LEAVING A LEGACY

Planned Giving

Planned Giving 

 

Use Your Retirement Assets to Make a Gift to the Church (UCC Impact Spring 2007)

 

Your heirs will be hit doubly with income and estate taxes

if you leave them your IRA, so why not leave it to your

church or another United Church of Christ–related

ministry instead?

Your IRAs Are Worth More As a Charitable Gift

Leave your IRAs to your children, siblings or anyone

other than your spouse, and you may be leaving those

beneficiaries almost nothing!

Individual retirement accounts are excellent vehicles

for accumulating assets for your use during retirement,

but they are terrible for transferring wealth to others.

Whoever inherits your IRAs may find them seriously

depleted by taxes—unless the recipient is a charitable

entity like the United Church of Christ (UCC).

Tax Rules

Like other investments and savings, IRA assets may

be subject to federal estate tax. What most people don’t

realize is that IRA distributions carry an income tax

liability, too, which carries over to your designated

beneficiaries. This double bite of income and estate

taxes often leaves little for your heirs.

Only a surviving spouse can roll over an inherited

IRA distribution to his or her own IRA (called a Spousal

Rollover IRA) and further delay receiving distributions

until his or her own date for required distributions,

typically age 701⁄2. All other recipients are not eligible

to roll over their proceeds and enjoy full tax deferral,

although some may choose to stretch the distributions

over time with payments beginning immediately.

Preserve Your Assets

IRA transfers to the United Church of Christ (your own

congregation, association or conference; a UCC college

or seminary; a related health and human service Continued on Page 4

 

Charitable Giving

 

When developing your estate plan, you can do well by doing good. Leaving money to charity rewards you in many ways. It gives you a sense of personal satisfaction, and it can save you money in estate taxes.

 

A few words about estate taxes

The Economic Growth and Tax Relief Reconciliation Act of 2001 (the 2001 Tax Act) gradually eliminates federal estate taxes by increasing the amount that is exempt from these taxes over several years (from $1 million in 2002 and 2003 to $3.5 million in 2009); reducing the top rate over several years (50 percent in 2002, 49 percent in 2003, 48 percent in 2004, 47 percent in 2005, 46 percent in 2006, and 45 percent in 2007 through 2009); and finally repealing estate taxes for persons who die after 2009. However, under a provision in the law, pre-2001 Tax Act rules will return after 2010.

 

Whether you are subject to federal estate taxes depends on the size of your estate and the year you die. Tax law changes only increase the need for careful planning, and charitable giving can play an important role in many estate plans. By leaving money to charity when you die, the full amount of your charitable gift may be deducted from the value of your taxable estate.

 

 

Make an outright bequest in your willThe easiest and most direct way to make a charitable gift is by an outright bequest of cash in your will. Making an outright bequest requires only a short paragraph in your will that names the charitable beneficiary and states the amount of your gift. The outright bequest is especially appropriate when the amount of your gift is relatively small, or when you want the funds to go to the charity without strings attached.

 

Make a charity the beneficiary of an IRA or retirement planIf you have funds in an IRA or employer-sponsored retirement plan, you can name your favorite charity as a beneficiary. Naming a charity as beneficiary can provide double tax savings. First, the charitable gift will be deductible for estate tax purposes. Second, the charity will not have to pay any income tax on the funds it receives. This double benefit can save combined taxes that otherwise could eat up a substantial portion of your retirement account.

 

Use a charitable trustAnother way for you to make charitable gifts is to create a charitable trust. There are many types of charitable trusts, the most common of which include the charitable lead trust and the charitable remainder trust.

 

A charitable lead trust pays income to your chosen charity for a certain period of years after your death. Once that period is up, the trust principal passes to your family members or other heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead, interest.

 

A charitable remainder trust is the mirror image of the charitable lead trust. Trust income is payable to your family members or other heirs for a period of years after your death or for the lifetime of one or more beneficiaries. Then, the principal goes to your favorite charity. The trust is known as a charitable remainder trust because the charity gets the remainder interest. Depending on which type of trust you use, the dollar value of the lead (income) interest or the remainder interest produces the estate tax charitable deduction.  

 

 

Why use a charitable lead trust?The charitable lead trust is an excellent estate planning vehicle if you are optimistic about the future performance of the investments in the trust. If created properly, a charitable lead trust allows you to keep an asset in the family while being an effective tax-minimization device.

 

For example, you create a $1 million charitable lead trust. The trust provides for fixed annual payments of $80,000 (or 8 percent of the initial $1 million value of the trust) to ABC Charity for 25 years. At the end of the 25-year period, the entire trust principal goes outright to your beneficiaries. To figure the amount of the charitable deduction, you have to value the 25-year income interest going to ABC Charity. To do this, you use IRS tables. Based on these tables, the value of the income interest can be high--for example, $900,000. This means that your estate gets a $900,000 charitable deduction when you die, and only $100,000 of the $1 million gift is subject to estate tax.

 

Why use a charitable remainder trust?A charitable remainder trust takes advantage of the fact that lifetime charitable giving generally results in tax savings when compared to testamentary charitable giving. A donation to a charitable remainder trust has the same estate tax effect as a bequest because, at your death, the donated asset has been removed from your estate. Be aware, however, that a portion of the donation is brought back into your estate through the charitable income tax deduction.

 

Also, a charitable remainder trust can be beneficial because it provides your family members with a stream of current income--a desirable feature if your family members won't have enough income from other sources.

 

For example, you create a $1 million charitable remainder trust. The trust provides that a fixed annual payment be paid to your beneficiaries for a period not to exceed 20 years. At the end of that period, the entire trust principal goes outright to ABC Charity. To figure the amount of the charitable deduction, you have to value the remainder interest going to ABC Charity, using IRS tables. This is a complicated numbers game. Trial computations are needed to see what combination of the annual payment amount and the duration of annual payments will produce the desired charitable deduction and income stream to the family. 

 

 

 

Planned Giving for the Future 

 People choose to make charitable gifts for a variety or reasons, primary of which is a desire to support work they believe in. Giving also provides benefits to you, the donor. A gift to the Church may include some or all of the following:

  • Fulfillment of charitable goals
  • Charitable tax deduction
  • Avoidance or reduction of capital-gain tax
  • Income payments for life
  • Tax-free income
  • Reduction of federal estate tax 
Your support is vital in continuing the work of the United Church of Christ.  Here are some ways you can make those gifts: 

Wills and bequests
A properly executed Will or Living Trust is the only way to assure that your estate is distributed according to your wishes, and is the most common way that deferred gifts to the Church are made. You can designate a percentage or a dollar amount, or direct that the Church receive the residual amount of your estate. A Will or Living Trust can also be used to set up life-income gifts that benefit heirs during their lifetimes, with the remaining principal constituting a gift to the Church. See Bequest Language.

 

Life-income gifts
Life-income gifts are those which pay you income for life, with the remaining principal paid to the UCC-related entity you designate. You receive a tax deduction for the charitable portion of the gift in the year the gift is made. Life-income gifts may significantly increase your spendable income. Such gifts may be established in a will for the benefit of heirs and ultimate benefit of the Church.

 

Charitable Gift Annuities
A Gift Annuity's rate of return is based solely on your age at the time of the gift. Annuities may be funded with cash or appreciated securities, and provide fixed income payments for life to you and/or another person, successively. A significant portion of the income may be tax-free. You may defer income payments to a later date, such as retirement age, which may produce a substantial increase in the rate of return. Minimum gift is $1,000.

 

Charitable Remainder Trusts
Trusts may be funded with cash, securities or real estate and income payments may be fixed or flexible. The most common type, the Unitrust, is valued annually and the donor is paid a fixed percentage of the value over the following year. Minimum gift is $50,000.

 

Pooled Income Fund
The Pooled Income Fund is like a mutual fund; it accepts gifts from many donors, manages them, and distributes each gift's portion of the earnings to the designated one or two life-income beneficiaries, successively. Minimum gift is $2,000.

 

Life insurance
The Church can be named as the beneficiary of your life insurance, or the policy itself can be donated to the church. If the policy is paid up, your tax deduction will generally be the replacement cost of the policy at the time it is donated.

 

Retirement assets
Retirement assets may be expensive for heirs to inherit. Naming the Church as the beneficiary of your retirement fund may provide a significant tax savings to your estate.

 

Charitable lead trust
This gift provides current income to the Church during your lifetime or for a specified term of years, after which the remaining principal is returned to you or your heirs. Payments to the Church may be fixed or variable, depending on the terms of the Trust. Minimum gift is $100,000.

 

The United Church of Christ Endowment Fund
The United Church of Christ Endowment Fund was established in 2003 to provide long-term financial support to the national and global ministries of the Church. Its function is to receive and administer temporarily restricted and unrestricted gifts from capital assets, and to distribute the financial return on investments for the support of the mission and ministry of the United Church of Christ. Permanent endowments - including named funds - may be established with gifts of $10,000 or more.

 

Methods of funding

Cash (all Outright and Planned Gifts)
Cash gifts provide an immediate and direct benefit to the Church, and are usually fully tax deductible by the donor, subject to IRS limits of 50% of Adjusted Gross Income. Securities (all Outright and Planned Gifts)


Appreciated securities (those which have increased in value since they were purchased) are transferred to the United Church of Christ to avoid capital gain tax on the appreciation. Depreciated securities are sold by the donor so the loss may be deducted from on his/her tax return, and the cash proceeds are donated. Gifts of securities are generally tax deductible at fair market value if owned for longer than a year, in amounts up to 30% of Adjusted Gross Income.

Real Estate (some Outright and Planned Gifts)
Donation of real estate that has appreciated in value provides a charitable tax deduction for the appraised value of the property, and avoidance of capital-gains tax. As with appreciated securities, appreciated real estate must be transferred to the United Church of Christ, not sold by the donor.

Do your gift planning within the context of family and professional advisors; discuss your charitable goals with your family; consult your attorney, financial planner, and/or accountant.