To put it simply, a planned gift is a deferred gift. Decide now. Pay later. There are several types of planned giving. Two types are discussed here: Charitable Bequests and Beneficiary Designation.
Charitable Bequests are simple to do. It is a matter of stating that you want to give some part of your estate to Wilmington Area Rebuilding Ministry, Inc (WARM). in your will. Bequests help ensure WARM's future financial strength.
There are many benefits for you and your family. The gift you leave will reduce the value of your estate for tax purposes. Your assets remain in your control during your life--if circumstances change, you can modify your gift. You can direct your gift to a particular purpose--for example, specifying funds are for administrative costs only, disabled homeowners only, elderly homeowners only etc. Be sure to verify with WARM that we can accommodate your request. Lastly, you will know that your community is being taken care of after your death.
Your estate is the sum of your assets, including property you own, insurance policies, retirement accounts, cash on hand, etc. Wealthy people may have very large estates, but even people who aren't wealthy often have the resources to make a charitable bequest. If every adult in America made a will and included a bequest of just $100, billions of dollars would flow to charitable causes every year.
- General Bequests are legacies left to certain people or causes that come from the general value of the estate, and are made by designating a specific dollar amount, a particular asset or a fixed percentage of your estate to the cause of your choice.
Specific Bequests are made when a particular item or property is bequeathed for a designated purpose. (i.e., instruments bequeathed to the local school district for use in music education; dollar funds to be used in the operation of a school or church.)
- General bequest language:
- "I give, devise, and bequeath to NAME OF CHARITY/LOCATION, the sum of $________(or a description of the specific asset), for the benefit of NAME OF CHARITY and its general purposes."
Residuary Bequests are made when you intend to leave the residue portion of your assets after other terms of the will have been satisfied.
- Specific bequest language:
- "I give, devise, and bequeath to NAME OF CHARITY/LOCATION, the sum of $_______ (or a description of a specific asset), for the benefit of NAME OF CHARITY to be used for the following purpose: (state the purpose). If at any time in the judgment of the trustees of NAME OF CHARITY it is impossible or impracticable to carry out exactly the designated purpose, they shall determine an alternative purpose closest to the designated purpose."
Contingency Bequests allow you to leave a portion of your estate to a particular charity if your named beneficiary does not survive you.
- Residuary bequest language:
- "All the rest, residue, and remainder of my estate, both real and personal, I give to NAME OF CHARITY/LOCATION, for its general purposes."
Without a will, there is no mechanism in place to make a bequest, so here are the steps you should take to make sure your wishes are granted.
- Contingency bequest language:
- "I devise and bequeath the residue of the property, real and personal and wherever situated, owned by me at my death, to (name of beneficiary), if (she/he) survives me. If (name of beneficiary) does not survive me, I devise and bequeath my residuary estate to NAME OF CHARITY/LOCATION, for its general purposes."
- Make a list of organizations or causes that you would like to support.
- Make a detailed list of assets (financial, real estate, vehicles, jewelry, collectibles, musical instruments, etc.
- Set up an appointment with your financial analyst or attorney, or planned giving officer at the organization you intend to support. These professionals will help sensitively guide you through the process.
Why use life insurance for charitable giving?
- Life insurance allows you to make a much larger gift to charity than you might otherwise be able to afford
- The charity is guaranteed to receive the proceeds of the policy when you die
- Giving life insurance to charity has certain income tax benefits
- Giving life insurance to charity has certain estate tax benefits
Ways to give life insurance to charity
Name a charity as beneficiary on your life insurance policy:
This is the simplest way to use life insurance to give to charity. You, as owner of the policy, simply designate the charity as beneficiary. Designating the charity as beneficiary may allow you to make a larger gift than you could otherwise afford. If the policy is a form of cash value life insurance, you still have access to the cash value of the policy during your lifetime.
However, this type of charitable gift does not provide many of the other tax benefits of charitable giving because you retain control of the policy during your life. Upon your death, the proceeds are included in your gross estate, although the full amount of the proceeds payable to the charity can be deducted from your gross estate.
Name a charity as the recipient of dividends:
Another simple way of making a charitable gift is to assign the dividends on your existing policy to charity. You, as owner of the policy, simply make this designation at the time of application, or at any other time while you own the policy. By assigning your dividends to charity you are able to make a charitable gift. You retain control over the policy and its cash value during your life. You also receive an income tax deduction as dividends are paid to the charity.
However, this type of charitable gift does not provide many of the other tax benefits of charitable giving because you retain total control of the policy. Proceeds are included in your gross estate, and there's no offsetting estate tax deduction because the proceeds do not go to charity.
Donate an existing life insurance policy to charity:
In order to donate an existing life insurance policy to charity, you must assign all rights in the policy to the charity. You must also deliver the policy itself to the charity. By doing this, you give up all control of the life insurance policy forever.
This strategy provides the full tax advantages of charitable giving because the transfer of ownership is irrevocable. You may be able to take an income tax deduction equal to your basis or its fair market value. The policy is not included in your gross estate when you die, unless you die within three years of the transfer. In this case, your estate would get an offsetting charitable deduction.
Donate a new life insurance policy to charity:
In order to use this strategy, you would purchase an insurance policy, and immediately assign all rights in the policy to the charity. You would also deliver the policy itself to the charity. You would pay the premiums and if structured properly, be able take a charitable deduction for those premiums.
The IRS may treat this transaction as if the charity itself had purchased the policy on your life. Most states require the purchaser of a policy to have an insurable interest in the life of the insured. Since it would be difficult to prove that a charity has an insurable interest in your life, your estate could recover the proceeds from the charity, and any tax benefits you had received would be reversed. However, if the transfer were allowed to stand, and the proceeds pass to the charity as intended, you would be entitled to the full tax advantages of charitable giving.
The IRA Charitable Rollover allows individuals over age 70½ to directly transfer up to $100,000 per year from an IRA account to one or more charities. This transfer counts toward the minimum required distribution rule for IRA accounts. Also, the amount of a qualified charitable donation excluded from gross income is not taken into account in determining any deduction for charitable contributions.
(Many thanks to the IRS
This is for informational purposes only and should not be considered legal or financial advice. Please contact your lawyer or accountant for more information.
To make a deferred gift, a person decides to give at some future date, either a number of years from now or at death. A deferred gift is a present decision to make a future gift, evidenced by a legal contract... When a person makes a planned gift, it suggests forethought.
Robert F. Sharp