Estate Planning Lessons

Planned Giving

Lesson Five: Leaving Your Mark on Tomorrow

It’s simple to make a gift from an IRA or other retirement account.

Beneficiary Change.  Instruct the custodian of your account to name our organization as beneficiary of part or all of the account.  The custodian can provide you with the appropriate forms.

Contingent Beneficiary.  At the very least, consider giving your heirs the right to “disclaim” (decline) retirement benefits in our favor.  Heirs who understand the severity of taxes may consider it best to have retirement assets pass 100% for our benefit.

Charitable Trust.  Funds you withdraw from retirement accounts can be transferred to charitable remainder trusts or other life income gift arrangements, and partial charitable deductions will be available.  Naming a charitable remainder trust as death beneficiary can reduce both estate taxes and income taxes for your heirs.

Help Family and Charity, Too
A charitable remainder trust, set up in a will, can save estate taxes by giving rise to a charitable deduction, even though the donor’s family receives exclusive benefits from the trust for life or a term of years.

The charitable deduction is based upon the age of the income beneficiary at the donor’s death and the amount of income to be paid from the trust.  Estate tax savings mean more of the estate is available to provide an income to the family.  The trust consequently increases the funds available to provide income to the primary beneficiary of the estate.  The charitable trust permits a person to confer benefits on a charity without lessening the security he or she wants to provide for family members.  This is true even for the estates of married couples.

Individuals who face severe estate taxes might consider the charitable lead trust, which pays income to charity for a term of years, with all trust assets eventually passing to heirs at greatly reduced transfer tax.

Case Studies in Charitable Estate Planning
The Case of the Patriotic Saver.  Mr. P has been a patriotic saver all his life and is proud that he has accumulated $230,000 of U.S. savings bonds during his lifetime.  He plans to leave the bonds to Mrs. P in his will, to provide for her security, but was surprised to learn that Mrs. P will have to pay substantial income tax every time she cashes a bond.
Solution?  Mr. P has decided to leave the bonds to a tax-exempt charitable remainder trust in his will.  The trustee can cash the bonds without owing income tax and pay Mrs. P a good income for life from the proceeds.  After her death, the bonds will pass for our benefit.

Maureen’s Remarkable Legacies.  Maureen knew the value of having a charitable gift annuity:  generous lifetime payments for as long as she lived, favorable tax benefits and the profound satisfaction of helping our programs.  But she hadn’t thought about the role gift annuities might play in leaving a legacy to her family – and to our future, as well.

After conversations with her advisers and our planned giving staff, Maureen decided to change her will to establish seven gift annuities that will provide lifetime payments to members of her family, along with significant tax savings for Maureen’s estate.  Through special arrangement, each family member will receive quarterly checks following Maureen’s death, with a large part of the payments being tax free.

“I treasure the idea that my family will have frequent reminders of my love for them, and that there will be a continuing bond with an organization that has meant so much to me,” Maureen commented.

The Case of the Worried Widower.  Harold is a 70-year-old widower with a large estate.  He is worried about federal estate taxes – and he’s also concerned whether his son and daughter, both in their 30s, will be able to handle a large inheritance responsibly. Harold wants to do something significant for several organizations through his estate plan, but still help the kids. 

Harold has decided to change his will to include a charitable lead annuity trust that makes payments to charity for 10 or 15 years and then passes all trust principal to the children.  Estate tax savings will be significant, and it’s a form of charitable giving that may be more appealing to the surviving family members.  In the case of Harold’s offspring, a 10- or 15-year wait might be good for them – that is, they may be more mature and better able to handle large sums of money at an older age.

More Ideas for “Leaving Your Mark”
The most traditional way to benefit worthwhile causes at death is through a bequest (gift by will).  With a gift through your will (or revocable living trust), you retain full use of your gift property during your lifetime.  But it’s possible to benefit worthwhile organizations in other ways:

Life insurance – You can name our organization as the beneficiary of life insurance.  Just contact your insurance company.  A better idea may be to transfer actual ownership of the policy during life.  Such a gift will entitle you to an income tax deduction, and future premium payments will be tax deductible.

Financial accounts – Most accounts at financial institutions, including brokerage accounts, can be made payable at death to a person or charitable organization.  Ask the manager of the institution how you can arrange to designate a death beneficiary for your CD, savings account, brokerage account, etc.  These gifts are completely revocable during life.

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