A planned gift requires careful consideration of the financial, personal and charitable objectives of the donors and should involve input from their financial and legal advisors. Many planned gifts are outright gifts. Other planned gifts are deferred, where the donor retains some level of control over the assets for either one or more lifetimes or a term of years.
A life income gift, such as a charitable gift annuity or a charitable remainder trust, pays income to the named beneficiary for life or a term of years. Only after the life income terminates are the funds available to CDM for the purpose designated by the donor.
The reverse of the life income gift is the charitable lead trust, which provides income to the charity for a period of time and then the trust assets revert to the donor or other beneficiary.
Each of these gift options provides the donor with various advantages depending on the type of gift and the assets used to fund the gift. Benefits may include: the ability to designate how the gift will be used, income tax deduction or avoidance, preferential capital gains tax treatment, income for life or a term of years, removal of the value of the asset from your taxable estate, reduction in estate and gift taxes, and — sometimes most importantly — personal satisfaction of making a gift in support of CDM.
We will be glad to assist your estate planning advisors by providing the appropriate foundation name and language to assure that your gift will be used according to your wishes. Please read through the short descriptions below to see what options might fit your particular situation.
A bequest is the easiest and most common form of planned giving. You may make provisions for CDM or one of CDM-related ministries in your will or living trust by designating either a specific dollar amount or a percentage of your estate. By so doing, you: may change the amount and nature of your gift in support of CDM anytime prior to your passing, may direct how your bequest be used, retain control over the assets for the duration of your life, may delay the gift to CDM until after the occurrence of a specific event such as the death of your spouse or children and may provide for the care of your loved ones before CDM receives any portion of your estate.
Bequests under your will or living trust provide estate tax relief to your heirs and may enable you to provide larger benefits to your loved ones since charitable gifts are not taxable. Back To Top
Charitable Lead Trust
The charitable lead trust is essentially the reverse of a charitable remainder trust. Rather than receiving the trust’s remainder value, the programs you select will receive the trust’s income for a specified period of time. At the conclusion of the trust, the property either reverts to the donor or to a non-charitable beneficiary designated by the donor. Established during the donor’s lifetime or through a will, charitable lead trusts are best for donors who may forego the income generated by the property for the trust’s period of existence. The tax benefits for this type of a trust are complicated but may be highly beneficial depending on your tax situation. Back To Top
Retained Life Estate
A provision of the tax law allows you to give your personal residence, or farm, to one of CDM’s ministries and allows you and your spouse or other beneficiary to continue to live there for life. During your lifetimes, you retain the full use of the property and continue to pay all expenses related to the property. At the death of the survivor, the property passes to CDM foundation. In addition, your vacation or second home qualifies for this treatment as long as it is used as a personal residence and not a rental property. The immediate charitable deduction allowed for this future gift is the present value of our right to receive the property at some later time. This present value, and the resulting charitable deduction, is determined, primarily, by the age of the life tenants. If the lifetime enjoyment of the property is limited to the donor and his/her spouse, the property will not be taxed in either estate. Back To Top
Giving With Retirement Plans
Frequently, people reach retirement age with significant wealth accumulation in retirement plan accounts. Unfortunately, assets in these types of plans are included in the owner’s taxable estate at death and may be subject to as much as 70% combined estate and income taxes.
Rather than see such a large percentage of your remaining retirement assets eaten up by taxes, you might consider directing that part or all of the excess retirement assets be used to make charitable gifts. While the value of these accounts is still included in your taxable estate, your estate will receive a full charitable deduction for all gifts designated to charity.
Gifts to CDM qualify for any applicable deductions on income, gift or estate tax returns. Cash gifts qualify for a deduction equal to the amount transferred. Back To Top
Life Income Gifts
Life income gifts involve the irrevocable transfer of assets in exchange for income for life (or a term of years in some cases) for one or more beneficiaries. Only after the passing of the last beneficiary are the remaining proceeds used for the purpose the donor designated. CDM offers two types of charitable remainder trusts (the Annuity Trust and the Unitrust). and two types of charitable gift annuities (one with payments that start now and a deferred option with payments starting in the future). All of these gifts share several common characteristics: an immediate income tax deduction for the remainder value of the gift, estate tax savings, income for life or a term of years, relief or total avoidance of capital gains tax on the transfer, the satisfaction of making a significant gift in support of whatever areas you choose in CDM. Back To Top
Pooled Income Funds
A pooled income fund works much like a mutual fund. Gifts from many CDM friends and alumni are managed and invested jointly, and all income earned by the fund is paid out in proportionate shares to its participants quarterly. Back To Top
Charitable Gift Annuity
The easiest and simplest form of a life income gift is the charitable gift annuity. This is a simple contract between the donor and one of CDM’s programs, whereby the foundation guarantees to pay the donor, the donor and their spouse, or another beneficiary a set sum yearly for life. The payments remain the same over the lifetimes of the income beneficiaries, and often a portion of the income received is tax exempt. The interest rate paid depends on the age, or ages, of the income beneficiaries and whether the payments are to start at once or be deferred to some point in the future. Charitable gift annuities may be funded with cash or securities. Additions are not permitted to a charitable gift annuity or a deferred annuity; instead, a new contract is drawn. Back To Top
Deferred Gift Annuity
Deferred gift annuities may be an excellent retirement income or IRA substitute. Since the payments are deferred for at least one year, the interest rate paid will be substantially higher than for an immediate payment annuity, and the charitable deduction will be larger. In certain circumstances, real estate may be used to fund a deferred charitable gift annuity.
Requirements to establish a charitable gift annuity or deferred gift annuity with CDM:
- Minimum amount of $5,000
- Minimum age of 55 for a standard annuity
- One or two lives only
Charitable Remainder Trusts
This type of irrevocable gift may provide significant future support to CDM while potentially increasing the income of the beneficiary or beneficiaries. Payments will be made to the beneficiary(ies) for either their lifetime(s) or for a term of years (20 is the maximum allowed by law). The donor directs how the charity or charities named will use the ultimate proceeds. Only at the conclusion of the trust does CDM use any of the gift for the intended purpose. There are two types of charitable remainder trusts — the annuity trust and the unitrust.
Requirements to establish a charitable remainder trust at CDM:
- Minimum amount of $50,000
- One or two lives only unless a term-of-years trust is used
- Beneficiary 50 years of age unless a term-of-years trust is used
If your goal is to provide an income stream to yourself, your spouse or other beneficiaries and provide a hedge against inflation, then you should consider a charitable remainder unitrust. This type of charitable trust allows you to make additions to the trust principal at any time and pays income based on a fixed percentage of the trust assets as valued each year. As the value of the trust increases, you share in that appreciation by receiving a larger income distribution.
This type of trust may be funded with cash, securities, real estate or other personal property. The donor totally avoids capital gains tax on the transfer to the trust thereby leaving the entire value of the gift available to be reinvested to benefit the named life beneficiary. The assets placed in the trust will not be taxable in the donor’s estate as long as the beneficiaries are limited to the donor or the donor and their spouse. Back To Top
The Annuity Trust
If you would prefer to receive constant payments from your life income gift, you might consider a charitable remainder annuity trust. Like a charitable remainder unitrust, the annuity trust provides the donor with capital gains tax avoidance, immediate income tax deduction and the ability to designate how the funds will ultimately be used by CDM. However, unlike the unitrust, the payment from an annuity trust is based on a percentage of the market value of the trust assets at the time it is funded, and the payment amount never changes. Additions to the annuity trust are not allowed. Back To Top
Testamentary Life Income Options
You may establish a charitable remainder trust, a charitable lead trust or a charitable gift annuity through your will. Because it does not come into existence until after your death, it will not provide any income tax savings during your lifetime. However, it will provide income for a spouse or other loved one for their lifetime and will reduce your exposure to estate taxes.
Deductions for life income gifts
Donors will receive a deduction based on the remainder value that will come to CDM or other charities at the conclusion of the life interest of the beneficiaries. The calculation of the deduction is based on the ages of the beneficiaries, the rate of income to be paid, the fair market value of the gift and the federal discount rate in effect for the month the gift is made or either two of the previous months.
Carry forward and deduction limits on charitable gifts
Taxpayers are limited as to the amount of charitable deduction that may be used each tax year. The charitable income tax deduction for gifts of cash to CDM or other public charities may be used to offset up to 50% of the donor’s adjusted gross income for the year of the gift. This limit also applies to those instances when a donor either chooses or must deduct the cost basis of an asset. For gifts of appreciated property held for more than one year, the deduction may be used to offset up to 30% of the donor’s adjusted gross income for the year. Any excess deduction that may not be utilized in the year in which the gift is made may be carried forward for up to five additional tax years. The donor must use the deduction up as quickly as possible and may not “pick and choose” which years to use it.