Bequests
Charitable bequests and other estate gifts are fully tax deductible as a charitable contribution, so estates pay no federal estate tax or state inheritance tax. Wills and codicils to wills are the most common means of transferring gifts after death.
Retirement Plan Assets
Funding a charitable bequest with a qualified retirement plan, like a traditional IRA, 401(k) plan, or TIAA-CREF, is particularly appealing because both income tax and estate tax are avoided, making this a very “tax-wise” gift. Savings bonds and deferred compensation are also possibilities.
Life Insurance
Donation of a life insurance policy results in a current income tax deduction and converts an asset that may no longer be needed into a significant gift. The Ames Foundation can also be named as a partial or sole beneficiary of an insurance policy, or a policy can be written naming us as the beneficiary. In the latter case, we hold the policy and make annual premium payments with an annual gift from the donor. The donor gets a tax deduction for the amount of the annual premium.
Gift with a Retained Income
This method provides for making a current gift to The Ames Foundation while retaining an income for the donor’s life, and, if desired, for the additional life of the donor’s spouse or other beneficiary. Some or all of the following benefits may obtain: retained income for life, the possibility of an increased rate of return on the gift assets, a charitable income tax deduction, avoidance of capital gains tax, removal of the gift property from the donor’s taxable estate and/or reduced estate settlement costs.
Pooled Income Funds
In this method, gifts ($25,000 minimum) from a large number of donors are combined for investment in such mutual fund companies as Fidelity, Vanguard and Schwab.
Individual Charitable Trusts
Larger contributions ($100,000 or more) may be placed in a trust which can be structured to pay either a variable income with growth potential or a fixed income that will not change. The donor may determine the trust income or “payout” rate within certain limitations. Under current tax law, the minimum payout is 5%, with the average ranging between 5-7%. Trusts can be funded with cash, marketable securities and even real estate. Charitable trusts are very attractive when funded with highly appreciated assets like stock and real estate because capital gains tax is totally avoided. Trusts may be established through an attorney, stockbroker or bank trust department.
Your Residence and Life Income Gifts
There are those for whom equity in a personal residence may represent a substantial asset. The donors contribute a residence and retain the right to continue living in the house during their lifetimes (a life estate). The donors receive a current income tax deduction based upon their ages and the appraised value of the residence. Capital gains tax is avoided and the donors make a significant gift without affecting their current lifestyles.
Charitable Lead Trust
This highly specialized estate planning technique provides an income to The Ames Foundation for a period of years, after which the remaining assets are distributed to the donor or heirs. Lead trusts are appealing when donors would like to transfer significant assets to heirs at a reduced cost in terms of estate and gift taxes, while also benefiting a charity.
SAMPLE BEQUEST IN A WILL
“I hereby give, devise, and bequeath to The Ames Foundation, Ames, Iowa, ____ percent of my net residuary estate (or the sum of $________ or the following described property, or the rest and residue of my estate after payment of the foregoing bequests). This is an unrestricted gift and may be used to further the mission of The Ames Foundation.”
SAMPLE CODICIL TO A WILL
“I, ______________________, a residence of ____________________, declare this to be a codicil to the Last Will executed by me on _________, this codicil being as follows: I hereby give, devise and bequeath to The Ames Foundation ____ percent of my net residuary estate (or the sum of $ ______ or the following described property, or the rest and residue of my estate after payment of the foregoing bequests.) This is an unrestricted gift and may be used to further the mission of The Ames Foundation “Except insofar as said Will is expressly or by necessary implication changed by this codicil, I do hereby ratify, republish, and reaffirm my said Will and each and every part thereof.”
