Examples of Different Planned Giving
Donors include a provision in their will directing that a gift be paid to an organization after their death or the death of one of their survivors.
Donors can give an organization either a specific amount of money or item of property (a “specific” bequest), or a percentage of the balance remaining in their estate after taxes, expenses, and specific bequests have been paid (a “residual” bequest).
Also, donors can tell the organisation to use their bequest for a particular program or activity or allow the organisation to use it at its discretion (“restricted” and “unrestricted” bequests).
2) Charitable Gift Annuity
Donors make a gift to an organisation and in return, the organisation agrees to make fixed payments to them for life. Payments may be made to a maximum of two beneficiaries. At the death of the last beneficiary, the remaining balance of the annuity is used by the organization for the purpose that the donor specified when the gift was made.
Gift annuities operate under a simple contract between the organisation and the donor. They are not trusts, but rather income obligations backed by the organization’s assets.
Payments from a gift annuity can be arranged to commence at a future date ( a “deferred” gift annuity). Deferring the start of payments gives donors a higher income rate and a larger charitable deduction than they could secure from annuities whose payments start immediately.
3) Life Insurance
The death benefit of a life insurance policy can be paid to the beneficiary organisation as a charitable gift.
Donors have several options in giving the organisation life insurance:
- They can contribute a fully paid-up policy, or
- They can contribute a policy on which some premiums remain to be paid, or
- Donors can (revocably) name an organization as the beneficiary of a life insurance policy that they continue to own and maintain, or
- They can name the organisation the owner and beneficiary of a new life insurance policy, and make ongoing gifts that offset the premiums you will pay to maintain the policy. There is no charitable deduction available for taking out a new life insurance policy, even if the donor makes the organisation the irrevocable owner.
4) Retirement Plans
Donors can name an organisation the successor beneficiary of all or a portion of their retirement accounts. The designation is revocable and does not generate a charitable income tax deduction, but:
Distributions from retirement accounts to surviving family members can be subject to both income and estate tax. Directing the balance of a retirement plan to charity removes the most-taxed asset from the donor’s estate, freeing up other, more favourably taxed assets to give to family and heirs.
Donors have the reassurance that they can continue to take withdrawals from their plan during lifetime, and that they can change the designation of the charitable beneficiary if their or their family’s circumstances change.
5) Charitable Remainder Unitrust
This trust pays income to the donor and/or other beneficiaries for life or a term of years, then pays the remaining balance to charity. Income is paid as a fixed percentage of the unitrust’s value – which is revalued annually. Income and appreciation in excess of the required payments to the beneficiaries are held in the unitrust to allow growth.
6) Charitable Remainder Annuity Trust
This trust pays the donor and/or other beneficiaries a fixed-dollar amount of income for life or a term of years, then pays the remaining balance to charity. Unlike income from a unitrust, payments from an annuity trust do not fluctuate during the term of the trust.
7) Charitable Lead Trust
This trust pays income to the beneficiary organisation for a term of years or for the lifetime of the donor. When the lead trust terminates, the remaining balance is returned to the donor or to the donor’s heirs.
Donors who arrange their lead trusts to return the assets to themselves are liable for income tax on the lead trust’s annual earnings.
Donors whose lead trusts distribute their remainder to children or other heirs receive no income tax deduction, but can gain significant gift and estate tax savings.