While everyone is familiar with making cash donations to non-profits in support of a cause – especially during the holidays when donation requests are part of almost every retail purchase – the term “planned giving” can be a bit baffling. In Arizona, planned giving includes some extremely popular bequest alternatives that can impact year-end tax planning.

A well-planned gift can reduce or possibly eliminate long-term capital gains taxes, provide current tax deductions, reduce possible estate and gift taxes or even increase your income.

Unlike simply writing a check, planned giving is a way to make philanthropy gifts within an estate plan, typically requiring a third-party professional such as a lawyer or financial planner to execute. We recommend using professional counsel of an attorney who specializes in estate planning.

Planned giving involves leaving money or assets to the designated nonprofit when the donor passes away, but also includes options that can help provide for the donor during their lifespan, or be activated while they are alive to see the impact of their bequest.

Here are some of the most common planned giving alternatives:

1. Gift of cash in your will or trust (called “major gifts”). As the most simple method of planned giving due to its simplicity, it requires attorney assistance in creating the legal documentation.

2. Designating the nonprofit as your life insurance beneficiary. This is done in the paperwork completed when purchasing the policy, or can be amended afterwards with appropriate paperwork from the insurance company.

3. Gifting securities. These are transferred to the nonprofit by your broker and executor of your estate after death.

4. Charitable lead trust. This form of trust can be executed while the donor is alive to see results of their donation and, as an irrevocable gift has a substantial tax benefit. Depending on its specific stipulations, the charity is paid over time in installments, with any remainder going back to beneficiaries of the estate once the last installment has been made. Legal documentation must be created and executed by the trust’s attorney.

5. Charitable remainder trust. The opposite of a charitable lead trust, the charitable remainder trust pays estate beneficiaries first, with any remainder from the estate going to the designated nonprofit. Both forms of trust typically involve gifts of $150,000 or more.

6. Gifting real estate. If the property is a gift, the donor has the option of living in the home until passing. The nonprofit then sells the home, resulting in a cash donation.

7. Designating the nonprofit as recipient of your retirement plan assets, such as a pension, social security and/or medicare benefits, etc. Instead of leaving a pension bequest to your children and a life insurance policy to the non-profit, which leaves your children owing taxes on their inheritance, leaving the life insurance to the children and the pension to the nonprofit results in no taxes being paid by either party.

planned-give8. Charitable gift annuity. Not a form of trust, this contract gift immediately transfers money, real estate, securities or other estate assets to the designated nonprofit, with the donor then receiving a fixed percentage annually to cover living expenses for the remainder of his/her life. The irrevocable gift becomes part of the charity’s assets, with the charity taking responsibility for making payments to up to two donors (annuity recipients). Regulated by the state where the charity does business and sometimes by the state of donor residence, maximum payouts are determined by age of the recipient(s) and other factors. Because it is a fixed payment for life, regardless of what happens to the estate assets after transfer, this form of planned giving protects the donor from changes in the economy while allowing them to see the result of their gift during their lifetime. This type of annuity typically involves gifts of $10,000 to $150,000.

Because planned giving options are more complex than major gifts or cash, it’s important to understand your options before deciding on what works best for your specific needs and goals.

IRA charitable gift requirements by the Internal Revenue Service changed on December 16, 2014 . To discuss the Arizona tax implications and obtain a free, no-obligation estate plan review, please call 623.832.5330 or email us at info@sunhealthfoundation.org for additional information.


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