A for Annuity, B for Bequest, C for Charitable Remainder Trust …

1. A for Annuity, B for Bequest, C for Charitable Remainder Trust… The ABCs of planned giving – the most commonly used vehicles, their benefits to the donor and to your charity, the assets with which they can be funded and other practical considerations.

2. We’ll Cover • Definition of Common Types • How They Work • Assets/minimums to Fund • Benefits • Practical Considerations • Relevance/Importance • Q & A

3. B as in Bequest • a legal provision in one’s will (or living trust) that names charity as the recipient of a portion or all of a donor’s estate

4. CommonTypes • Specific: charity is beneficiary of a particular asset or dollar amount • Residuary: charity is beneficiary of the remainder of the estate once expenses & specific bequest obligations met • Contingent: charity is beneficiary if all of the beneficiaries pre-decease the donor

5. Assets to Fund • Cash • Real estate • Securities • Personal property

6. Benefits For the Donor • Easy to understand • Control of asset distribution • Revocable • Possible estate tax deduction; no current charitable income tax deduction • No minimum to fund • Costs nothing during lifetime

7. Benefits For the Charity • Market to everyone – no age/wealth limitations • Often, a donor’s largest gift • Can be used to ‘endow’ annual gift • Steady, future stream of income

8. Practical Considerations • After donor dies, distribution won’t be immediate • Disgruntled relatives, children, etc. may contest • Bequest administration • Be prepared to respond to donors’ requests for information

9. Relevance • 8% have included a charity in will • 42% die without a will • 21% had no prior affiliation with charity • Most popular -- 80% of all mature planned gifts • Only 1 in 3 told charity about bequest in advance

10. B as in Beneficiary Designation • a provision outside the will naming charitable organization as beneficiary of a portion or all of a particular asset

11. Assets to Fund • Insurance policy • Retirement plan and IRA • Brokerage or bank account

12. Benefits For the Donor • No age minimum • Easy to do -- beneficiary designation form • Control of asset distribution • Revocable • No dollar minimum • Doesn’t require an attorney • Costs nothing during lifetime

13. Benefits For the Charity • Relatively easy to administer • Market to everyone – no age/wealth limitations • Distribution may be faster because asset not going through probate

14. Insurance Policy • Policy that is no longer needed • Make charity owner and beneficiary of paid-up policy • Donor gets charitable income tax deduction • Removes asset from gross taxable estate • Charity receives policy benefits upon death of donor

15. Retirement Plan Assets • Most retirement plans income-tax deferred • Donor avoids income and estate tax • Even if estate not subject to estate tax, income from IRA is taxable upon transfer to heirs [income in respect of decedent (IRD)] • Gift IRA assets to charity; leave non-taxable assets to heirs • Donor still makes withdrawals during lifetime

16. FinancialAccounts • Transfer on Death Investment Account (TOD) • Assets remaining in account pass directly to named beneficiaries • Beneficiaries must provide original death certificate (usually, to a brokerage firm) • If beneficiaries predecease owner, remaining funds become part of owner’s probate estate

17. FinancialAccounts • Payable on Death Bank Account (POD) • Money left in account will be paid to named beneficiaries • Beneficiaries must provide original death certificate to bank • If beneficiaries predecease owner, remaining funds become part of owner’s probate estate

18. C as in Charitable Gift Annuity (CGA) • Contractual arrangement • Individual transfers cash or marketable securities to charity in exchange for fixed, annual payments for up to 2 annuitants for life • Charitable income tax deduction for portion of gift in year gift was made • Remaining balance passes to charity when contract terminates

19. CGA, cont’d. • Annuity payments are part taxable and part tax free; possible capital gains tax portion • Payout rates recommended by American Council on Gift Annuities (ACGA) • Charity sets funding minimums

20. Types of CGAs • Immediate: payout to annuitant/s begin immediately • Deferred: payout to annuitant/s begin on a pre-determined future date • Flexible: payout to annuitant/s begin in a future date range, but not for at least one year after the gift has been made

21. Assets to Fund a CGA • Cash • Appreciated securities - a portion of capital gains tax is avoided • Real estate [unencumbered] • The capital gains is allocated between what the charity receives at donor’s death (the gift portion); and what donor receives in payments (the annuity portion) and taxed over the lifetime (s) of the annuitant (s)

22. CGA Benefits for the Donor • Annual fixed payments for life; amount doesn’t fluctuate with the market • Professional asset management • Provide for selves, aging parents, college tuition, others • Immediate charitable income tax deduction; possible estate tax deduction • Diversify portfolio to produce fixed income

23. Benefits for the Charity • Often, good “starter” gift • Donors often create more than one • Can re-engage lapsed donors

24. Practical Considerations • Charity should be registered in each state in which it is offering CGAs • Backed by all of the general assets of the institution • Optimal to use third party to administer • Forms required – application, contract, disclosure statement • Obligation to pay annuitants for life

25. Relevance • Great way to begin cultivating a donor • Very popular with lots of charities • Your donors may already know about them from their other charities – good news for you • Marketing opportunity when rates change

26. CGA Example: • Donor, age 80, donates $10,000 • Gift date - 3/6/14 • Charitable deduction - $5,020 • Payout rate - 6.8% • Annual payment - $680

27. Charitable Remainder Trusts (CRTs) • Trust created by the donor that stipulates a payout from the assets to the donor & or donor’s beneficiary for life or term of years • Donor selects a trustee (sometimes charity) • Donor sets payout rate, but 5% minimum • Lawyer drafts trust documents • Irrevocable

28. Two Main Types of CRTs • Charitable Remainder Annuity Trust [CRAT] • Established during life or inter vivos • Payout is fixed amount, regardless of value of trust principal • Donor selects annuity amount at trust’s creation • Donor cannot add assets to the trust

29. CRTs, cont’d • Charitable Remainder Unitrust [CRUT]: • Can be established during life or inter vivos • Pays a fixed percentage (at least 5%) based on annual fair market valuation of the trust • Amount of payout can change annually • Donor can add to the value of the trust • May be a hedge against inflation

30. CRTs, cont’d. • Works well in conjunction with bequests • Donor establishes a CRT during her life to fund department Chair upon her death • Balance of Chair funded through a bequest; both mature at same time, funding Chair

31. Assets to Fund • Typically, $100,000 minimum due to costs associated with set up/administration • Cash • Highly appreciated, low yield property • Real estate

32. Benefits For the Donor • Possible reduction in taxable estate • May bypass taxation of capital gains • May increase income • Diversification of assets • Charitable income tax deduction for ultimate gift • Doesn’t require involvement of charity • Flexibility as to income recipients • Helpful in retirement planning

33. Benefits for Charity • Trust is irrevocable • Typically six-figure gifts or more • Support for mission

34. Practical Considerations • Although trust is irrevocable, charitable beneficiary selection may not be • Principal can be invaded if trust earnings are down – be conservative in your trust illustrations for donors • Involves professional advisors – at least an attorney (typically cost to donor)

35. Residence withRetained Life Estate • Donor makes irrevocable gift of residential real estate • Donor retains the right to live in & use property for life • Donor still responsible for maintenance, taxes, insurance, other costs • Donor gets charitable income tax deduction

36. Practical Considerations • Burden of out-of-town property management until property sold • Selling property • Real estate market [fluctuating] • Real estate gift acceptance policy

37. Q and A

38. Gayle S. UnionManager, Planned GivingMarine Corps Heritage Foundation union@marineheritage.org