What to Give? (Part 3)
During the past 2 months, we’ve looked specifically at what types of gifts people can make – to their church directly, to an endowment fund, or for another designated purpose. We talked about the simplest gifts – gifts of cash, gifts of securities and gifts of real estate. Then we talked about more complex gifts – bequests, life insurance, retirement assets and retained estates.
Today, we complete the discussion with the most complex gifts. These are usually not immediate gifts, but they can be transformative in nature for the beneficiary.
Charitable Remainder Trusts are arrangements in which property or money is donated to a charity, but the donor (called the grantor) continues to use the property and/or receive income from it while living. After a specified period of time, the beneficiaries begin to receive the income and the beneficiary receives the principal. Upon the death(s) of the grantor(s), the balance in the trust is given to the beneficiary. The grantor avoids any capital gains tax on the donated assets, and also receives a tax deduction for the present value of the remainder interest to go to the beneficiary. In addition, the asset is removed from the estate, reducing subsequent estate taxes.
A CRT is normally created by a trust that pays a fixed percentage of the trust’s assets as revalued annually. The grantor receives a variable income for life, an immediate tax deduction for the charitable gift and may create succession income for his/her/their heirs.
A Charitable Remainder Annuity produces an annual fixed income at a rate determined by the donor at the time the gift is made. Some people choose this type of gift because they prefer a fixed rather than a variable income stream. Any change in the financial markets will not affect the annual payout. Funds cannot be added to an annuity trust, however additional (separate) annuities can be established. Upon the death of the donor, the balance in the account is given to the beneficiary.
Like the CRT, the donor avoids any capital gains tax on the donated assets and also gets an immediate income tax deduction.
Charitable Lead Trusts (“CLTs”) are designed to provide income payments to at least one qualified charitable organization for a period measured by a fixed term of years, the lives of one or more individuals, or a combination of the two; after which, the trust assets are paid to either the grantor or to one or more noncharitable beneficiaries named in the trust instrument. Also referred to as a “charitable income trust,” the term “charitable lead trust” is used more commonly because the payment of the income interest to charity leads or precedes the payment of the remainder interest.
In theory, charitable lead trusts can be thought of as the inverse of charitable remainder trusts. In practice, however, many of the rules that govern the operation and taxation of charitable lead trusts differ significantly from those for charitable remainder trusts.
Charitable Gift Annuities (CGA’s) are described generally as a transaction in which an individual transfers cash or property to a charitable organization in exchange for the charity’s promise to make fixed annuity payments to one or two life annuitants. As its name suggests, a charitable gift annuity consists of two elements: 1) an outright charitable gift, and 2) the purchase of a fixed income annuity contract. Payments can begin immediately or can be deferred for a period determined by the donor and set forth in the annuity contract. The payment period can be measured by one annuitant’s life (who is in most cases is the donor) or by the lives of two joint and survivor annuitants (who are usually husband and wife). Charitable gift annuities are not issued for a fixed term of years.
Unlike CRT’s or pooled income funds, whereby the obligation to make payments is limited solely to the contributed assets or segregated fund, a charitable gift annuity is considered a general obligation of the issuing charitable organization.
Well that may be a lot more than you ever wanted to read about the various types of gifts that can be used to make a transformational gift to your church, but hopefully it’s stirred some ideas for you to consider. If you have even the faintest thought of making such a gift, NOW is the time to begin talking about it and planning it. As our friend Sam Eisenberg says:
Do your giving while you’re living
So you’re knowing where it’s going!
