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Gift of Cash
A gift of cash is the most common and easiest way to make a gift to Charity. Cash gifts are usable immediately by the charitable recipient for the purpose(s) you specify, and the impact of cash is always direct and significant. Meaningful gifts of any size can be made using cash. An outright gift of cash provides you with an immediate income tax deduction in the amount of your gift.
The typical donor:
- Has liquid assets that allow him or her to make a cash gift.
- Desires to benefit the charitable cause.
- Wants to see the effect of the gift in his or her lifetime.
- Wants to make a gift with a minimal amount of complexity.
- Is aware of the benefits of contributing highly appreciated property.
Cash Gifts Using Gift Planning Tools
Virtually all gift tools can be used in conjunction with cash. Cash can be used to fund life-income gifts such as a charitable trusts or a charitable gift annuity. In larger estates, cash may be added to other assets to fund a charitable lead trust. A gift bequest made through a revocable trust or will provides another alternative to making a gift of cash.
Gift of Personal Residence
A personal residence may be an ideal gift under the right circumstances. A personal residence may take the form of a single-family house, a condominium, or a duplex. It may be owner-occupied or may be rented. If you give your residence outright you receive a charitable deduction for the full fair market value of your residence, less any debt. You also avoid capital gains tax on the amount, if any, your residence has increased in value since you purchased it, and you are not subject to gift or estate taxes since the value of your residence is removed from your estate.
The typical donor:
- Has paid off the mortgage.
- Holds clear title to his or her personal residence.
- Does not plan to pass the personal residence to heirs.
- Desires to live someplace other than the personal residence. (You may continue living in the residence if you use a Retained Life Estate Deed)
Gifts features and benefits:
- Immediate income tax deduction
- Avoidance of capital gains taxes
- Deduction based on fair market value; or present value of remainder interest if placed in a Charitable Remainder trust
Gifts of Commercial Real Estate
Commercial Real Estate is a very common gift to charity. In your real estate portfolio, you may have commercial properties from which you have received significant rental income and depreciation benefits. These commercial properties may now present undesirable challenges, including the need for time-consuming management, an obligation to pay increased maintenance costs, and the prospect of substantial capital gains taxes if the property were sold. By giving your commercial real estate to charity, you are relieved of management responsibilities, avoid capital gains taxes, reduce your estate tax, and fulfill your charitable and family objectives.
The typical donor:
- Holds title to the commercial real estate.
- Owns commercial real estate that is without debt.
- Desires to reduce management responsibilities.
- Has taken advantage of available depreciation.
Gift features and benefits:
- Immediate income tax deduction
- Avoidance of capital gains taxes
- Deduction based on fair market value, or present value of remainder interest if placed in a Charitable Remainder Unitrust
- Gift can be timed to take advantage of market value
For tax purposes, you must obtain your own appraisal to determine the fair market value you claim on your income tax return. Your tax return must include IRS form 8283 signed by the appraiser.
Art
A painting, sculpture, or other piece of fine art can make an ideal gift. Whether purchased or inherited, selected works of art in your personal collection that you have enjoyed may now provide more enjoyment and fuller use if given to charity. Gifts of art can be widely used for educational and display purposes. Occasionally, pieces of art may be sold and the proceeds made available to meet high-priority needs.
The typical donor:
- Has enjoyed using the art.
- Does not desire to pass the art to heirs.
- Wants others to enjoy the art.
- Desires to make a meaningful gift.
- Recognizes a "related use" by the recipient institution.
Gift features and benefits:
- Immediate income tax deduction
- Avoidance of capital gains taxes
- Deduction based on fair market value
- Gift can be timed to take advantage of changes in market value
Making a Gift of Art?
A gift of art must be reviewed and accepted in behalf of the receiving entity. Acceptance of an art gift is based on a number of factors:
- Condition of the art
- Availability of appropriate display space
- Harmony with existing art collections
- Potential educational value
- Confirmed "related use" of the art by the institution (or charitable income tax deduction may be limited)
- Approval by the institution's art acceptance councils
Art may pose special problems for the artist in his or her estate. Gifts of art by the artist are deductible for income tax purposes only to the extent of the cost of materials used to produce the art. If art is gifted by the artist to heirs during life or from the artist's estate at death, it is valued for gift and estate tax purposes at fair market value. This can result in the art being sold to pay taxes, often at less than fair market value, leaving heirs with little or no proceeds.
Retirement Plan Assets
IRA accounts, Keogh accounts, 401(k) and 403(b) plans, and other qualified pension and profit-sharing plans otherwise known as "qualified retirement assets" are often considered as gift candidates. Retirement plan assets may be gifted during life or at death. The consequences of these choices are quite different.
A gift of these assets during life requires that they first be withdrawn from the retirement plan and transferred to the charity in the name of the recipient institution. Normally the amount withdrawn is fully taxable to the owner of the plan. The resulting gift is then deductible to the extent 50 percent of adjusted gross income, limiting the extent of charitable tax benefits. Professional advice may be needed to properly consider the impact of any withdrawal, including the possibility of added tax penalties.
The Charity can be designated as the beneficiary of all or a portion of a retirement account at death. A gift of this type provides an estate tax charitable deduction for the value of the amount distributed to the Charity. It also provides important benefits by limiting the tax on income in respect of a decedent.
The typical donor:
- Has substantial sources of retirement income.
- Has other assets to pass to heirs.
- Wants to make a substantial gift at death.
Gift features and benefits:
- Estate tax deduction (gift at death)
- Available if needed during life (gift at death)
- Avoidance of taxable withdrawals (gift at death)
- A significant gift to charity (gift during life or at death)
How Do I Make a Gift of Retirement Plan Assets Using Gift Planning Tools?
Retirement plan assets can make an ideal gift at death by beneficiary designation. This allows you and your family the reassurance of knowing that if income from the assets is needed during your lifetime, it is available. At your death, the remaining funds in the retirement plan are transferred to charity. Retirement plan assets can also be used to fund a life-income gift at death such as a testamentary Charitable Remainder Unitrust. Transferring retirement plan assets to a charitable remainder trust at death can provide tax savings and other benefits to you and your family.
Retirement accounts are characterized as income in respect of a decedent (IRD). Generally, IRD items are treated as taxable income to the named beneficiary and also included in the estate of the decedent for purposes of determining federal estate tax. However, the IRD tax does not apply to charitable organizations. Therefore, retirement accounts gifted to charity at death by use of a "specific bequest" or "beneficiary designation" are fully available for use by the receiving institution.
Life Insurance Policy with Cash Value
Life insurance is a valuable gift option that is often overlooked. Life insurance is frequently purchased as part of an overall financial or estate plan. As circumstances in life change, the need for insurance may diminish. A gift of a paid-up policy can provide tremendous benefits to charity.
The typical donor:
- Has outgrown the need for the insurance protection
- Has paid into the policy for several years.
- Wants to ensure completion of a significant gift.
- Uses the gift of insurance as part of an overall financial plan.
Gift features and benefits:
- Immediate income tax deduction available to 50 percent of adjusted gross income
- Flexibility in completing various giving plans
Gifting a Life Insurance Policy with Cash Value
To transfer ownership of an existing policy to charity, obtain a "change of ownership and beneficiary" form from your agent or insurance company. You should complete those portions of the form pertaining to "change of ownership" and "beneficiary designation." The correct name of the charity must be used. The appropriate form and a copy of the policy should then be transferred to the charity. The receiving institution must sign the "change of ownership" form as the new owner. If the policy is not "paid up," future premiums can be donated to the charity and are treated as cash gifts.
Make a gift of Life Insurance with Cash Value using Gift Planning Tools?
A common use of life insurance is to create an "irrevocable life insurance trust" (ILIT) to use in conjunction with the creation of a Charitable Remainder Unitrust. Using this concept, an asset such as raw land is transferred to a charitable remainder trust, sold in the tax-free environment of the trust and reinvested. Income is paid to you, and you "gift" some portion of the income to an irrevocable insurance trust which is owned by your heirs. At your death, the unitrust corpus will go to the Church or one of its institutions and the life insurance in the insurance trust is available for your heirs free of estate and income tax. Charitable planning using these concepts should be undertaken only with the advice and counsel of your financial and legal professionals.
Two forms of life insurance are typically donated: paid-up "whole life" and "universal life." A whole life policy usually has cash value that may be used for the immediate needs of the charity. Universal life policies can usually be structured so that it will not require future premiums after a period of years. The charitable income tax deduction for a partially paid-up policy is based on the "interpolated terminal reserve" (ITR) and not the policy's cash value. Use of the ITR for gift valuation purposes is an Internal Revenue Service regulatory requirement. The ITR value is an amount which reflects the daily current value of the policy and is slightly more than the cash surrender value (the amount the insured would receive) if the policy were cashed-in to the insurance company.
Collectibles and Other Tangible Personal Property
Collectibles such as coin and stamp collections, antiques, books, and jewelry-along with software, equipment, boats, yachts, automobiles, and aircraft-are referred to as tangible personal property. Whether purchased or inherited, collectibles that you have enjoyed may now provide more enjoyment and better use if given to charity. Gifted items may be used for display, assist in the classroom, or sold for charitable purposes.
The typical donor:
- Has enjoyed using the tangible personal property.
- Does not intend to pass the property to heirs.
- Wants others to enjoy using the property.
- Wants to make an important gift to charity.
- Recognizes a "related use" by the recipient institution.
Gift features and benefits:
- Immediate income tax deduction
- Avoidance of capital gains taxes
- Income tax deduction usually based on fair market value
- Gift can be timed to take advantage of changes in market value
Making a Gift of a Collectible or Other Tangible Personal Property?
A gift of a collectible or other tangible personal property to charity must be reviewed and accepted in behalf of the receiving charity. If tangible personal property gifts have been held by the donor for less than a year, they are considered short-term property and you can claim a charitable income tax deduction for the property's purchase price, or its cost basis. If the property has been held more than one year, or long term, you can claim a charitable deduction based on the fair market value. You may want to consider holding the property until a year passes to take advantage of long-term treatment. SFI will be happy to discuss these options with you and your professional advisors
Acceptance of these gifts is based on a number of factors:
- Condition of the tangible personal property
- Potential educational value
- Confirmed "related use" of the tangible personal property by the charity
- Approval by the charity's departmental acceptance committees
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