Planned and Endowment Giving Gifts that Help Later

Planned and Endowment Giving: Gifts that Help Later Philip M. Purcell, JD Ball State University Foundation ppurcell@bsu. edu Copyright 2012@All rights reserved. .

Planned Gifts that Help Later: Deferred Use Planned Gifts • Bequests in a will or trust • Beneficiary designations of qualified retirement plans • Owner and/or beneficiary designations of life insurance

Benefits of Deferred Use Planned Gifts to Donors • Leaving a legacy • Easy to establish • Revocable • Assets for current use • May be for a percentage • Can be combined with other planned gifts 3

Benefits of Deferred Planned Gifts to Charitable Organizations • Largest gifts that many donors may make • Transformational philanthropy • Often unrestricted • Can be endowed 4

Bequest in a Will or Trust 5

How Bequests Work Will or Trust Donors Family, Loved Ones, Charity 6

Wills • Direct assets at death • Overseen by local court with probate procedure • Executor or personal representative responsible • Must comply with state law • Revocable • Generally public records

Revocable Trusts • Ability to manage assets during life • Trustee oversees – ability to designate successor trustee • Direct assets at death • Not overseen by court subject to probate • Must comply with state law • Revocable • Private document

Opportunity of Bequests! • Almost 90% of all deferred use planned gifts are bequests! • Only 20% of bequests are reported to the charity in advance. • Less than 50% of Americans have a will. • 7 -8% of Americans have included a charity in their wills. 9

Types of Bequests 10

Specific Bequests A donor may make a bequest for a specific dollar amount or specific property. § “I give $10, 000 to charity name” § “I give my home to charity name. ” 11

Percentage Bequests A donor may make a bequest for a percentage of the estate. • “I give ___% of my estate to charity name. ” 12

Contingent Bequests A bequest may be contingent on the happening of an event. • “In the event that Uncle Jim predeceases me, I give his share to charity name. ” 13

Residual Bequest A bequest may be for all or a percentage of the estate remaining when all the heirs and creditors are paid. • “When all my other bequests and debts are satisfied, I give 80% of my remaining residual estate to charity name. ” 14

Beneficiary Designation of Retirement Plans 15

Opportunity of Retirement Plan Gifts Plan Assets Retirement 11% Stock and Bonds 22% Life Insurance 8% Other 3% Real Estate 27% Business Interests 24% Cash 5%

How a Retirement Plan Beneficiary Designation Works IRA Donors Change of Beneficiary Form Family & Loved Ones 17

Two Types of Retirement Plans Defined Benefit Plan • Pension. • Benefit provided by employer. • Specific monthly benefit at retirement. Defined Contribution Plan • Employee and/or employer contributes money. • May be “matched”. • Invested. • Examples: Regular and Roth IRA, 401(k), 403(b), and 457(b). 18

Charitable Planning with Retirement Plans Defined Contribution Defined Benefit Plan: IRA, 401(k), 403(b) Pension 19

Taxation of Defined Contribution Plans • Deposits into these plans are deductible. • Income is taxed later as it is paid out – whether to original owner or his/her heirs. • Capital gain on the sale of assets within these plans is not taxed. • Exception: Roth IRA. • Full value of defined contribution plans are included in estate for estate tax purposes. 20

Benefits to Donors of Retirement Plan Designations • Up to 80% of retirement plan can be paid in taxes due to both deferred income tax plus the estate tax. • Ideal asset to bequeath at death. • Give other assets through estate to loved ones. • Revocable. • Can be combined with life income planned gifts. 21

Gifts of Current Income from Defined Contribution Retirement Plans • Donation of current income from a defined contribution plan is not tax-wise. • Taxed first, then off-setting charitable tax deduction. • Little, if any, net tax benefit. • Better tax-wise to donate appreciated assets such as stock. 22

IRA Charitable Rollover • Expired 12/31/11. • Allowed for tax-free transfers from an IRA directly to charity. • Tax-free withdrawal – but no additional income tax deduction. • May be reinstated! Stay tuned! • Check status at www. pppnet. org 23

Gifts from Defined Contribution Retirement Plans at Death • A great way to plan a gift! • Charitable gifts at death qualify for unlimited estate tax charitable deduction. • Gifts also escape deferred income tax. • Charitable gifts from defined contribution plans are very tax-wise at death. • Better to leave other assets to children and other heirs! 24

Example of a Gift of a Retirement Plan at Death: Assuming No Estate Taxes BEQUEST $100, 000 RETIREMENT BENEFICIARY DESIGNATION $100, 000 Minus Income Taxes= ~35% No Estate Taxes $100, 000 to children $65, 000 to children 25

Types of Retirement Gifts at Death Percent Specific Amount 26

Who Plans Bequests from Retirement Plans • Donors looking to maximize estate given to children. • Donors who are looking to make a sizeable gift while avoiding taxes for theirs. • Donors looking for convenience. • Donors who want flexibility – revocable at any time. 27

Owner and/or Beneficiary Designation of Life Insurance 28

Opportunity of Insurance Gifts Plan Assets Retirement 11% Stock and Bonds 22% Life Insurance 8% Other 3% Real Estate 27% Business Interests 24% Cash 5%

How Insurance Designations Work Insurance • Charity named as a owner and/or beneficiary to an existing or new policy. • Use Owner and/or Beneficiary Designation Form for an existing policy. 30

Naming Charity as Beneficiary Only • Revocable • No income tax charitable deduction • Qualifies for unlimited estate tax charitable deduction

Naming Charity as Owner and Beneficiary • Irrevocable • Income tax charitable deduction for current cash value of an existing policy • Income tax deduction for premium payments made once policy is donated • Death benefit removed from donor’s estate

Tips for Charity Owned Insurance • Donor should make gift to charity which then pays the premium to assure timely payment • Check applicable state insurable interest laws to assure charity may own insurance

Benefits to Donors of Life Insurance Designations • Many life insurance policies are no longer needed. • Ideal asset as a charitable gift! • Give other assets to loved ones. • Revocable if named beneficiary only. 34

Other Life Insurance Programs Promoted to Charities Premium Financed Insurance Charity Owned Life Insurance (CHOLI) Group Insured Plans Note: Charitable gifts may not be involved. Rather, these may be financial investment decisions by your organization • Resource: Life Insurance Valuation Guidelines at www. pppnet. org • •

Planning Deferred Use Planned Gifts 36

What Motivates Deferred Use Planned Gifts? 1. Key drivers: helping others and giving back. 2. Changes in life situation. 3. Estate planning – age 45 and up! 4. Passion for charity: the largest gift possible. 37

Revocable Deferred Use Planned Gifts Offer Many Benefits • Increases annual support. • Can always be increased. • Great engagement opportunities. 38

Tips for Deferred Planned Gifts • Provide sample language • Correct legal name • Ask for copies to review restrictions and provide record for proper stewardship

To Review 1. Deferred use planned gifts can be made through a bequest in a will or trust or beneficiary designation of a retirement account or life insurance policy. 2. A bequest in a will or trust is the most important planned gift. 3. A percentage bequest is the most helpful as it adjusts for inflation and market growth. 4. Talk with donors age 45 and older. 40