made bequests give at higher levels and increase their giving at a faster rate than non-planned gift annual donors. Multiple studies confirm that donors who have made a planned gift are very open to increasing it in the future and should be some of your best prospects. Bequest gifts provide additional opportunities for recognition and engagement. This can build a stronger relationship between charitable organization and the donor.

39. Tips for Deferred Planned Gifts
Provide sample language
Correct legal name
Ask for copies to review restrictions and provide record for proper stewardship

40. To Review
Deferred use planned gifts can be made through a bequest in a will or trust or beneficiary designation of a retirement account or life insurance policy.
A bequest in a will or trust is the most important planned gift.
A percentage bequest is the most helpful as it adjusts for inflation and market growth.
Talk with donors age 45 and older.
Some key points from this module include:
Deferred use planned gifts can be made through a bequest in a will or trust or beneficiary designation of a retirement account or life insurance policy;
A bequest in a will or trust is the most important planned gift;
A percentage bequest is the most helpful as it adjusts for inflation and market growth; and
Talk with donors age 40 and older!