10 Ways To Plan a Gift
A planned gift is any gift to Charlottesville Catholic School other than an immediate gift of cash which takes into account the donor’s personal tax and financial goals
- Bequest: Bequests and beneficiary arrangements are the ‘planned giving workhorses.’ They are the simplest and most common ways people make planned gifts. Add a bequest to your will naming Charlottesville Catholic School when your estate is settled. Talk about this with your attorney when drafting your will, or consider adding a codicil to an existing will to express your wishes.
- Beneficiary arrangement: This is perhaps the easiest of all planned gifts. Simply name Charlottesville Catholic School as a beneficiary or secondary beneficiary on an account where beneficiaries are allowed. For instance, to be tax-smart, many people consider doing this with IRA or other traditional retirement accounts. Sometimes married people with families will name their spouse as the primary beneficiary and name children as secondary beneficiaries. Adding CCS for 10-20% as a second beneficiary, with children receiving 80-90% is a simple and tax-smart. CCS will not owe any income tax on funds received from an IRA; whereas children (or any non-charity) pay income taxes on the proceeds. So money left to CCS in this way goes further than if it is left to individuals. This allows you to take greater control of your social capital. Social capital is that part of your wealth that you and your family cannot keep. It must go for the social good, and usually this occurs in the form of taxes. But with a little planning and effort, you can take control of your social capital and direct it toward CCS or the organizations you feel do the most good. This is part of what being a wise steward means!
- Life insurance: If you want to multiply a small gift using the leverage of life insurance, naming CCS as the beneficiary of a life insurance policy can be effective. For instance, if you want to leave a $100,000 gift to fund an endowed scholarship, purchasing a life insurance policy can be a way to make that gift more certain, and the premium payments may be quite modest compared to the benefit you plan to leave. Of course, this strategy may depend on your insurability. You can also name CCS as the beneficiary of existing life insurance. With the desire to be tax-smart, if you own both life insurance and IRAs or other traditional tax-qualified retirement plans, and if you have both individuals and charities who you plan to include as heirs, it may make the most tax-sense to leave the life insurance proceeds (which are tax-free) to individuals and the IRA/retirement plan to CCS (since the CCS can receive these proceeds tax-free, but individuals owe income tax at whatever tax-bracket this additional income puts them into). Considerations of this nature are why it can be helpful to work with a knowledgeable advisor as you consider your family and philanthropic goals.
- Charitable Remainder Trust: The wonderful thing about a charitable remainder trust, or CRT, is that in the right situation it can provide tax deductions, increased income to the donor, tax avoidance, and a significant gift in the future to CCS. Rules surrounding CRTs are complex, so you should consider working with a knowledgeable advisor who can help you and your tax advisor and attorney design your trust in the way that will provide the greatest benefit among your various priorities: current income, tax avoidance, tax deductions, benefit to CCS, benefits to other heirs. Appreciated securities, real estate, office buildings, rental property, and businesses may be good candidates for a charitable remainder trust. Because of the costs involved in establishing and administering the trust, many professionals suggest that a CRT is most appropriate for gifts of appreciated assets greater than $250,000. Here’s how it works: the owner/donor hires an attorney to draw up the charitable trust document based on their goals, then the owner/donor retitles their appreciated property to the name of the trust. After this has occurred the trust can then sell the appreciated property (stock, real estate, etc.) and pay no capital gains. The proceeds can then be re-invested in a more diversified, income-generating portfolio titled to the trust. The trust then pays out a portion of the proceeds to the donor(s) for the rest of their lives, usually increasing their income from the asset substantially (the amount varies, but is usually no less than 5% and may be as high as 9%). No capital gains are due when the asset is sold (tax avoidance). The donor also receives a tax deduction based on the estimated future value of the gift that will go to CCS after the donor dies (income tax deduction). That income tax deduction can be spread out over 5 years, if needed, to fully use it up. After the donor(s) die, the amount remaining in the trust all goes to CCS. If there is a desire to not reduce the inheritance that other heirs might have received had the charitable strategy not come into play, the value of the tax deductions and increased income the donor(s) receives may be used in some situations to purchase life insurance to make the heirs “whole.”
- Gifts of appreciated securities: This is something that most people are already familiar with, because a planned gift is any gift that takes into account the donor’s tax situation and personal goals and helps to redirect social capital. If you make your gift to CCS using appreciated securities, you don’t have to pay the capital gains taxes on the appreciation, and neither does CCS, AND you still get to take the full deduction of the value of the appreciated stock. The opposite consideration comes into play if you have securities that declined below their cost basis. In that situation, you may gain the greatest benefit by selling the security, thus ‘harvesting the loss,’ and making your gift with cash.
- Qualified Charitable Distributions (QCDs): If you are over age 70 ½, you may make gifts directly from your IRA to CCS. You don’t have to recognize the distribution on your income taxes (no taxes due!), and it can satisfy your required minimum distribution requirement!
- Qualified Personal Residence Trust (QPRT): Don’t want your heirs to have to deal with the disposal of your home? You can leave your residence to CCS at your death. For doing this, you can receive a (often substantial) current tax deduction which can be used and carried forward for up to 5 years, plus you get to continue to enjoy the benefits of your home for your lifetime. Note: some organizations accept future gifts of real estate and some do not. Check your organization’s gift acceptance policy.
- Charitable Lead Trust: Have a business or rental property or investment portfolio that generates income you don’t need today? You can gift the income to CCS for a number of years, and then receive the asset back, either to yourself or to your heirs. This strategy is generally of greatest appeal to people with large, taxable estates who want to pass key assets on to family/heirs while also benefiting CCS for a period of time.
- Donor Advised Fund: A Donor-Advised Fund (DAF) can work like your own mini-foundation but is very simple to set up and administer. This charitable fund can be named by you (after your family or any name you choose), and provides great flexibility and increased simplicity to donors who want to control when they receive tax deductions and when gifts are distributed to CCS. For instance, you may choose to donate an amount equivalent to the giving you plan to do over the next 2-3 years all at once, receiving a large charitable tax deduction in the year the donation is made to your charitable fund. You may then distribute the monies over the timeframe that seems right to you. Changes in the tax law have made the ability to ‘bunch’ tax deductions into certain years more attractive. You can name successor-donors to the fund to keep the legacy of generosity going in your family after you’re gone. Some families develop traditions of giving as a family using decision-making about the donor-advised fund as a way to foster generosity and community engagement in younger family members.
- Pooled Income Fund: A pooled income fund works a little like a charitable remainder trust, but on a much smaller scale, often with as little as $20,000. You transfer assets to the pooled income fund and receive income from the fund for the rest of your life. At your death, whatever remains in the fund goes to CCS. You receive a current-year tax deduction when you transfer monies to the fund based on the future gift that will go to CCS. You name the charity or charities who will receive the proceeds after you’ve died and can change or update this list at any time. This is often attractive for people who own an asset that has appreciated and on which they’d like to avoid capital gains but would also like to diversify into an income-generating portfolio.