Planned Giving – 2
Planned giving opportunities for the National Skydiving Museum enables donors to make substantial gifts in ways that can complement personal financial planning. Donors often find that a combination of planned gifts produces the best results. We are happy to talk with donors and their financial advisors to design the most advantageous ways of giving…
Gifts of Securities
Owners of appreciated assets can obtain substantial tax benefits by transferring those assets directly to the National Skydiving Museum.
Donors will receive an income tax deduction equal to the fair market value of the stock on the effective date of their gift. In addition, they avoid capital gains tax on the transfer.
Example: Five years ago, Donor bought 100 shares of Universal International Co. at $50 per share. The current fair market value of the shares is $100 per share. Donor decides to dispose of the stock and make a gift of the proceeds to the National Skydiving Museum.
If Donor sells the stock directly, Donor will pay a capital gains tax on the difference between the purchase price and the current market value. If Donor transfers the stock directly to the National Skydiving Museum, no capital gains tax will be due on the transfer and Donor will receive an income tax charitable deduction equal to the full fair market value of the stock.
Gifts of appreciated securities are also excellent assets for funding life income gifts such as charitable trusts.
The National Skydiving Museum accepts gifts of real property from donors. Real estate gifts can be in the form of undeveloped property, a personal residence or farm, rental property or commercial property. The owner of the property is entitled to an income tax deduction based on the appraised value of the property. The National Skydiving Museum carefully examines each piece of real estate prior to its acceptance as a gift in order to reduce the possibility of liability issues related to the property.
Gifts made by will are one of the National Skydiving Museum’s most important sources of individual support.
Bequests can be made in the form of a specific gift of cash or property, or a percentage of the remainder of an estate. The latter allows more flexibility in planning. The following language has been approved by the National Skydiving Museum’s counsel as an effective bequest to the organization:
I give to the National Skydiving Museum, a nonprofit organization incorporated in Washington, D.C., federal tax identification number 23-7181972, with its principal office located at 5401 Southpoint Centre Boulevard, Fredericksburg, VA 22407., the sum of $__________ (or ____% of my estate; or the property described herein) for its general purposes.
Charitable Income Trusts
Charitable Remainder Trusts
A charitable remainder trust allows a donor to transfer assets into a separately managed trust that will provide beneficiaries named by the donor income for life or a specific period of years. The donor decides the payout of the trust in consultation with trustees who are selected by the donor.
The trustees have the responsibility to manage the assets of the trust, provide tax statements to the IRS and the beneficiaries, and issue beneficiary payments on a periodic basis.
There are two general types of charitable remainder trusts — the charitable remainder unitrust and the charitable remainder annuity trust. Each is outlined below.
Charitable Remainder Unitrust
This is an individual trust paying the donor a fixed percentage of the principal in the trust as it is valued annually. The rate of return for the trust must be at least five percent. As with other life income gifts, however, a higher income rate for the unitrust will generate a lower charitable deduction and will mean a smaller growth of the principal that ultimately goes to the National Skydiving Museum.
Unitrust income is taxed to the donor based upon the trust’s investments. Unlike the pooled income fund, a unitrust may be created with, or invested in tax-exempt securities that will, in turn, provide tax-free income for the donor.
Charitable Remainder Annuity Trust
This is the same type of gift vehicle as the unitrust, except that the income payment is a fixed-dollar amount when the gift is established.
Because the income will not vary, the annuity trust is attractive to donors seeking secure and stable future income. Also, because the donor will not have the benefit of possible future increases in the value of the trust principal, an annuity trust will generate a larger charitable deduction than a unitrust established in the same amount.
A unitrust or annuity trust may run for a shorter period than the lives of the income beneficiaries. Such trusts are known as “Term Trusts”. A Term Trust may be established to provide income to a beneficiary for a limited number of years. At the end of the term, the balance of the trust will pass to the National Skydiving Museum.
For example, if the donor wants to provide tuition support for a child or grandchild, it may be wise to make him/her the beneficiary of a five-year-term trust. At the end of five years, the assets of the trust will pass to the National Skydiving Museum to be used to fund a project of the donor’s choice. The income payments will probably have a negligible tax consequence on the young recipient, and the donor will receive a very substantial charitable deduction.
Gifts of Retirement Plan Assets
Careful planning for the disposition of retirement plan assets can help to avoid undesirable tax costs. In certain situations, gifts to the National Skydiving Museum of retirement account balances can improve the donor’s overall tax consequences, increase the amounts passing to heirs and reduce income and estate taxes.
Retirement assets can be subject to multiple levels of taxation. The combination of federal income and estate taxes can seriously erode the value of retirement.
First, as a rule, retirement savings are subject to federal income tax as the funds are distributed to the beneficiary(s).
Second, the law requires that certain minimum distributions be made from retirement accounts after the individual attains age 70 and 1/2. Failure to take the required amount results in a 50% penalty tax on the undistributed amount. (Note: this requirement has been temporarily suspended for 2010.)
Third, at death, any remaining retirement account balance is included in the calculation of the gross estate. Consequently, retirement savings can also increase federal estate taxes. A generation-skipping tax may also apply to substantial account balances that pass to grandchildren or to other remote generations.
Finally, after death, payments made from retirement accounts to the designated beneficiaries will be taxed as received by them at ordinary income tax rates.
Life Insurance Gifts
The large cash value resulting from a relatively small premium makes a life insurance policy an attractive planned gift. A gift of life insurance may be made in one of three ways:
- Donate a fully paid-up policy, naming the National Skydiving Museum irrevocable owner and beneficiary. The donor is entitled to an income tax deduction for an amount equivalent to the cash value of the policy.
- Donate a policy on which premiums are still owned, naming the National Skydiving Museum irrevocable owner and beneficiary. The donor is entitled to an income tax deduction for an amount equivalent to the cash value of the policy and for any additional gifts to fund premium payments.
- Purchase a new policy, naming the National Skydiving Museum irrevocable owner and beneficiary. The donor is entitled to an income tax deduction for gifts made to the National Skydiving Museum that are designated for premium payments.
Gifts of Income
Charitable Lead Trust
A charitable lead trust holds an income-producing asset for a fixed term, or for the life of an individual, during which time income is paid to the National Skydiving Museum. At the conclusion of the trust term, the asset is returned to the donor (grantor) or to another beneficiary (nongrantor).
Grantor Lead Trust:
A grantor lead trust provides that all trust assets revert to the original owner (and/or spouse) at the conclusion of the trust term. The donor will be entitled to an income tax deduction for the present value of the income interest to the National Skydiving Museum in the year that the gift is made. This calculation is determined according to IRS regulations and is a function of several factors, including the fair market value of the assets held in trust, the term of the trust, the payout rate, and certain investment assumptions. If the lead trust is a grantor trust, the donor is fully liable for any tax due on the income generated to the charity. This situation may be minimized if the trust invests in tax-exempt property.
Nongrantor Lead Trust
A nongrantor lead trust provides that all trust assets are transferred to a previously designated third party (children, grandchildren or other heirs) at the conclusion of the trust term. There is no federal income tax charitable deduction for nongrantor lead trusts. However, the donor gains significant estate and gift tax benefits, which may be of greater priority: trust assets are valued as of the date the lead trust is established rather than when they pass to heirs, so appreciation is sheltered from transfer tax. A nongrantor lead trust may be subject to tax on income it may earn, but the donor is not liable for any resulting tax.
Example: John and Mary have grandchildren ages 1 and 3 that they would like to eventually help pay for college. They also want to build a scholarship endowment at the National Skydiving Museum through a long-term commitment. They decide to fund a $250,000 non-grantor charitable lead annuity trust which will pay the National Skydiving Museum $17,500 per year for fifteen years. If the trust earns a total return of 10% annually in each of the fifteen years of the trust, there will be approximately $370,000 distributed to the two grandchildren for college expenses when the older child is 18 with little or no transfer taxes paid by John and Mary.