Giving Essentials

A Will

At your death, a will serves as a road map telling your personal representative how to distribute your assets to other people or to a charity. Without a will, you are powerless over how your assets are distributed. Instead, the laws of the state where your residence is, the state in which you spend most of your time, register to vote and hold your driver's license, determine how assets are divided.

If you are considering a charitable gift, think of the advantages of designing it by will. During your lifetime, the bequest is private, changeable at any time and does not deprive you of assets or income you may need or want.

Revocable Living Trust

A revocable intervivos or "living" trust is an important part of the estate plan of many people. Intervivos means "during life," which is when the trust is established. Revocable means that the creator, also known as the grantor, of the trust can change the terms of the trust or revoke it completely during his or her lifetime. Assets in trust are not part of your will; they are transferred according to the instructions in the trust document.

Charitable contributions

Charitable contributions may be made easily with a living trust. Once your needs and those of your family are met, trust assets can be distributed to charitable organizations like the Arts Council.

Tax savings

A living trust may be drafted to make the most of estate tax advantages afforded under federal law. After your lifetime, the value of the assets distributed immediately to a charitable institution completely avoids estate tax.

Some Final Thoughts

Keep in mind that there's no income tax charitable deduction when you create a revocable trust, and the level of income is not guaranteed. The trust's assets will be invested in highly rated securities, of course, but the yield is dependent upon economic and market conditions. From your standpoint, these drawbacks may be more than offset by your right to retain control of the trust terms and investments.

A living trust generally is not a stand-alone document. It is advisable to have a pour-over will since it is difficult to get every asset into a trust.

Your philanthropic motives must blend with your personal needs and tax planning. There is rarely a single route to your estate planning goals.

A living trust gives you flexibility while you receive income from your assets during your lifetime, and it can provide asset management after your death.

Ways to Give

Charitable Gift Annuity

The concept of the charitable gift annuity in America dates back to the 1870s, when a parishioner first donated a valuable asset to the church in exchange for a flow of income. Today, the concept includes valuable tax benefits for donors.

Gift Annuities Defined

A gift annuity is a simple, contractual agreement between one or two donors and the Arts Council in which you transfer assets to us in exchange for our promise to pay you an annuity.

By donating through a gift annuity, you can accomplish two things: (1) contract for a fixed payment for yourself or yourself and another individual, if you choose, and (2) make a gift to the Arts Council. If you itemize deductions on your tax return, savings from the charitable deduction reduce the net cost of the gift.

For a period of years, based on a government table of life expectancies, a portion of each payment received is considered a nontaxable return of your investment in the gift. This further increases your after-tax dollars available for spending or investing.

In addition to the annuity payment you receive, an annuity funded with appreciated property results in these advantages: (1) the gain allocated to the gift portion completely avoids the capital gains tax, and (2) the portion of gain to be recognized can be spread over the expected term of the contract (provided that the donor is a primary annuitant and the annuity interest is assignable only to the charitable organization).

A special type of annuity is the deferred payment gift annuity. With this type, the start of payments is delayed until a specific date, initially determined by the donor. Deferral of payments increases the initial income tax charitable deduction, tax savings and the annuity rate. However, it also reduces the nontaxable amounts to be received.

This option is appealing to younger donors who wish to improve future income, such as at retirement.

Charitable gift annuities are an excellent method of achieving your philanthropic goals and gaining substantial tax benefits. As with most contract agreements, however, before establishing a charitable gift annuity, it is best to consult knowledgeable professionals.

Charitable Remainder Trust

What are your plans for the future? While there is no single way to achieve all of your personal and financial goals, there is one strategy that can meet many of your needs. It's called a charitable remainder trust. In the right circumstances, this plan can increase your income, reduce your taxes, unlock appreciated investments, rid you of investment worries and ultimately provide very important support.

Marvelous Tax Benefits

Now look at the major and wide-ranging tax savings you can realize when you create a charitable remainder trust.

First, when you fund the trust, you immediately obtain the benefit of a sizable income tax charitable deduction. This is equal to the present value of the remainder interest ultimately payable to us, based on Internal Revenue Service tables of life expectancy factors. The older the beneficiary, the greater the charitable deduction.

You can fund your charitable remainder trust with cash, securities or other property. Highly appreciated assets that generate low current income are an ideal funding medium. While you'd be reluctant to sell such assets directly because of the tax you would pay on the gain, you can transfer them to the trust without incurring the capital gains tax. The trust could sell the assets without incurring any tax and then reinvest the proceeds in order to secure a higher current income yield.

Perhaps over the years your personal investments have grown handsomely, but you now realize that their yield is grossly inadequate. Unfortunately, if you sell and reinvest in higher yielding securities, you'll lose a large part of your gain to taxes.

The answer? Transfer your appreciated securities to a charitable remainder trust. In return for your gift, you might get an income two to four times greater than the current dividend from the typical growth stock.

The tax benefits of a charitable remainder trust don't stop with the charitable deduction and avoidance of capital gains tax. You can enjoy other tax advantages, too.

Taxation of annual payments. This depends on what type of income your trust earned during the year (or what was undistributed from prior years). Each payment is treated first as ordinary income to the extent of the trust's ordinary income; second, as capital gains to the extent of the trust's capital gains; third, as tax-exempt income to the extent of the trust's tax-exempt income; and last, as a tax-free return of principal.

Investment policies and performance, as well as the type of trust (annuity trust or unitrust), will determine the taxation of the annual payments. The point is, part of your income may be treated as capital gains or may even be tax-free. The trustee will tell you what to report, so you don't have to figure this out yourself.

If you want to receive tax-free income, you can deposit tax-exempt securities, assuming they meet with the trustee's approval for retention by the trust. But the trust instrument may not require that other kinds of transferred property be converted into tax-exempt securities or that only tax-exempt investments may be made by the trust.

Estate tax savings. Where you are the only income beneficiary, your charitable remainder trust will be free from federal estate tax. Because of the marital deduction, this is also true if your spouse is a U.S. citizen and the only surviving income beneficiary.

If the surviving beneficiary is not your spouse, the life interest of the survivor may be subject to tax, depending on the size of your estate and the available tax benefits remaining in your estate. The value of the survivor's interest is based on that individual's age at your death. But the charitable contribution of the remaining principal, made on a survivor's death, is always tax deductible.

Unlike other ways of contributing to us, a charitable remainder trust allows you to keep the benefits of the donated assets for life, knowing you'll help to shape our future later. Look at these personal benefits you can enjoy:

Increase your income when you give to a trust designed to pay out more than you now earn on the assets you will contribute.

Receive a money-saving federal income tax charitable deduction.

Pay no capital gains tax when you transfer unmortgaged appreciated assets to the trust.

Free yourself from investment worries by securing professional management of the assets you give.

Gain the enduring satisfaction of having made a major commitment to our important work.

Bequests

If you plan to make a charitable gift by will, please think it through carefully. Then, meet with your attorney to discuss and update your will. Tell him or her exactly what you want to do. Be as clear as possible in describing what you want given to whom. Here are eight generally accepted ways to make a bequest. You might discuss them with your attorney as you prepare to update your will.

Specific bequest. This is a gift of a specific item to a specific beneficiary. For example, "I give my golf clubs to my nephew, John." If that specific property has been disposed of before death, the bequest fails and no claim can be made to any other property. (In other words, John wouldn’t receive the value of the golf clubs instead.)

General bequest. This is usually a gift of a stated sum of money. It will not fail, even if there is not sufficient cash to meet the bequest. For example, "I give $50,000 to my daughter Mary." If there is only $2,500 cash in the estate, other assets must be sold to meet the bequest.

Contingent bequest. This is a bequest made on condition that a certain event must occur before distribution to the beneficiary. For example, "I give $50,000 to my son, Joe, provided he enrolls in college before age 21." A contingent bequest is specific in nature and fails if the condition is not met. (A contingent bequest is also appropriate if you want to name a secondary beneficiary, in case the primary beneficiary doesn't survive you.)

Residuary bequest. This is a gift of all the "rest, residue and remainder" of your estate after all other bequests, debts and taxes have been paid. For example, say you own property worth $500,000, and you intend to give a child $50,000 by specific bequest and leave $450,000 to a spouse through a residuary bequest. If the debts, taxes and expenses are $100,000, there would only be $350,000 left for the surviving spouse. You may prefer to divide your estate according to percentages of the residue (rather than specifying dollar amounts), to ensure that your beneficiaries receive the proportions you desire.


The following items are special considerations when you plan a charitable bequest to help support our mission.

Unrestricted bequest. This is a gift for our general purposes, to be used at the discretion of our governing board. A gift like this–without conditions attached–is frequently the most useful, as it allows us to determine the wisest and most pressing need for the funds at the time of receipt.

Restricted bequest. This type of gift allows you to specify how the funds are to be used. Perhaps you have a special purpose or project in mind. If so, it's best to consult us when you make your will to be certain your intent can be carried out.

Honorary or memorial bequest. This is a gift given "in honor of" or "in memory of" someone. We are pleased to honor your request and have many ways to grant appropriate recognition.

Endowed bequest. This bequest allows you to restrict the principal of your gift, requiring us to hold the funds permanently and use only the investment income they generate. Creating an endowment in this manner means that your gift can continue giving indefinitely.

Charitable Lead Trust

If your goal is to provide an inheritance for your children, but you would also like to make a significant charitable gift through your estate, find out how a charitable lead trust can help you satisfy both objectives. It's a charitable lead trust that can provide a significant charitable gift through your estate and provide an inheritance to your children.

A charitable lead trust is a trust that the estate owner establishes either during life (an inter vivos trust) or at death (a testamentary trust). The income from the trust flows to a charitable organization, like Smithtown Township Arts Council, for a stated number of years. After that period, the assets inside the trust are then distributed. The fact that the assets will one day be transferred to another person means that this trust has one further distinction: it is a "nongrantor" trust, as opposed to a grantor trust. "Nongrantor" means the trust assets are not owned by the person who established the trust, and the assets are not going to be returned to him or her someday. (A "grantor" trust is one in which the donor controls the assets, deciding where they will eventually be distributed. As a result, the donor is subject to tax on the assets.)

The Tax Benefits


Of all the charitable vehicles available to donors, the charitable lead trust is among the most complex. However, a nongrantor lead trust does offer the advantage of providing excellent tax benefits to the estate owner.

Let's take a look at an example of how the trust works: A person transfers $1 million to the trust. The donor does not receive an income tax deduction. And, Smithtown Township Arts Council receives an income for 20 years. That income is either a fixed dollar amount or a percentage of the trust value as it is determined each year. For our purposes, let's assume that the Arts Council is to receive $50,000 each year. This means that we will receive $1 million over a 20-year period, a wonderful gift for the Smithtown Township Arts Council. At the end of that time, the assets in the trust, which may or may not have grown in value, are then distributed (in our example) to a child or even a grandchild with extra planning.

How does this gift impact the donor? As mentioned earlier, the donor receives no income tax deduction. This fact makes it difficult for many people, including attorneys, to understand the benefit to the donor. In fact, the donor may have to pay a gift tax for the privilege of establishing a charitable lead trust.

What to Give

Gifts of Securities

The best stocks to donate are those that have increased greatly in value, particularly those producing a low yield. Even if it is stock you wish to keep in your portfolio, by giving us the stock and using cash to buy the same stock through your broker, you will have received the same income tax deduction but will have a new, higher basis in the stock.

Gifts of Real Estate

If you own property that is fully paid off and has appreciated in value, an outright gift may be the simplest solution. You can deduct the fair market value of your gift, avoid all capital gains taxes and remove that asset from your taxable estate. You can transfer the deed of your home or farm to us now and keep the right to use the property for your lifetime and that of your spouse.

Gifts of Retirement Plan Assets

Did you know that nearly half your retirement plan assets can be eaten away by taxes at your death? Learn how to preserve more of your estate for the people and organizations that matter most in your life.

Gifts of Cash


The simplest way to give. However, you can deduct a cash gift for income tax purposes only in the year in which you contribute it. Your cash gifts are deductible up to 50 percent of your adjusted gross income for the taxable year, but any excess is deductible over the next five years.

Gifts of Life Insurance


You can donate a life insurance policy to us or simply name us as the beneficiary. For the gift of a paid-up policy, you will receive an income tax deduction equal to the lesser of the cash value of the policy or the total premiums paid. To qualify for the federal charitable contribution deduction on a gift of an existing policy, you must name us as owner and beneficiary.

Gifts of Securities: Closely Held Stock

Closely held stock, that which is not publicly traded, can also be used as a charitable gift even if you want to maintain a control position in the stock.