Planned Giving to STAR
STAR Foundation Newsletter
Planned Giving to STAR
by Jeff Kohn
Many of you may be unaware that STAR is a nonprofit corporation, and without charitable gifts it could not continue to operate. Gifts to STAR can be deducted for tax purposes just as donations given to churches, synagogues, and other charities.
Typically, most charitable donations are outright gifts such as cash, but many people are now considering a more “planned” approach to giving in order to maximize tax and other financial benefits for the donor. In return for making a charitable gift, the donor can expect to obtain some or all of the following benefits:
• Fulfill personal philanthropic goals
• Reduce income taxes
• Avoid capital gains taxes
• Return a stream of payments for the life of the donor and for other beneficiaries
• Eliminate estate tax on the property passing to charity at death
• Reduce costs and time in estate settlement
We are pleased to outline several opportunities to consider in planning charitable giving.
Cash is the most simple, direct, and popular charitable gift, and the amount of the gift is tax deductible. Popular alternatives to cash are gifts of appreciated property such as securities and real estate, which create a double tax benefit—not only does the donor obtain a tax deduction for the full (current) value of the gift; he or she avoids any capital gains tax. This type of gift would be the most immediately helpful to STAR.
IRAs and retirement plans offer some of the most attractive vehicles for planned giving. In many cases, the combined effects of capital gains taxes, deferred income taxes, and estate taxes may cause an IRA or retirement plan benefit to be taxed at over 80%, leaving less than 20% for the estate. With simple tax planning, the entire account may pass untaxed to STAR if STAR is named as beneficiary.
Bequests (gifts made through the donor’s will) are the simplest and most common form of deferred gifts. There are several types of bequests. A “specific” bequest identifies particular assets to be gifted, while a “general” bequest leaves a specific sum. A “percentage” bequest, which expresses the gift as a percentage of the total estate regardless of size, provides more flexibility in a volatile market. A “contingent” bequest may be conditioned on the occurrence of some event, such as intended beneficiaries predeceasing the donor.
A charitable gift annuity provides the donor with a stream of income after the gift is made; in exchange for a transfer of cash or marketable securities, the recipient guarantees to make specified income payments to the donor and/or another beneficiary. Payments may begin immediately or at a set time in the future. This type of gift is attractive to donors who have low-income-producing assets and desire a higher yield from them.
A charitable remainder trust is a very popular plan because of the financial and estate-planning flexibility it offers. The donor gives property to a trust, with either a dollar amount or a percentage of the value of the trust being retained by and distributed to the donor for a term of years, for life, or for the life of a donor and another beneficiary (such as a donor’s spouse). Upon the death of the last beneficiary, the “remainder” of the trust is distributed to charity. The donor, upon creation of the trust, will receive an immediate income tax deduction equal to the difference between the contribution to the trust and the present value of the income stream which is retained by the donor.
Remainder interest in residence—if one owns a primary or secondary home and does not want it to be a part of his/her estate, but does wish to continue to use the property, then the donor may give the recipient a “remainder” interest in that property. This type of gift allows the donor to remain in the home for life, causes the property to pass automatically at death to the recipient, and generates a current income tax deduction equal to the value of the recipient’s remainder interest calculated by subtracting the present value of the retained life estate from the fair market value of the property.
Life insurance policies frequently allow a donor to make a much larger contribution than otherwise possible. One can give a policy to a recipient and make cash contributions equal to future annual premiums, or transfer a fully paid policy once insurance protection is no longer pressing. In either instance, tax deductions are generally permitted based on the value of the gift.
In closing, remember that, as a nonprofit corporation, the STAR Foundation depends upon charitable gifts to continue doing its important and necessary work. (Be sure to consult with a tax advisor before proceeding with any of the above gift methods.)