If you’ve yet to consider a planned gift in your charitable giving plans, this just might be the time to ask yourself why, or better yet, why not? To some, planned or estate gifts may appear complicated, sound ominous, and/or are only for older, more mature individuals to consider. Nothing could be further from the truth: planned giving is for all ages and with the right information and sound professional advice, simply requires some thoughtful planning.
Planned giving programs like that at Day Kimball Healthcare (DKH), provide an opportunity for all those concerned and interested in the future of our hospital to make gifts in such a way that they may meet your current and future philanthropic and financial needs while supporting the advancement of our mission.
Planned giving has historically played a significant role in fund development at DKH, benefiting from outright gifts through bequests and trusts since its inception. Trusts established by individuals and families up to fifty years ago – names like Dunleavy, Harvey, Hibbard, Overlock, Paine, and Starkweather, continue to support the hospital today. The most recent and significant contribution from the estate of local philanthropists Leonard and Barbara Weilock, provided over $216,000 for the DKH Emergency Room. On fiscal year end 2016, planned gifts alone accounted for almost 25% of all philanthropic funds received.
What is a planned gift, and how can it benefit both the organization and myself?
Simply put, a planned gift is any charitable gift, current or future (deferred), which is planned – usually with professional advice – to optimize your (the donor’s) financial, tax, and/or estate plans while helping to secure the long-term financial security of one or more recipient charitable institutions. You can use a variety of different assets to make a planned gift including cash, marketable securities, real estate, closely held stock, tangible assets, life insurance, or retirement plans. Donors can make outright gifts of these assets or invest them into life income gifts that benefit the charitable institution, the donor, and/or the donor’s heirs. Planned gifts are intended to accommodate current, short-term annual goals as well as the long-term – running the gamut from choosing to make a gift of stock instead of cash in support of your annual gift, to bequeathing your home to start an endowed fund that will support your annual gift in perpetuity.
What types of planned gifts are there and how do they work?
While planned giving programs will vary among organizations, there are a number of planned giving vehicles at DKH that are commonly made available at charitable organizations including testamentary gifts or bequests; gifts of life insurance; charitable gift annuities, and charitable remainder trusts. Choosing a particular planned giving vehicle, or vehicles, will depend upon the timing, source and level of your gift: when you would like the charitable organization to begin benefiting from it, what assets will be used to fund it, and at what amount. Like most organizations, DKH recognizes those who have an established planned gift vehicle or have expressed intention to leave a bequest to DKH through membership in the DKH Legacy Circle.
One of the simplest ways in which you can pass assets on to an organization, and leave a powerful message about the ideals and values that are important to you is to name an organization as a beneficiary in your will. The gift would be accepted at such time the proceeds are distributed and by gifting a specific amount or percentage of your estate to a charitable organization, no federal estate tax will be incurred. You can also direct your bequest for a specific purpose or make it unrestricted, leaving its use to the discretion of the organization. This designation should be stated in your will or if you wish to draft a separate agreement, that agreement should be referenced in your will. The organization would provide you with the appropriate language that you would need to include in your will based on your intent.
Using a life insurance policy, in part or in whole, as a charitable gift may also be a very simple way for you to make a major gift either now or in the future, and receive a tax benefit. Rather than cashing in the policy, you can donate it to the organization, making it both the owner and beneficiary. You would then receive a tax deduction for the amount of the cash surrender value of the policy. If the policy is not fully paid, you can continue to pay the premiums through the organization and also receive a tax deduction for your payments. If you choose to keep the policy, you could simply make the organization a beneficiary, in whole or in part, whereby you continue to pay the premiums and the organization receives the benefit at payout upon your death. You will not receive a tax deduction for the premiums, but the policy proceeds will be exempt from your estate tax. In either case, a life insurance policy presents an opportunity for a substantial gift to the organization at a low cost. For younger donors, this can be particularly appealing, having little impact on financial responsibilities now, but great impact on the resulting gift for the organization later with a substantial gift that might not otherwise have been possible.
Charitable Gift Annuities and Charitable Remainder Trusts
In addition to these opportunities, you may want to consider what is known as a ‘life-income’ gift which would allow you to fund initiatives at the organization today, and still benefit from your assets. These options will allow you to make a significant gift now, give yourself an additional source of life-time income, and potentially increase current income that you are receiving from your assets or investments. In addition, they would allow for an immediate tax deduction for a portion of your gift and help you avoid capital gains on any appreciated assets you use to fund the gift. Two of these options to consider are a charitable gift annuity and a charitable remainder trust. These vehicles are essentially funds or trusts that are set up with an initial irrevocable charitable gift funded with current assets such as cash savings and/or appreciated stock. If you choose to fund your gift with appreciated stock, the market value of the stock becomes a charitable deduction, capital gains tax is avoided, and is not subject to estate tax. In both cases, if the amount of your gift and your current tax situation is such that you cannot use the full amount of the charitable deduction in the year that it is made, you may carry over the deduction for five more years.
The charitable gift annuity is the simpler of these two options and easy to set up. In this case, a gift is made to the organization which then pays you an agreed upon amount annually. This usually involves a simple agreement in which the organization tells you how much income you will receive in exchange for your gift. Your payments would be guaranteed by the organization regardless of how the gift annuity performs financially. For example, if you contribute $10,000, and your income is 5%, you receive $500 every year for the rest of your life. It is important to keep in mind that you cannot add to the annuity after is established but can set up multiple annuities over time.
In the case of a charitable remainder trust, the organization may either be the beneficiary of a trust that you have designated, through a bank, trust company, or other trust management firm, or you may designate the organization as the trustee. This is called a “remainder” trust because it will terminate upon your death and the remainder of the trust would then be gifted to the organization. There are varied costs associated with setting up a trust, recommended minimums, and the rate of return is fixed at the time of agreement. These rates are usually negotiable, depending upon the amount invested, current economic factors, and your personal goals.
There are two types of remainder trusts to consider: a remainder annuity trust or a remainder unitrust. The remainder annuity trust pays a fixed income similar to the gift annuity described above. You may not make additional contributions to the fund. The remainder unitrust pays a variable amount based on the value of the trust each year, therefore, the amount of your income will vary based on the performance of the fund. For example, if you contribute $100,000 at 7%, you will receive $7,000 for the first year. If the market outperforms your fixed distribution rate the following year, the fund will grow and your annual payment along with it. Unlike the annuity trust, you may make additional gifts to the unitrust after it has been established.
What’s the right choice for me?
With all the terminology and talk of wills, bequests, estates and testaments associated with planned gifts, there often follows an assumption that these types of gifts come at the end of our philanthropic biographies. For the civic minded population born in the first half of the 20th century, and for whom the average length of life has risen to 82.91 years, that assumption may be true. Our most mature generation has a view of life that is somewhat linear, where progress in life is made step by step. This generation has been generous with their philanthropy and in a linear progression as well – the majority giving throughout their lives and capping it off with bequests and planned gifts. They embrace tradition and accept responsibility for making an impact on the future with an understanding that they may not be around to see it.
But today, baby boomers are now the adult majority and this generation of idealists appears to be less about waiting and more about the here and now. They want to feel good about themselves and make the world a better place while they are in it. Their philanthropy has become more cyclical in nature like two gears in motion, where life stages and lifestyle mesh to determine what type of gift will be appropriate in that particular moment in time. While the Greatest Generation may be about ‘leaving’ a legacy and our Baby Boomers about ‘living’ a legacy, the ultimate goals are the same: creating positive social change around one’s passion and implementing change through giving. Gen-Xers and Millennials who seem to regard their philanthropy as an investment for specific results in social change are not far behind. Planned gifts play a significant role in achieving all of these goals, providing donors of all ages the vehicles through which they can maximize the potential of their charitable giving capacity for the causes they care about.
Planned and estate gifts can include any number of the options mentioned above and more, tailored to a donor’s particular needs and financial situation at any moment in time. The key to success in your charitable giving formula is to be well-informed. It’s important to keep in mind however, that the information about planned giving provided here, by DKH or any other charitable organization under consideration should never be meant to substitute for legal or financial advice. Donors should always be encouraged to consult with qualified professionals and independent counsel in their decision making process. It is the responsibility of those of us associated with planned giving programs to provide you with a meaningful opportunity for your charitable giving that will be well-managed through responsible and appropriate stewardship in perpetuity.
There is no doubt that planned gifts are an essential component of fund development for any organization. Planned giving places financial resources in the pipeline; enhances financial stability; and allows leadership to extend its vision for the organization far into the future. What better time than now, at the start of a new year, for you to consider how you can more actively participate in this process for the cause that you care deeply about.
Do you have questions, concerns, stories to share, or topics related to philanthropy and Day Kimball Healthcare that you’d like to learn more about? Please feel free to reach out to Kristen at 860-928-7141 or email firstname.lastname@example.org.