Charitable Giving

What are the benefits of giving Stocks and Securities?

A gift of stock (or other appreciated property) entitles you to a tax deduction for the market value of the donated stock (not just your original cost). If the stock you wish to donate has been held for more than one (1) year, you can avoid capital gains tax on any appreciation of the stock by donating the stock prior to sale. The charitable organization benefits by selling the stock without paying taxes on the gain, and you benefit from making a contribution that would be larger than what you might have been able to donate in cash.

What kinds of bequests can you make in your Will or Trust?

There are three different kinds of bequests, and with each, the entire value of the bequest is eligible for an estate tax charitable deduction.

Specific Bequest.

You designate a specific property (such as shares of stock), a dollar amount, or a percentage of your estate to be transferred to the charitable organization. An example of language you might use would be: “I give to the James L. Maher Center, a charitable organization located in Newport, RI, the sum of $______ (or ____% of my estate; or the property described herein) for its general purposes.” You can also specify a specific purpose for the bequest.

Residual Bequest.

After all other beneficiaries (this includes debts, taxes, and other expenses) have been paid, you can designate that all or a portion of your remaining estate be transferred to the charitable organization. An example of language you might use would be: “All the rest, residue, and remainder of my estate, both real and personal, I give to the James L. Maher Center, a charitable organization located in Newport, RI, to be used for …..”

Contingency Bequest.

If a named beneficiary predeceases you, you can stipulate that all or a portion of your estate will be transferred to the Center. An example of language you might use would be: “If any of the foregoing bequests shall lapse, then I give such bequests to the James L. Maher Center, a charitable organization located in Newport, RI.”

As with most charitable donations, you can always specify how your bequest will be used. It could be for a favorite program or it could be an unrestricted bequest.

If you decide to make a bequest, consult with your attorney and financial advisor. They can draft appropriate language for your will, and help structure the gift according to your needs and desires.

An easy way to use your life insurance to make a gift is to name the Center as a beneficiary.If your policy is paid in full, and you name the Center as owner and beneficiary, you are eligible for a charitable deduction equal to your original cost, or the replacement value of the policy, whichever is less.

If your policy is not paid in full, you can still name the Center as owner and beneficiary. You would be entitled to a deduction of the cash surrender value of the policy. After the policy has been gifted, you can make yearly tax-deductible contributions to the Center to cover any further premiums.

You can also use life insurance to replace the value of other assets that you are donating to the Center. For example, purchasing a life insurance policy for the value of a gift of real estate donated to the Center can help ensure the financial well-being of your heirs without subjecting them to the hassle of selling the property.

What are Charitable Remainder Trusts?

Charitable Remainder Trusts (CRTs), like charitable gift annuities, are life income gifts; you transfer assets now, receiving a charitable deduction for a portion of the transfer, and you or a beneficiary receives income for the rest of your life or a fixed period of time. Both you and the charitable organization can benefit from life income gifts such as these.

You could also set up a testamentary CRT, to be established upon your passing. While you will not receive a charitable deduction, your estate will.

With a CRT, you irrevocably put assets (cash, securities, etc.) in a trust. The trust then provides income payments of at least 5% annually to you or a named beneficiary. Depending on how you set up the trust, the payments will continue for a fixed period of time, or until the death of the beneficiary. At that time, the remaining assets are transferred from the trust to a charitable organization such as the James L. Maher Center. When you set up your CRT, you can designate how you would like the Center to use these funds.

The amount of income paid out each year during the life of the trust depends on whether it is a charitable remainder annuity trust or a charitable remainder unitrust.

A Charitable Remainder Annuity Trust provides a fixed dollar amount with each payment to the beneficiary. This amount corresponds to a percentage of the original investment paid out annually. For example, a $100,000 charitable remainder annuity trust might pay out 7.5% annually. In this situation, the beneficiary would receive $7,500 each year for the lifetime of the beneficiary or for a fixed number of years. The $7,500 may be paid in one payment each year, or in several installments throughout the year.

The amount paid annually to the beneficiary of a Charitable Remainder Unitrust is a fixed percentage of the fair market value of the assets, as determined each year. For example, a charitable remainder unitrust might pay out 6% annually. If the assets were valued at $100,000, the beneficiary would receive $6,000 that year (6% of $100,000). If the assets were valued at $125,000 the next year, the beneficiary would receive $7,500 (6% of $125,000). As with a charitable remainder annuity trust, the payments may be made in one payment each year, or in several installments throughout the year.

What are Charitable Gift Annuities?

Charitable Gift Annuities (CGAs), like charitable remainder trusts, are life income gifts; you transfer assets now, receiving a charitable deduction for a portion of the transfer, and you or a beneficiary receives income for the rest of your life or for a fixed period of time. Both the charitable organization and you can benefit from life income gifts.

With a CGA, you make a gift to the charitable organization, and the organization agrees to pay you a fixed amount of income every year for the rest of your life. Another beneficiary can also receive income from your CGA. In addition, you have the option to defer receiving income for a period of time.

The income received each year is equal to a fixed percentage of the original gift. This percentage is dependent upon the age of the beneficiary (or beneficiaries) when the CGA begins to pay out income.

Upon the passing of the last surviving beneficiary, the charitable organization will use any remaining annuity assets to support the program you designated when you established the CGA.Regardless of your age or the timing of the income, you can take the charitable deduction for a portion of the gift in the year you make the gift. A portion of the payments you receive each year may also be exempt from certain income taxes. You may be able to reduce your capital gains tax by using long-term appreciated securities to make your gift.

Example:

If you are age 68 and transfer $20,000 to the charitable organization for a CGA, you would receive guaranteed payments of $1,400 each year, based on the 7% annuity rate for your age. The $1,400 may be paid in one payment each year, or in several installments throughout the year.

Over $700 of the income would be tax-free each year, for the next 17.5 years. (After that time, the full $1,400 would be taxable.) In addition, you would be entitled to an immediate charitable deduction for approximately $7,100.

(Please note: These figures are for illustration purposes only. Current annuity rates may differ.)

Another option for all charitable gifts is that you can utilize the expertise of The Rhode Island Foundation or its Newport County endowment The Newport County Fund. They will work with you and with your financial counselor and your attorney to help you to determine which form of charitable gift would work best for you. They would then manage your gift in perpetuity (or for as long as the gift lasts according to its terms) for the benefit of your chosen charity and in your name or in the name of a loved one.