Legacy Giving

Two of the possible ways for people making arrangements for the disposition of their assets after their death are wills and irrevocable trusts. Each one has unique strengths. 

What is an Irrevocable Trust?

A trust is a legal vehicle where you can place your assets, either to keep there for a period of time or to distribute. The grantor, or creator, of the trust typically uses it to pass on these assets after they die to their beneficiaries. With a trust, there are also applications outside of death. For example, a trust maker might create a trust just in case they become incapacitated.

With this trust, you establish the trustee, or the person with a fiduciary responsibility to manage the trust, your beneficiaries, and transfer your assets. The grantor cannot act as the trustee nor the beneficiary, though. You give up control of your property, funds, etc., when you put them in an irrevocable trust. So, since the assets no longer belong to you, you typically cannot change the trust or its terms.

There are some situations where you can alter an irrevocable trust. However, you must go through the law to do so. The difficulty depends on the state you live in, your beneficiaries, and the assets in the trust.

What Is a Will?

A will, commonly known as a last will and testament, is a legal document used in estate planning. With a will, an individual can dictate what their list of final wishes for an executor to carry out after they pass. That often involves the distribution of their assets upon death, although they can include other desires. For example, a parent might want to name a legal guardian for an underage child. Or, the person may have an organization he or she wants to give a monetary gift. One of the most important benefits of crating a valid will is the opportunity to specify how you wish your assets to be distributed. Your wishes are unique. 

There are various types of wills out there, but each state has rules. Depending on where you live, your will is subject to particular guidelines that determine its legal validity. If you don’t have a will upon dying or fail to make sure yours adheres to the rules, you may leave your beneficiaries scrambling.

Read here for more on the Pros and Cons of Irrevocable Trusts and WIlls: https://www.presbyterianfoundation.org/ways-to-give/wills-legacy-giving/

A beneficiary designation is the act of naming a person or entity who will inherit an asset in the event of the account owner’s passing. Some common examples of where you would make a beneficiary designation include life insurance policies and retirement accounts. When the account owner passes away, their assets are then transferred to the beneficiary that they designated. You can name a charitable entity as the beneficiary of assets (called a “Not Designated Beneficiary” or an NDB) including: Retirement accounts, like an individual retirement account (IRA), a 401(k) and a 403(b), life insurance cash value or death benefits.

It is always possible to donate retirement assets, including IRAs, 401(k)s and 403(b)s, by cashing them out, paying the income tax attributable to the distribution and then contributing the proceeds to charity. In many cases, though, there is little to no tax benefit associated with this type of donation. 

However, a direct contribution of retirement assets to charity as part of an estate planning strategy can be very tax efficient. In some situations, it can mean more funds for charities and heirs alike.

For many people, a retirement account like an IRA or 401(k) may be the most significant source of assets accumulated in their lifetime. Others may find that, due to their other resources and investments, they are not in need of all the funds accumulated in their retirement accounts. For those who wish to give to charity, a natural question is whether they can donate retirement assets—and if there are any tax advantages for doing so.

Read this link for more detailed information about donating an IRA or other retirement accounts: https://www.fidelitycharitable.org/guidance/philanthropy/donating-retirement-assets-to-charity.html

A charitable remainder trust (CRT) is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities.

How a Charitable Remainder Trust Works

In a charitable remainder trust:

• A donor transfers property, cash or other assets into an irrevocable trust
• The trust’s basis in the transferred assets is carryover basis, which is the same basis that it would be in the hands of the donor, for assets transferred to the trust during the lifetime of the donor
• The trust pays income to at least 1 living beneficiary
• The payments continue for a specific term of up to 20 years or the life of 1 or more beneficiaries
• At the end of the payment term, the remainder of the trust passes to 1 or more qualified U.S. charitable organizations
• The remainder donated to charity must be at least 10% of the initial net fair market value of all property placed in the trust
• Charitable remainder trusts are irrevocable. Assets that go in can’t be taken back.

Read here for more on Charitable Remainder Trusts https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

In a TOD deed, the current owner designates one or more persons as beneficiary. The beneficiary automatically becomes the owner of the property when the current owner dies. A beneficiary can be an individual or an organization such as a charity.

Read here for more on TODs:
https://www.investopedia.com/transfer-on-death-beneficiary-5272315#:~:text=Naming%20a%20TOD%20beneficiary%20can,a%20trust%2C%20or%20a%20charity

To make a permanent gift of life insurance to charity while you’re still alive, you can transfer ownership of your policy to the desired organization. The policy’s death benefit will go to the charity once you’ve passed away if it’s named as the beneficiary, which — as the new policyowner — the charity will control.  

Gifting a life insurance policy can cut the donor’s taxable estate. Naming the charity of your choice as the beneficiary of your life insurance policy is the simplest way to provide a charity with the death benefit proceeds from a policy.

Read here for more information on using Life Insurance to Make Charitable Donations: https://www.investopedia.com/articles/insurance/10/giving-to-charity-using-life-insurance.asp#:~:text=Gifting%20a%20life%20insurance%20policy,benefit%20proceeds%20from%20a%20policy.

Individuals who own appreciated assets such as stock must pay capital-gain tax on the gain when they dispose of it. Giving appreciated stock can increase your tax savings and your cash flow. So what options do you have to benefit from the full value of your appreciated assets? Some of the best strategies for reaping the benefits of highly appreciated stock are available through charitable planning. 

Why would I want to give stock instead of cash?
You receive a double benefit from contributing long-term appreciated stock: you receive an income-tax charitable deduction for your gift, and you avoid paying capital-gain tax on the paper gain. 

Contact our Financial Secretary, Sara Gresh, to learn more.