Planned Giving

Vehicles and more…

Caroline J. Punches, CFRE Director of Development San Jose State University Library 408.924.2807 voice; 408.924.2800 fax [email protected]

What is Planned Giving?

“Planned giving is the integration of sound personal, financial, and estate planning concepts with the individual donor’s plan for lifetime or testamentary giving.” - AFP Glossary   Donor-centered fundraising Gifts to be received “later”

Four Classes of Vehicles

 Give it outright  Give it later (after donor is deceased)  Give the asset now, keep the income  Give the income now, keep the asset

Planned Giving Prospects

 Age 55 or older  Long-time member/supporter  Few or no dependents  Unusual generosity for OUR work  Appreciated assets

Cash Gifts

 Appropriate for: Everyone  Tax Treatment: Fully deductible for itemizers (up to 50% of adjusted gross income). Excess may be carried forward for five additional years.

 Potential Issues: Certain high-income taxpayers may have this deduction phased out.

Appreciated Assets

 Appropriate for: People with high appreciated securities, real estate or closely held stock.

 Tax Treatment: Full fair market value of asset is deductible (up to 30% of adjusted gross income). Excess can be carried forward five more years. No capital gains tax paid on appreciation.

 Potential Issues: Gift MUST be made to charity

prior to sale

of asset.

Other Non Cash Gifts

 Appropriate for: People wishing to donate real and personal property.

 Tax Treatment: Fully deductible up to appraised value (form 8283 filed with return). Items valued at over $5000 MUST have an independent appraisal.

 Potential Issues: If asset is sold within two years of receipt by institution, form 8282 must be filed. Potential problem for donor if sold under appraised value.

Bequests

 Appropriate for: Anyone with a will or trust  Tax Treatment: Gifts identified are excluded from federal estate and state inheritance taxes.

 Potential Issues: Recipients MUST be qualified charities and gifts fully discernable.

Charitable Gift Annuities

 Appropriate for: Older individuals wishing “higher rate” of return on investments.

 Tax Treatment: Current charitable deduction received for portion of gift based on life expectancy of donor. No capital gain on transfer of assets.

 Potential Issues: Gifted asset value must be segregated. Tax free income ends when donor attains life expectancy.

Pooled Income Funds

 Appropriate for: Individuals wanting “higher rate” of return on investments but do not have the assets required for a CGA.

 Tax Treatment: Current income tax deduction received for portion of gift based on life expectancy of donor. No capital gain on transfer of assets.

 Potential Issues: Limitations on investment opportunities.

Life Insurance

 Appropriate for: People with existing policies which are no longer required to meet planning needs OR people wishing to take out a new policy which will result in a significant gift at death.

 Tax Treatment: Current deductions provided for “cash surrender value” of existing policies or premium payments for new policies.

 Potential Issues: Make sure state recognizes “charity” as “insurable interest.”

Charitable Remainder Trusts

 Appropriate for: Individuals with large taxable estates wishing to preserve an income stream to someone for life or term of years with remainder of trust passing to organization.

 Tax Treatment: Charitable deduction based on term of the life interest AND percentage passing to income beneficiaries.

 Potential Issues: Trusts are considered separate taxpayers and must be managed and invested individually.

Charitable Lead Trusts

 Appropriate for: Individuals who want their estate to go to heirs but want to support their charitable organization with annual income.

 Tax Treatment: Charitable deduction based on number of years payments are made to organization and whether trust reverts back to donor.

 Potential Issues: Trusts are considered separate taxpayers and must be managed and invested individually.

Tax Deferred or Retirement Assets

 Appropriate for: Individuals with IRA’s, Keoghs, pension plans, annuities, etc.

 Tax Treatment: Gift is excluded from estate, inheritance and deferred income tax liabilities.

 Potential Issues: Favorable tax treatment is available ONLY in an estate. Many people are unaware that the combination of taxes on tax deferred assets may easily exceed 70%

Donor Motivations for Making Planned Gifts

 To help provide future funding for organization  Ability to restrict funds  Recognition for a loved one

When Donors Consider Making Planned Gifts

 Personal timing/circumstances determine need  Need to create a valid will  Need to review and revise a will  Death of a spouse  Choosing executor, trustee and guardian  Need for estate liquidity  Health  Value of old policies no longer needed

What to do when the Prospect says…

  I need all the income my assets produce to live on I can’t give away capital assets; I intent to pass them on to my children and grandchildren  I must put my kids through college!

 Your institution is not my only charity  I need all my income. Most of my assets are non income producing real estate so I am cash poor.

Or when s/he says…

 I hesitate to part with any assets; I worry about a long term illness and having enough to take care of myself.

  Our oriental rug collection is our pride and joy, but our children don’t want the hassle of caring for them and insuring them.

This year’s been very bad for me; my tax situation is awful and I am going to owe a huge capital gains tax. Maybe some other year.