Below you'll find information on a variety of planned giving options are addressed below. If you have questions or would like to discuss personal giving arrangements, please contact the Deaconess Foundation.
Bequests are the backbone of all planned giving programs and historically are the most popular planned giving method used by donors. Donors like bequests because they are easy to understand and do not require the donor to part with assets during life.
A bequest is a written statement in a donor’s will directing that specific assets, a specific amount, or a percentage of the estate, will be transferred to charity at the donor’s death.
Retirement Plans and IRAs
A second type of expectancy gaining in popularity among donors involves naming an organization as the beneficiary of a retirement plan or IRA. For many individuals, retirement plan assets represent the single largest asset in their portfolios. Like the bequest, it is easy to understand and easy to implement. This gifting opportunity merely involves obtaining a beneficiary designation form from the retirement plan administrator and naming a charity as the entire, or partial, beneficiary of the retirement plan assets upon the owner’s death. A donor may achieve significant income and estate tax savings by naming a charity as the beneficiary of the retirement plan assets - sometimes the tax savings is as much as 75 cents on the dollar.
A third type of expectancy, life insurance, may be attractive to donors because it affords donors the opportunity to make a gift at a sizeable face value for a minimal outlay of cash. Donors may give an existing policy, either fully paid or partially paid, or a new policy. Similar to a retirement plan designation, the proposed gift to charity is accomplished by naming the charity as a beneficiary of the policy on the beneficiary designation form. Upon the donor’s death, the charity will receive all, or a portion of, the proceeds from the policy. The donor is entitled to a charitable income tax deduction equal to the cash surrender value of the property and any future premiums paid only if the charity is named as the owner and beneficiary of the policy.
Charitable Gift Annuity
A charitable gift annuity is a simple contract between the donor and the charity whereby the donor makes an irrevocable transfer of cash or property to the charity. In return for the contributed property, the charity agrees to pay a fixed amount of money each year for the lifetime of one or two individuals. The payout rate offered by a charity will depend on the number of annuitants and their ages. The annuitants have the option to defer receiving their annuity payments until some future date, provided that this decision is made at the time the contract is entered into.
Charitable Remainder Trust
A charitable remainder trust is an irrevocable trust in which the donor transfers cash or property to a trustee and in return the donor or other individuals named by the donor as income beneficiaries receive income from the trust for life or a specified term of years not to exceed twenty years. When the trust terminates, the corpus is distributed to the charities named as the charitable remainder beneficiaries.
There are two main types of charitable remainder trusts—the charitable remainder annuity trust and the charitable remainder unitrust. Although the two are similar in many ways, they do have a few differences, the most significant being the method by which the annual income paid by the trust to the income beneficiaries is calculated. Another major difference is that annuity trusts do not allow for additional contributions once funded, whereas unitrusts allow for additional contributions at any time.
A charitable remainder annuity trust pays a fixed dollar amount, annually, based on the initial fair market value of the property transferred to the trust. For example, if a donor transfers $100,000 to an annuity trust and selects a payout percentage of 5 percent, the named income beneficiaries will receive $5,000 per year until the trust terminates, regardless of whether the trust principal increases or decreases in value over time. Thus, annuity trusts are generally favored by donors who are more interested in receiving a fixed income than they are in chancing market volatility.
A charitable remainder unitrust, by contrast, provides fluctuating income payments to the income beneficiaries, based on a fixed percentage of the annually revalued trust corpus. For example, if a donor transfers $100,000 to a unitrust and selects a payout percentage of 5 percent, the named income beneficiaries will receive $5,000 in the first year. But if in the second year the trust grows in value to $110,000, the income beneficiaries will receive $5,500, thereby enjoying the benefit from the appreciation experienced by the trust. Alternatively, if in the second year the trust drops in value to
$90,000, the income beneficiaries will receive only $4,500 in the second year. Market volatility will thus have a direct impact on the income payments received each year by the income beneficiaries.
The payout percentage provided for in the trust document must be at least 5 percent. Most charitable remainder trusts have payout percentages ranging from 5 percent to 10 percent, depending on the number of income beneficiaries and their ages.
Charitable Lead Trust
A charitable lead trust is a trust arrangement that pays current annual income to the nonprofit organization for a specified period of years, with the trust principal reverting to the donor or the donor’s family when the trust ends. The annual income payment by the trust is similar to an outright gift of cash, for the charity is free to use the cash as soon as it is received, subject, of course, to any restrictions placed on the gift by the donor. The charitable lead trust is probably the most sophisticated of all the planned giving instruments, so it is advisable to seek the assistance of an experienced charitable estate planner before entering into this type of arrangement.