Planned Giving and Trusts

See also UPP 1-13: Gift Acceptance and Processing

What Is Planned Giving?

The term "planned giving" refers to charitable gifts that require some planning before they are made. Planned gifts are popular because they can provide valuable tax benefits and/or income for life.

Whether a donor uses cash or other assets, such as real estate, artwork, or partnership interests, the benefits of funding a planned gift can make this type of charitable giving very attractive to both the donor and charity.

• Increase current income
• Reduce income tax
• Avoid capital gains tax
• Pass assets to heirs at a reduced tax cost
• Make significant donations to charity

Planned gifts include bequests, trust, and contracts between a donor and a charity. Basic descriptions of the most popular types of planned gifts follow.

Bequest - When a donor decides to leave some assets to charity in his/her will, he/she is making a bequest. The donor’s estate will receive a charitable estate tax deduction at her death, when the gift is made to charity.

Gift Annuity – A gift annuity is a contract between a charity and a donor. In return for a donation of cash or other assets, the charity agrees to pay the donor, or a friend or family member the donor chooses, a fixed payment for life. The donor can also claim a charitable tax deduction. If a donor funds a gift annuity with long-term capital gain property, the donor will have to report only some of the gain, and may be able to report it in installments over many years.

Income from a gift annuity can be deferred for a period of years. Deferred gift annuities are often set up by younger donors to supplement retirement income.

Pooled Income Fund – The name describes this planned gift well – a charity accepts gifts from many donors into a fund and distributes the income of the fund to each donor or recipient of the donor’s choosing. Each income recipient receives income in proportion to his or her share of the fund. For making a gift to a pooled fund, a donor receives a charitable income tax deduction and will not have to pay capital gains tax if the gift is of appreciated property. When an income beneficiary dies, the charity receives the donor’s portion of the fund.

Charitable Remainder Trust – This trust make payments, either a fixed amount (annuity trust) or a percentage of trust principal (unitrust), to whomever the donor chooses to receive income. The donor may claim a charitable income tax deduction and may not have to pay any capital gains tax if the gift is of appreciated property. At the end of the trust term, the charity receives whatever amount is left in the trust.

Charitable remainder unitrusts provide some flexibility in the distribution of income, and thus can be helpful in retirement planning.

Informational resource: http://www.pgcalc.com