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Planned Giving Vehicles Provide Reliable Income Streams

You are well aware of the importance of charitable contributions to your not-for-profit. But, do you know the value of planned giving and the vehicles that donors can use to help both you and them?

Planned giving lets your organization do just that: plan. You'll know who is giving what and when. But, just as important, is being able to communicate to contributors the many ways they can give. By choosing the right vehicle, donors can get the optimum tax benefit and have as little or as much say-so as they desire about how their donations are used. Planned giving can even provide donors with monthly income.­­­­­­

Direct gifts and bequests

These donations go directly from a donor (or a donor's estate, in the case of a bequest) to your organization. Generally, the bigger the donation, the bigger the tax benefit.

Lifetime gifts of cash, property or other assets are usually fully deductible for income tax purposes as long as the donor's itemized deductions exceed the standard deduction and his or her donations don't exceed adjusted gross income (AGI) limits. Direct bequests, typically made via a will, are generally 100% deductible for estate tax purposes.

Charitable gift annuities

These vehicles, available in most states, can be a good fit for people who want to donate substantial assets during their lifetimes and are concerned about keeping a consistent income flow for themselves while minimizing taxes.

With this legal agreement between you and the donor, you receive money, securities or real estate and in return agree to pay the donor a fixed income for life. That amount is based on the contributor's age at the time of the gift and the rate of return your organization expects to earn and agrees to pay to the donor. The payments could begin right away or be deferred to a later time.

The contributor can defer any capital gains on appreciated property given to you, recognizing gains only as he or she receives annual payments. Meanwhile, a portion of each payment is defined as a tax-free return on principal. Also, the donor can claim an income tax deduction equal to the present value of the charitable interest the year the annuity is set up.

Charitable gift annuities are also subject to the registration and licensing provisions of state insurance departments.

Charitable trusts

With a charitable lead trust (CLT), the contributor donates assets to a trust, which pays income to the charity for a number of years. The property then reverts to the donor or a beneficiary. The donor receives a gift or estate tax deduction (depending on whether the­­­ trust is funded during life or at death) equal to the present value of the charitable interest when the CLT is set up.

With a charitable remainder trust (CRT) the donor (or another noncharitable beneficiary) receives income from the donated assets for a specified period, or for the life of the beneficiary, and the remainder goes to the charity. As with a charitable annuity, the donor can defer capital gains on certain long-term appreciated property given to the CRT, recognizing gains only as he or she receives annual payments.

The donor receives a gift or estate tax deduction equal to the present value of the charitable interest when the CRT is set up and, if it's set up during life, will also receive an income tax deduction.

DAFs, supporting organizations and foundations

Donor advised funds (DAFs) give donors a simple way to make charitable gifts when they choose and to then participate in directing the funds to other charitable organizations. The contributor can create a DAF in his or her name to be held by a not-for-profit organization that administers the funds and makes grants. DAFs are designed to broadly benefit a variety of charities and are less costly to set up than a private foundation.

Donors who want more, but not necessarily full and direct, control over how funds are used—without the headaches of foundation administration—should consider creating a supporting organization to ally with their favorite not-for-profits. The charities typically handle tax-filing and administration costs. The donor can also deduct contributions up to a higher percentage of AGI than allowed for private foundation contributions.

Private foundations are the vehicle of choice for donors who want to make significant contributions such as $1 million or more annually or have full control over how funds are used. Because a foundation is funded and controlled by the donor, it must file income tax returns each year and pay a 1% or 2% excise tax on net investment income. It must also bear administrative costs.

Understanding: An aid to fundraising efforts

Planned giving is critical to all not-for-profits. Your understanding of your donors' choices should help you in your general and one-on-one fundraising efforts. Whatever your supporters' inclinations, encourage them to talk over the options with their tax and financial advisors.

Questions on planned giving?
Contact Brian Whitlock at 312-980-2941.

­­­­­Take Stock of These Gifts

When it comes to gifts, nothing beats a bird in hand, right? Not necessarily. While your not-for-profit isn’t likely to turn down a check, your donor can miss out on significant tax savings by giving cash.

For contributors, giving appreciated stock they want to sell anyway, rather than cash, can mean big tax savings—additional money they give to you or keep themselves. But the wrong move can cause them to miss out on tax savings. Remind prospective stock-giving benefactors of the following:

• They might be able to receive an income tax deduction equal to the appreciated stock’s fair market value (FMV), but should check with their tax advisor on this;
• It can be easier to give publicly traded stock rather than closely held stock, whose FMV is more difficult to determine and might be more costly to substantiate; and
• Depreciated stock is a different matter—when FMV is less than the stock’s purchase cost, donors can deduct only the FMV and will lose the capital loss deduction that could be taken if they sold the stock. Donors are better off selling it and then giving the cash proceeds to your organization.

In addition to stocks, your patrons can give you almost anything else they want including property, life insurance, artwork and collectibles. They should consult with their financial and tax advisors to learn about the benefits and pitfalls of each type of donation.
 

 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.