Ways to Give
Give the gift of tomorrow - become a member of the Botanical Society of America's Legacy Society -
Thank you for taking the time to explore some of the options available for providing charitable gifts to the Botanical Society of America. Below we outline several mechanisms for giving and provide examples of how each might work for you and benefit the BSA. We thank The Dini Partners for their input and advice. Please note: the information is provided as an example only. Please consult your tax advisor for the option(s) that best fits your goals.
When a donor makes a "cash" gift to the Society, if he or she itemizes tax returns, that gift is fully deductible, up to 50% of his or her adjusted gross income. If the total gifts exceed this limit, the excess may be carried forward for tax purposes for up to five years. Some employers will match charitable gifts, making the gifts worth even more to the Society.
In most cases, a gift of appreciated securities entitles the donor to an income tax charitable deduction for the fair market value of the securities on the effective date of the gift. The donor avoids the capital gains tax that would be due if he or she sold the stock. Public and privately held securities must be marketable and convertible to cash within a short-term timeframe. Gifts of publicly traded securities will be valued at the average market value on the date the full interest in the transferred property is received.
Gifts of closely held stock will be valued based on a qualified independent appraisal at the time of the transfer. Generally, gifts of privately held securities will be accepted only when conversion into cash within a five to ten year timeframe is expected.
Quite often families have real estate for sale that has appreciated significantly in value - residential property, vacation property, farmland, or commercial property. Prior to the sale of the real estate, it is possible to make a gift to the Society through an undivided interest in the property. Upon the sale of the property, the Society's attorneys attend the closing proceedings along with the majority owner. The title company writes a check to the Society for the value of their ownership in the property, and the donor receives a charitable tax deduction for the current fair market value of the property given to the Society. No capital gains taxes are levied on the appreciated value of the property given to the Society. The Society could then dispose of the real estate as they wish. However, if the property is sold lower than the appraised value within three years of the gift, there are donor tax consequences.
A family with a personal residence or farm - preferably one on which there is no existing debt - can transfer the deed to the Society and reserve for themselves the right to live on or use the property for their lifetime. While the donor is required to maintain the property and pay the taxes, the donor also receives a tax benefit for the gift based upon their age and life expectancy. The donor receives immediate recognition for this irrevocable gift.
When a life insurance policy is initially purchased, it is usually intended to ensure the financial stability of a family should a tragic event occur. However, life insurance can be a tool with many purposes. If a family has a whole life insurance policy they no longer need for its original intent, they can contribute it to the Society. Purchasing a new policy and naming the Society as beneficiary is another possibility. This often makes a significant future gift feasible and affordable, especially for younger donors. Alternatively, perhaps someone is considering a sizable bequest to the Society, provided his or her family's future inheritance is not affected. Life insurance can play a part in meeting this goal, too, by replacing the amount donated back to the estate.
Naming the Society as Beneficiary - If an individual names the Society as beneficiary of a life insurance policy that the individual owns, no income tax deduction is available because the donation is not a complete interest in the policy. Thus, an individual may fulfill his charitable intentions by naming the Society as beneficiary of a life insurance policy; however, the individual will not receive the benefit of a lifetime income tax deduction.
Transferring Policy Ownership to the Society - Contributions of a life insurance policy to a charitable organization generates an income tax deduction generally equal to the fair market value of the policy, reduced to the donor's basis in the contract (generally, the total of the premium payments).
Paying for a Policy and Naming the Society as Beneficiary - A donor may choose to buy a new policy or transfer an existing policy to the Society while premium payments are still being made. The subsequent payments made each year by the donor are tax deductible, or the donor may write a check to the Society and have the Society continue the payments. Under either scenario, the payments are tax deductible.
Indirect Use of Insurance for Wealth Replacement - In recent years, probably the greatest increase in using life insurance in philanthropic plans has been to replace for heirs of an estate a value given, by one means or another, to a charitable organization like the Society. A significant outright charitable gift might reduce the projected value of inheritances for family members. However, depending on the age, health, and marginal income tax rate of the donor, income tax savings from use of the charitable deduction can be enough to purchase life insurance, whose death benefits equal the value of the gift.
Retirement plan assets (e.g., interests in qualified plans and IRAs) often are a significant portion of an individual's taxable estate. These assets are income in respect of a decedent ("IRD") and subject to income tax when received by the owner or beneficiary. Because the combined estate and income taxes imposed on these assets may consume much of the plan balance, planning for their distribution is imperative. A charitable bequest of retirement plan assets is one alternative for minimizing the taxes imposed.
Retirement Plan Assets to the Society - When a donor has accumulated significant amounts in a retirement plan or IRA, one strategy to minimize tax under the IRD rules is to use retirement plan benefits to fund charitable contributions. Assets transferred to charities are sheltered from estate and gift tax because of the unlimited charitable deduction, and are deductible for income tax purposes as well (although certain limitations may apply.) Donors that desire to make charitable bequests at their death should consider using retirement plan assets. In this situation, the estate avoids recognizing taxable income related to the IRD items. Instead, the charity receiving the IRD recognizes the income but pays no income tax because it is tax exempt. In addition, the estate receives an estate tax charitable deduction equal to the fair market value of the donated IRD items. Thus, it owes no estate tax or income tax on the IRD items.
If Sam had left the Society S2,000,000 in cash instead, his estate would still receive a $2,000,000 estate tax deduction, but would have to report the $2,000,000 RD for income tax purposes when the plan assets were received. Thus, the balance of the estate available to non-charitable beneficiaries would have been reduced not only by the $2,000,000 charitable bequest but also by the estimated $800,000 income tax paid on the $2,000,000 of IRD.
Instead, Anne creates a charitable remainder unitrust and names it as the beneficiary of her profit-sharing plan. She arranges for the unitrust to pay 7% of the value of the assets to Sandy each year for life. The net result is significant income tax deferral. The entire $200,000 can be invested to produce investment income. The estate tax on the value of Sandy's interest would typically be paid from other assets. The partial estate tax charitable deduction for the present value of the charitable remainder interest will reduce Anne's estate tax.
Many families rely on investment income to maintain their standard of living, especially people who are retired. Quite often, these families are reluctant to sell assets that have appreciated in value due to capital gains tax liability. A form of charitable trust enables a family to transfer assets to a trust. These assets - corporate stock, real estate, etc. - may then be sold without being subject to capital gains taxes. The family enjoys the income from the trust for life. The assets of the trust then pass on to the Society after the death of the last beneficiary. A charitable trust may be a useful tool to families who fit the following pattern:
Charitable Gift Annuity - This is a legal contract between the donor and the charitable organization, through which the donor exchanges cash, stocks, or other assets for an agreed-upon income for life. The donor qualifies for an income tax deduction the year when the gift is made. In addition, a portion of the income received is tax-free, and capital gains taxes may be reduced if the annuity is funded with appreciated stocks or securities. After the income recipient(s) have passed away, the corpus of the annuity will be used by the Society as designated by the donor.
Charitable Remainder Trusts - A charitable remainder trust (CRT) is a tax-exempt trust that pays all or a portion of its income to one or more beneficiaries for a specified term. At the expiration of its term, the remainder interest passes to the designated charity. Generally, a CRT is used when a donor would like to make a gift to the Society, but does not want to give up the present income stream that could be generated by the property. There are two forms of CRTs - the annuity and the unitrust.
Income from a unitrust is variable, increasing if the value of the trust increases and decreasing if the value of the trust decreases. Unitrusts invested for growth over the long term can be a hedge against inflation.
Through the annuity trust, the yearly payout amount does not change; it is set when the trust is established and must be at least 5% of the initial trust value.
Charitable Lead Trusts - This trust is established by a donor transferring assets to a trust that provides income to a nonprofit organization for a period of years. At the end of that period, the trust assets revert either to the donor (grantor) or to someone else the donor designates (non-grantor). Therefore, the Society receives an income stream for a period of years, while the donor receives a current gift tax deduction for the value of the Society's interest in the trust. Gift tax is then due only on the present value of the remainder that eventually goes to a beneficiary and in some cases, no gift tax is payable. Even if trust assets appreciate by the time the trust term ends, no additional gift or estate tax will be due when the beneficiaries receives the trust assets. However, the beneficiaries may incur some capital gains tax ramifications.
Give the gift of tomorrow - become a member of the Botanical Society of America's Legacy Society -
Special thanks to The Dini Partners for the preparation of the BSA "Ways to Give" materials. Please note: the information is provided as an example only. Please consult your tax advisor for the option(s) that best fit your situation/needs.