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Planned Giving

Options

Bequests

The most common way to make a planned charitable gift is through a person’s Last Will and Testament. In this way the donor maintains possession of the gift for personal use until death. With a bequest, the donor may be able to designate a larger gift than is possible during his lifetime. These provisions are revocable and can be added to or modified by a new will or with a codicil to an existing will. The gift is only made if the property or money specified is still in the donor’s possession at his death. Bequests permit the donor to provide for his own needs and provide a gift, if the means are there, at the end of his life.

These gifts may be specific, such as a particular dollar amount or piece of property, or they may be residual, such as a percentage of remaining assets after specific other provisions are met. Charitable bequests reduce the value of the remaining estate for estate tax purposes.

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Charitable Remainder Trusts

A Charitable Remainder Trust creates a separate legal entity with a portion of one’s assets to benefit the charity at a future time. The person himself, or another designated beneficiary, usually receives income from the trust while he is living. In this way a donor can generate a stream of income for himself while alive and still provide for a favorite charity. The donor designates the trustee and can name himself.

Trusts may be revocable or irrevocable. Only an irrevocable trust with a remainder to a qualified charity provides a current charitable tax deduction. Trusts may be immediate or testamentary. A testamentary trust is drawn to be effective only at death. Trusts are often created to address estate tax issues.

Charitable Remainder Annuity Trust

This trust agreement provides the beneficiary with a fixed annual dollar payment (annuity). The payment, once set, may not be altered during the life of the trust. To qualify, the trust must make fixed payments to at least one living non-charitable beneficiary for a term up to 20 years or for the lifetime of the beneficiary. Payments must be at least annually and may be paid quarterly or semi-annually. The payments must be a minimum of 5% of the initial fair market value of the property placed in trust. At the end of the term the remainder must go to or be for the use of a qualified charity.

For example:

A Charitable Remainder Annuity Trust formed with $100,000 with a 6% payout will yield $6,000 for the lifetime of the annuitant. It will not change with the performance of the Trust investment. Because of the factor of inflation, this may not be the best choice for a younger person and perhaps a Charitable Remainder Unitrust should be considered.

The charitable deduction tax savings and capital gain tax savings will vary with the income bracket of the donor.

(See unitrust example.)

Charitable Remainder Unitrust

This trust agreement provides the beneficiary with a payment based on a fixed percentage of annual assets rather than the fixed dollar amount of an annuity trust. Once set, the percentage cannot be changed although the annual payment will vary with the yearly valuation of the trust. The percentage of assets must be at least 5%, however, unlike the annuity trust the valuation of the unitrust is recalculated annually.

The primary difference between the annuity trust and the unitrust is the different method of determining payout. Although the payment is a fixed percentage of assets, the assets are valued annually allowing the payments to grow with performance of the assets in the unitrust. There is the possibility of lesser payments-in years when the assets decline in value. In contrast to an annuity trust, the unitrust can be written to allow for additional contributions at a later time.

For example:

A couple, both 70, have $100,000 in a mutual fund which has a base value of $20,000. As a fund emphasizing growth it has done well, but pays a limited dividend of 1%. Now they would like to increase their income and are concerned about the capital gains tax.

They establish a unitrust with a 6% payout and increase their annual income from $1,000 to $6,000. If the trust assets grow over time their income will grow accordingly.

As a charitable gift unitrust, the gift has an immediate charitable deduction value of close to $36,000 resulting in a tax savings of nearly $12,000 in their 33% tax bracket. In addition they avoid the potential capital gain tax of $12,000 (15% of $80,000). Considering taxes, they have made a gift of $100,000 at a cost of $76,000 and increased their annual income by $5,000. (The income will vary with the annual value of the unitrust.)

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Other Trusts

Variations in the trust concept exist to meet particular needs.

Income-only Unitrust This variation provides for the lesser of trust’s net income or the agreed fixed percentage stated in the unitrust. This is helpful when the trust is funded by assets that take time to sell before any income is realized. A make up provision can be added to distribute excess income (over the fixed percentage) in later years.

Flip-Unitrust An income trust that can "flip" to a standard unitrust at a later date. Often used when the unitrust is funded by property.

Charitable Education Trust A specific device useful for parents or grandparents of children approaching college age that can provide for a charitable gift and college education at a cost less than doing the two separately.

Charitable Lead Trust This trust differs from the charitable remainder trust by designating the income to the charity for a number of years and returning the original property to the donor or heirs at a later date.

Each of these trusts requires careful planning using financial and legal counsel.

Pooled Income Fund This fund is another trust which provides for a life income from the trust and a charitable gift through an irrevocable remainder interest in the donated property. The donor’s gift is commingled with those from other donors for investment purposes. The annual income is based on the investment performance of the fund. Gifts to the fund generally qualify for immediate charitable deductions, based on the estimated value of the charitable remainder, and for avoidance of capital gains tax when appreciated property is used for the gift.

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Charitable Gift Annuities

A Charitable Gift Annuity is not a trust. It is simply a contract under which a charity agrees, in return for a transfer of cash or marketable property, to pay a fixed sum of money for the lifetimes of one or two individuals. The payments to the donor or other beneficiary are fixed for the life of the contract making it possible to plan and predict an income stream. The annuity payments are not called income, however, because a portion of each payment is considered a tax-free return of the original gift.

The gift or transfer becomes irrevocably part of the charities assets. In return, the payments are guaranteed by the full net worth of the charity and not just the value of the original gift. (For Plymouth, gift annuities are administered and guaranteed through the National Association or the UCC). Payments continue for the life or lives of the beneficiaries.

The annuity payment is a percentage of the value of the assets and varies with the age of the beneficiary. For example, for a person approaching or having just turned 70 years old the rate for a one-life annuitant is 6.5% annually of the value of the amount transferred. A charitable gift of $50,000 would result in annual payments of $3,250 to a 70 year old and $4,000 to one who is 80 – only a portion of which is taxable income.

This is a planned gift that is easy to understand, quite easy to implement, can be accomplished with smaller amounts of money and which provides a predictable income stream back to the donor with interest rates higher than the current bond interest rates or most stock dividends.

Charitable Gift Annuity Rate Schedule

Deferred Gift Annuities

A variation on the gift annuity is the Deferred Charitable Gift Annuity. Here the gift, given now, will grow in value at a fixed rate until the age specified by the donor for payments to begin. The payments at a later date will be significantly larger due to the growth in the asset and the older age of the recipient. This is an excellent choice for someone with high current income and wanting a charitable tax deduction now.

For those who want to know more about how Deferred Gift Annuities work, see the right column above.

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Gifts of Property

Real Estate

In addition to an outright gift, charitable contributions of property can be made while retaining a partial life interest in the property. This is typically used to apply to a personal residence, a vacation home or farm where the donor retains the right to live in or use the property during their lifetime. A donor may also engage in a bargain sale of property to a charity. The excess of the fair market value of the property over the sale price represents a charitable deduction. A pro-rated portion of the capital gains tax may still apply.

Gifts of Insurance

Donations of life insurance are often overlooked as a means of charitable giving. The donor may list the charity as beneficiary or secondary beneficiary of the policy. Naming the charity as beneficiary will provide the proceeds of the policy to the charity and a charitable tax deduction to the donor’s estate. There is no immediate income tax deduction. For an additional current income tax deduction, the donor may transfer ownership of the policy to the charity.

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As with all gift planning, be sure to consult your financial and legal counsel in determining whether a particular method is appropriate for you. We would be happy to visit with you and your advisors about the planning options mentioned above.

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Deferred Gift Annuities

(How they work)

Imagine you donated $10,000 one year and ten years later you were guaranteed a payment of $1,000 a year for the rest of your life.  And, one third of that payment was tax-free!

Those are the approximate numbers for someone who is 57.  If accomplished at age 56 the payments are about $20 less; at age 58, about $10 more.  As a deferred charitable gift annuity, you don’t retain ownership of the initial $10,000, but you do receive a charitable deduction in the first year of over $3700.  (See illustration.)

In addition during the payment years you are taxed on less than 2/3s of the annual payment, likely at a time when total earnings place you in a lower tax bracket.

If your donation came from appreciated property, the savings could be even more.

Now imagine you did this for five or 10 years in succession.  While the computations change each year, the tax savings for the high-income earner would be tremendous; and, the income would contribute significantly to a retirement plan.  Equally, important the donor would have designated $50,000-$100,000, with the charitable remainder going to support the future of your church.

HOW DOES PLYMOUTH GUARANTEE A DEFERRED 10% RETURN?

Remember, these are approximate numbers based on tables established today.  The exact numbers will vary; but, once set in a contract for you, they remain for life.

Your gift annuity is placed in an investment fund with a guaranteed fixed annual accumulation to your initial gift.  It is somewhat like investing in a “fixed-value” fund.  The estimated accrued value at the end of ten years, (or other designated period), is used along with life expectancy tables to calculate what the annual payments will be.

WHY IS SOME OF THE ANNUAL PAYMENT NOT TAXED?

Your annuity payment is a combination of the estimated interest earned on the gift and a return of a portion of the original gift.  That part, estimated as a return of the gift, is not taxed.

WHAT HAPPENS IF I LIVE LONGER THAN EXPECTED?

When a gift annuity is established for the life of the donor, payments are guaranteed for your lifetime, regardless of how long you may live.

ILLUSTRATION -- DEFERRED GIFT ANNUITY*
Assumptions
Annuitant age	57
Date of gift	2/18/2005
Age at date of first payment	67,  2/18/2005
Principal Donated	$10,000
Cost Basis	$10,000
Annuity Rate	10%
Payment Schedule	quarterly
Calculations
Charitable Deductions	$3,768
Number of payments in first year	3
Annual annuity	$1,000
Quarterly payment	$250

Breakdown of annuity (starting 2/18/2015)
	TAX-FREE PORTION	ORDINARY INCOME	TOTAL ANNUITY
2015- 2015	255.75	494.25	750.00
2016-2032	341.00	659.00	1,000.00
2033-2033	179.25	820.75	1,000.00
2034 and on	0.00	1,000.00	1,000.00
After 18.3 years from the beginning of payments at age 67, the entire annuity becomes ordinary income.

* This illustration is subject to change based on the American Council of Gift Annuity rates and the IRS monthly release of Applicable Federal Rates.  Please contact us if you would like a personal calculation.

See the American Council on Gift Annuities web site for more information.

As always, we encourage you to consult your personal financial advisor before taking final action.

H.W.B.
Henry Ward Beecher (1813-87), to whom the quote on the top of the Planned Giving Home Page is attributed, was a Congregational minister. He served Plymouth Congregational Church in Brooklyn N.Y. for 40 years. One of the nations most popular preachers of his day, he is also known for his activity in the anti-slavery movement. Beecher was a leading advocate for liberal theology and relating the Christian faith to the growing world of knowledge. Renowned and quotable, his last words are reported to be, "Now, comes the mystery."