Downey Associates LLC

Planned or deferred gifts play an important role in the future financial health and growth of charitable organizations. These gift plans also can provide significant tax benefits to the donor and the donor’s estate. Charitable gifts must be evaluated carefully, giving consideration to the donor's complete estate, the needs of the donor’s family, and the needs of the charity.

More than ever, fundraisers need to understand the types of planned gift arrangements and terminology when talking with donors and their advisors.The information below provides a basic explanation of the most common planned giving arrangements.

CHARITABLE BEQUESTS
Making a bequest in a will or revocable trust to a charitable organization is not only a
sign of benevolence, but also is the mark of a donor’s desire to help shape the future.
Bequests may provide estate tax benefits, and they are by far the most common types
of planned gifts. Here is some information you need to know about bequests when
talking with your donors.

Specific bequest. Giving a specific asset to an individual or charity, for example,
1000 shares of Microsoft stock.

Percentage of the estate. A donor may choose to leave a percentage of their estate
to a charity rather than a specific dollar amount or a specific asset.

Estate residuum. Leaving a charity the residue of the estate after specific bequests to
heirs are satisfied.Whatever is left after paying the specific bequests and expenses,
goes to the charity.

Contingent bequest. A bequest may be made contingent on circumstances.
For example, the donor may name a charity as the contingent beneficiary of an asset that is being bequeathed to someone else. Should the person named as the beneficiary predecease the donor or disclaim the bequest, the charity would then receive the bequest instead.

For more information about charitable bequests, see our Articles section.

                                           APPRECIATED SECURITIES
                                          When selling stock or mutual fund shares that have increased in value, the owner will owe tax on the
                                          capital gain in the year of the sale. There is a way, however, to avoid the capital gains tax and help a charity at
                                           the same time.

                                          If the owner donates appreciated securities that have been held long-term (for more than one year) to a
                                          charity, he will completely avoid the capital gains tax. The charity can sell the securities tax-free. The donor
                                          receives a charitable deduction on his income taxes for the full fair market value of the asset, up to 30 percent of adjusted gross income. If, based on IRS limitations, the entire charitable deduction cannot be used  in the year of the gift, the remaining deduction can be carried over for up to five (5) additional years.

For more information about charitable bequests, see our Articles section.

GIFTS OF THE REAL ESTATE
An outright gift of real estate held for more than one year will give a donor an income tax charitable contribution
deduction equal to the property’s full fair market value. By donating the property to a charity rather than selling it
outright, the donor also avoids capital gains tax on the property’s appreciation. The transfer is not subject to any
gift tax, and it reduces the taxable estate.

The gift is usually effective when a properly executed and notarized deed, suitable for recording, is delivered. The
donor must substantiate the amount of the charitable deduction for a gift of real estate (if more than $5,000) by a
obtaining a qualified appraisal of its fair market value.It is also very important that the donor talk with their legal
and tax advisors to insure this type of gift is appropriate and is accomplished correctly.The donor should also talk
the charity to insure the organizations gift policies permit acceptance of real estate gifts.

For more information about real eastate gifts, see our Articles section.

                                                                 CHARITABLE GIFTS FROM RETIREMENT PLANS
                                                                 For many people, the savings they have accumulated in retirement plans, such as 401(k), 403(b), IRAs,
                                                                 and other qualified pension plans, represent a major portion of their assets. It is an unfortunate fact
                                                                  that our current tax laws tax these assets less favorably than other assets at death.

                                                                Assets held in retirement accounts and passed on to heirs are hit not only with estate taxes if the estate
                                                               is taxable, but they are also taxed to the heirs as ordinary income when distributed. This sometimes
                                                                results in more money going to pay taxes than to family and heirs. That is probably not what your donor
                                                                would prefer to happen.

Recent changes in the distributions rules for retirement plans make it easier to use some of the retirement assets to fund charitable gifts. The donor can distribute other assets, which are taxed less heavily at death, to their heirs. As the law stands now, one of the best ways to shelter retirement fund assets is through a charitable gift arrangement.

While it is generally a simple process to include a charity as one of the beneficiaries of a retirement account, it is important that the donor first talk with his/her legal and financial advisors to discuss his/her specific estate situation before completing this type of gift.

For more information about gifts from retirement accounts, see our Articles section.

LIFE INCOME PLANS

CHARITABLE GIFT ANNUITY
The Charitable Gift Annuity is a combination of a gift to charity and an annuity.For senior persons, annuity rates may be 8%, 9% or even higher.Since part of the annuity payment is tax-free return of principal, the gift annuity may provide the donor with a very substantial income.The combination of partially tax-free income and the initial charitable deduction makes this agreement quite attractive.And after all payments have been made for the life of the annuitant, a favorite charity will benefit from the charitable gift.

Partly Tax Free Payments. A gift annuity is a contract between the charity and the individual.The individual, referred to as the annuitant, transfers property to the charity and the charity promises to pay a given amount at the end of each selected payment period to one annuitant for life or two annuitants for both lives.Part of the payment is interest earned and is taxable as ordinary income.Part of each payment is return of principal and is tax-free.However, if an annuitant survives past his or her life expectancy, all later annuity payments will be ordinary income.

Gifted Property. Cash or appreciated property may be transferred to charity in exchange for a gift annuity. With appreciated property, a portion of the capital gains tax is avoided.Part of the gain is allocated to the charitable gift amount and there is no capital gains tax on that portion. The rest of the gain is allocated to the annuity portion and is taxed each year over the projected life expectancy of the annuitant. Since the tax is spread out over the life of the annuitant, and the annuitant is receiving in part tax free income, the transfer of appreciated property in exchange for a gift annuity can generate very favorable results.

Fixed Payment Gift annuities are most attractive to senior persons.The annuity amount is fixed and will not change regardless of current investment or market conditions. Since the more senior person is probably more easily able to plan for the future with a fixed payment, the gift annuity seems most appropriate for a senior individual.

For more information about Charitable Gift Annuities, see our Articles section.

CHARITABLE TRUSTS
Charitable trusts enable donors to make a substantial gift to charity with the benefit of a life income as well as current tax benefits. Charitable trusts plans include:

Charitable Remainder Unitrusts
Charitable Remainder Annuity Trusts
Charitable Lead Trusts

Charitable Remainder Trusts can be set up during the donor’s lifetime or through the donor’s will (testamentary trust). At least one beneficiary must be non-charitable.Trusts are created for the life of the income beneficiary (or beneficiaries) or for a set number of years, not to exceed 20.When the non-charitable interests terminate, the remainder must pass to a charity.

The donor receives a sizable income tax reduction in the year the trust is created and in some cases for up to five additional years.The donor (or trustor) receives a stream of revenue from the trust over his/her lifetime. The donor’s estate will also benefit from the fact that the amount of charitable gift is deductible for estate tax purposes.

A testamentary charitable remainder trust, established in a will, can provide income for a surviving spouse or other relative. The trust provides that the trustee hold and invest a principal amount and pay an income to a named income beneficiary or beneficiaries for life or a term of years. After that, the remainder is distributed to a charity to use for the purpose the donor has designated.

Charitable Lead Trusts pay a income to a charity for a set number of years after which time the corpus of the trust is returned to the donor or the donor’s heirs.

For more information about charitable trusts, see our Articles section