Planned giving refers to specific strategies that, in most cases, benefit charity at some point in the future while offering immediate benefits to the donor. Several examples of planned giving options available through the Community Foundation of Southern New Mexico (CFSNM) are outlined below:
Bequest by Will: Donors write a will and designate a gift by amount, by percentage of their estate, and/or make it contingent on specific future events. Donors like to make gifts through bequest because they can be sure that their charitable wishes will be fulfilled with no risk of running out of funds. Additionally, donors can receive a substantial reduction in federal estate taxes.
Charitable Remainder Trust: This type of charitable instrument lets donors place cash or property into a tax-exempt trust that pays them (or another named beneficiary) an annual income. The donor receives an immediate tax deduction for the present value of the gift in the year the gift was made. After death, or at the end of the specified term, the remainder of the trust transfers to the CFSNM.
There are two main types of Charitable Remainder Trusts (CRT) – the Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unitrust (CRUT). A CRAT pays a fixed sum – either a fixed dollar amount or a fixed percentage of the value of the trust assets at the time the gift is made. With a CRAT, the payments to the donor or named beneficiary do not change.
The CRUT, like a CRAT, usually pays the life beneficiary an agreed-upon percentage of the market value of the trust’s assets, but unlike CRATs, market value is determined each year.
Charitable Lead Trust: A Charitable Lead Trust (CLT) is the opposite of a CRT. In a CLT, a donor contributes cash or property to a trust that pays either a fixed dollar amount or a fixed percentage of the trust’s assets to the CFSNM for the number of years he/she specifies. Once this period ends, the assets held by the trust revert to the donor for the donor’s estate, or are transferred to beneficiaries named by the donor. Unlike a CRT, a CLT is not exempt from tax.
Life Estates: A donor who makes a gift of a home or farm can opt to give the property outright and receive a tax deduction for the property’s market value, or he/she may choose to retain use of the property for the rest of his/her lifetime through a life estate. In this case the donor is entitled to a tax deduction equal to the present value of the charity’s remainder interest in the property. Many choose the retained life estate arrangement because they get to enjoy the property, which may be a vacation spot or their home, for the rest of their lives, yet still make a gift to charity that might be more sizeable than they could afford to give outright.
Retirement Assets: A donor must complete a change of beneficiary form provided by the plan administrator. It is important to understand that simply renaming the beneficiary of a retirement plan in one’s will without changing the beneficiary designation will usually be ineffective. It should be noted that retirement assets might be reduced greatly by taxes if a donor attempted to pass them to heirs in a will rather than donating to the CFSNM.
Insurance Policies: Gifts of life insurance provide a simple way to give a significant gift to charity, with tax benefits that can be enjoyed during one’s lifetime. The donor makes the CFSNM the owner and irrevocable beneficiary of a life insurance policy. The donor receives a tax deduction for the approximate cost or fair market value, whichever is less. If the policy is paid up, the donor receives an immediate tax deduction. If it is not, the donor can claim continuing tax deductions on premium payments the donor makes directly to the CFSNM.
Charitable Gift Annuity: This is a contract between a donor and the CFSNM. The donor makes the gift and receives an immediate tax deduction. In exchange for the gift, the CFSNM agrees to pay the donor a fixed income for life – or the life of another specified recipient. The income the donor receives during his/her life is guaranteed by the CFSNM. The CFSNM must take care that neither the life expectancy of the income recipients nor the annuity rate selected cause the remainder to be so reduced that the gift provides minimal value to charity.