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To reach your personal goals, we offer brief outlines of nine different planning opportunities. As you read, consider how one or more of these tools may help you enhance your future financial well-being while providing for a meaningful charitable gift as well.
2012-2013 Board of Directors
RAMC Foundation, Ltd.
Seated: Diane Thieding, Secretary/Treasurer; Jay Brunken, President; David Pawlisch, Vice President; Rebecca Harring, Director.
Standing: Directors Megan Schumann, Terry Geyman, Pete Lichte, Janet Hasler and Paul Takkunen.
Not Pictured: Peggy Albert and Chris Bjorklund
See Dale speak on the Capital Campaign Story .
The best plan for you will balance what you wish to accomplish for yourself, your family, and your charitable interests in your overall estate and financial plans.
Please contact Dale Turner for additional information and planning at (608) 768-6205.
1. Benefiting Others Through Your Will
In addition to being one of the simplest ways to distribute your estate, your will can also be a creative vehicle through which to make thoughtful gifts.
After providing for the needs of loved ones, you may choose one of several ways to benefit charitable organizations and institutions you have enjoyed supporting.
By having your attorney revise your will or add a simple amendment, you can make a gift of a dollar amount, a specific property, a percentage of your estate, or what is left after your loved ones have been taken care of. You may also wish to name one or more charitable recipients in case one or more heirs do not survive you.
Mrs. Franklin has generously supported a particular institution for over 30 years. She is concerned about the future and wants to help in a special way.
When she had her first will drafted, she decided to include the institution as a final beneficiary should her only daughter not survive her.
Now that her daughter is financially independent, Mrs. Franklin is reviewing her will with her attorney and finds it practical to add a charitable bequest of a percentage of her estate.
2. Giving Through Revocable Living Trust
If, like many others, you have chosen to rely on a revocable living trust to pass your property to loved ones while minimizing probate costs, consider how you might add a charitable dimension to this plan as well.
You can provide that at the termination of your revocable living trust, a portion of the assets in the trust be used for charitable purposes you direct.
Much like a charitable bequest through a will, such a gift is deductible from estate taxes and can be delayed until all family members have first been provide for.
Mark and Sally Robertson have recently reviewed their estate plans. As part of their planning, they have each created a revocable living trust that will serve to transfer many of their assets at their deaths.
They have previously provided for charitable bequests from their wills. Their advisors recommended that they include language in their living trusts that would supplement and/or complement the provisions they have previously made in their wills.
In this way, they assure that their wishes will be carried out should the majority of their assets eventually be distributed under the terms of their living trusts rather than their wills.
3. A Gift With an Income That Never Changes
A charitable remainder annuity trust is a way to make a gift that allows you to retain income from your property for life or for another period of time you specify. Your funds are held separately and invested for payment of a fixed and regular income to you and/or someone else you name.
Such payments can be a welcome supplement to your retirement plan. Ensuring management of assets is another benefit of the plan.
When the trust ends (at the death of the income recipient(s), or at the end of the period you specify), whatever remains in the trust is distributed for the charitable purposes you specify.
The payments you receive each year will be at least 5% of the amount placed in the trust. The exact amount is determined by you when the plan is created and will never change. A tax deduction is allowed at the time you create your trust. Its size depends on your age, payment percentage, and other factors.
Mr. Lemaster, 72, decides to place stock worth $100,000 in an annuity trust, which will pay him an annual income of 7%, or $7,000. The stock originally cost $40,000 and currently yields 2% or $2,000.
With the trust, he more than triples his income from the property, avoids tax on the increase in value at the time the trust is created, and receives an income tax deduction of more than $49,000.
4. A Gift With a Variable Income
Like the annuity trust, a charitable remainder unitrust provides for a gift that returns an income. But unlike the annuity trust, the income from a unitrust will increase or decrease with the value of the assets placed in the trust.
You determine the payout percentage when the gift is made. Each year this percentage of the value of the trust assets is paid to you or others you select. When the value of the trust investments goes higher, more income is received. The income will be less if the value of the assets declines.
Additions can be made to this type of trust, and a tax deduction is allowed for a portion of each amount contributed. For many people, the unitrust can play a welcome role in planning for retirement years.
If Mr. Lemaster chooses to place $100,000 of stock in a unitrust paying 6%, the first year he receives $6,000. Next year, if the assets are worth $110,000, his income rises to $6,600 (6% of $110,000).
He is entitled to a deduction of approximately $54,000, given the economic conditions when he arranges his gift. He also avoids capital gains tax at the time the trust is created.
Had Mr. Lemaster sold the stocks and invested the after-tax proceeds, his income would have been substantially less. He could also invest his tax-savings for more annual income.
5. Making a Temporary Gift
People who wish to make a substantial gift over a period of years while ensuring that their property will ultimately return to themselves or their loved ones may be interested in what is known as the charitable lead trust.
The lead trust can be one of the few ways to reduce or eliminate taxes that would otherwise be due on assets left to children or grandchildren.
Under the terms of a charitable lead trust, assets are transferred to a trust that pays income to one or more charitable recipients for a number of years you determine. At the end of that period, the assets are returned to you or other persons you name.
Mrs. Swain was left a large amount of assets by her husband. She has four grandchildren, ages 7 through 17. Her two sons were provided for in her husband’s will. Mrs. Swain’s estate will owe a large amount of estate tax at her death.
After conferring with her advisors, Mrs. Swain decides to create a trust in her will that will pay an annual sum to one of the Swains’ favorite charitable interests for 15 years, with the assets then passing to her grandchildren largely free of estate tax.
In this way, Mrs. Swain honors Mr. Swain’s memory while ensuring that more assets will pass to their grandchildren at a time when they are of a more mature age.
6. Give Your Home – and Continue to Live There
You can make a gift of a home or certain other real estate while retaining the use of the property for as long as you live. Using a life estate arrangement, you make a gift of your home or farm now but retain the security of knowing you may live there as long as you wish.
The satisfaction of giving, as well as a tax deduction, is enjoyed now rather than later.
You continue to take care of property, pay the taxes, and even receive any income it generates. But, because you have made a gift of the probate estate at death, possibly saving unnecessary expenses and delays.
Miss Coughlin, 77, lives in the family home left to her by her parents. She has two sisters who live out of state. Miss Coughlin plans to leave most of her property to her sisters and their children, but she would like to make substantial charitable gifts as well.
After reviewing all of her assets, Miss Coughlin decides to make a gift of her home now, while retaining the right to live in the house for the remainder of her life.
In so doing, she gains the satisfaction of knowing she has made a meaningful gift while also saving federal taxes on her income now and on her estate later.
7. A Large Gift at Low Cost Through Life Insurance
Life insurance needs change as life progresses. Children become self-sufficient, and investments may provide unexpected income and security. As a result, not all life insurance coverage may be needed for the reason it was initially purchased.
Also, because federal law now exempts many estates from taxation, life insurance purchased to cover estate taxes may be "obsolete."
One of the simplest ways to make a significant gift in the future is to name a charitable beneficiary to receive all or a portion of the proceeds of a policy no longer needed for its original purpose.
Another way to make a gift of insurance is to purchase a new policy, naming a favorite cause as beneficiary or co-beneficiary. You can ensure a gift which may ultimately be much larger than its cost.
Mr. and Mrs. Green purchased a $250,000 life insurance policy on Mr. Green’s life in 1975. Since their advisors tell them they no longer will owe estate taxes, the Greens decide to change their beneficiary to provide that $25,000 from the policy proceeds be designated as a gift for a memorial in honor of Mr. Green’s parents. The remaining $225,000 is to be paid to the Green’s grandchildren in equal shares.
8. Creative Gifts Through Retirement Plans
Whether you participate in a company pension plan, or a fund you have established yourself, such as an Individual Retirement Account (IRA), you may accumulate funds beyond your needs for comfortable support of yourself and loved ones.
In such a case, it may be very easy and convenient to make a gift from such accounts to perpetuate work you consider vital for the well-being of future generations.
It can be satisfying to know that the funds you carefully saved over a lifetime may ultimately be put to good use now or as part of a prudent estate plan.
Mr. Noble, 62, has always been conscientious about putting away money for retirement. He has accumulated a substantial sum.
After the premature death of his wife, he realizes that his retirement funds have grown to a point beyond his probable need. By consulting with his advisors, Mr. Noble learns that it will be better from a tax-planning perspective to leave other property to his children and make his charitable gifts from his retirement account, should there be amounts left at his death.
He is also surprised to learn that his retirement savings can be a convenient source from which to fund his present gift commitments as well.
9. A Gift of Lasting Significance
All of the ideas discussed her can be ways to make meaningful gifts to charitable organizations and institutions while you include an enduring tribute to a family member or other loved one. There may be no better way to pay tribute to someone than through a gift with a lasting meaning.
Examples of memorial gifts are endless. Many organizations and institutions can attribute buildings, equipment, endowment funds, and a multitude of services to gifts make in memory of loved ones.
We will be glad to assist you in choosing an appropriate commemoration for your gift in honor or someone special to you.
After the death of his wife, Mr. Wright asked that memorial gifts be made to an organization that Mrs. Wright had supported for 20 years.
Now, Mr. Wright has decided to further honor his wife’s memory with a special gift. After discussing opportunities with the organization’s representative, he establishes a memorial fund in his wife’s name to provide continuing income for one of her favorite programs.
He will add to the fund through provisions he is making as part of his estate and financial planning.
Income Tax Savings
Taxpayers are generally permitted to deduct gifts to qualified charitable institutions –
* Up to 50% of their adjusted gross income for gifts of cash and cash equivalents.
* Up to 30% of their adjusted gross income each year for gifts of appreciated property.
If these limits are exceeded or if a combination of gifts of cash and appreciated property totals more than 50% of adjusted gross income in one year, the excess can be deducted over the next five tax years.
You may also enjoy additional benefits from state income tax savings.
Capital Gain Tax Savings
There are special giving opportunities when long-term capital gain property is donated. Under the federal income tax law and the laws of many states, property that has increased in value and been held long enough to qualify as long-term property may be given and deducted at full value rather than at its original cost. Long-term, appreciated property that is given also avoids capital gains tax at the time of the gift, which can help you make a larger gift than might otherwise be possible.
Federal Estate Tax
Your lifetime accumulation of assets may be subject to estate taxes of up to 55% or more at death. Through careful planning, however, it can be possible to pass all property, or a significant portion, free of federal estate taxes.
As illustrated in many of the examples in these pages, a well-planned charitable gift can be combined with an income for yourself or others while also minimizing estate taxes.
Congress has structured the law to encourage us to share the assets that make up our estates with charitable organizations and institutions of our choosing. In fact, federal estate tax laws place no limit on the amount of property that may be given in this manner.
For a discussion or individual planning please call or email Dale Turner at the Reedsburg Area Medical Center Foundation (608) 768-6205.