Many Ways To Give
PLANNED
GIVING
You can make a
gift to the ABILITIES CENTER OF SOUTHERN
NEW JERSEY, INC. in your
Will, or Living Trust, which will provide an unlimited tax deduction for your
estate.
You can name
Please use the following language for a bequests in your will or trust:
" I give and bequeath to ABILITIES CENTER OF SOUTHERN NEW JERSEY, INC. , a not-for-profit corporation, with
principle offices at 1208 Delsea Drive, Westville,
NJ, the sum of $_________ to be used for general purposes (or for a specific
purpose indicated)".
LIFE
INSURANCE
Your existing
life insurance policy, paid-up or new, can be used to make a gift to ABILITIES
CENTER OF SOUTHERN NEW JERSEY, INC. . Generally, to receive an immediate tax deduction, the policy should be transferred to ABILITIES CENTER OF SOUTHERN NEW
JERSEY, INC. as owner and
beneficiary. You remain the insured. Specific information regarding tax
deductions should be referred to your own tax consultant
DONATE
APPRECIATED STOCKS
If you have
stocks that have grown significantly in value over the years, you can donate
them to a charitable organization. Not only will the charity benefit, but so will you. That’s because you
will owe no capital gains tax when the stock is sold if you’ve owned the
appreciated stock for at least a year. Better yet, you can deduct all or part
of the gift from your taxes.
ESTABLISH
A CHARITABLE REMAINDER TRUST
You can also
help you estate planning by making your donation through a Charitable Remainder Trust (CRT). Here
is how it works: You contribute appreciated assets..stocks, real estate, etc. to the charitable
remainder trust. The trust sells the assets and uses the proceeds to purchase a
portfolio of securities. The trust then pays you an income stream for life and
the organization receives the principal upon your death. By setting up such a
trust, you avoid capital gains taxes and you can claim a deduction on your
current year taxes. Furthermore, because you are moving assets from your
estate, your beneficiaries will have fewer estate taxes to pay.
WHAT IS
A CHARITABLE REMAINDER TRUST?
It is an
irrevocable trust that can be used to allow a donor to
make a current gift while retaining an income stream for their lifetime.
Because the trust names IRS qualified charity as “remainderman”
(the beneficiary receiving assets after the grantor’s death), the grantor is
entitled to income tax benefits during lifetime and reduced federal estate
taxes at death. Thus the grantor receives income and
tax benefits, and the charity receives a posthumous gift.
WHY IS A CRT OFTEN FUNDED WITH LOW BASIS ASSETS?
Because of the
trust’s charitable intentions, it is exempt from paying capital gains tax on
the sale of low basis assets. Therefore, CRTs may be used
to convert a highly appreciated asset (e.g. stock, real estate) which has not
produced much income into a current income stream for the grantor during
his/her lifetime. If the grantor had sold the asset prior to transferring it to
the trust, any resulting gain would be netted on a
Schedule D and carried over to his/her Form l040. Currently, capital gains are taxed at 20%. This allows more of the grantor’s assets
to be reinvested, often permitting better
diversification for meting current needs.
ARE ALL CRT’s SET UP IN THE SAME MANNER?
No. There are
several options:
·
One
option is a charitable remainder UNITRUST (CRUT). This type pays a fixed
percentage of trust assets to income beneficiary’s
annually. Income may fluctuate when trust assets are revalued
each year.
·
Another
possibility is the CRAT (Charitable Remainder Annuity Trust), in which the
income beneficiary receives a steady annual income that does not fluctuate.
While this choice may be fine for an elderly individual, there is some risk of
reduced principal if asset performance lags severely or inflation rises
ARE
THERE ANY RULES ABOUT PAYING TRUST INCOME?
The grantor can
have the attorney draft the trust to pay income for his/her lifetime. If the
grantors are husband and wife, income can be paid for
as long as either of them lives. The trust can also be
drafted to pay income for a stated number of years, not to exceed 20
years.
HOW MUCH
OF AN INCOME TAX DEDUCTION DOES THE GRANTOR RECEIVE?
Either the estate planning attorney or a CPA should help the client
estimate the possible income tax deduction that would be created. In general,
the deduction varies according to the annual income received, the type and
value of trust assets, income beneficiary ages, and the applicable federal
rate.
Federal income tax deductibility can vary from 20%-50%, but is usually limited
to 30% of adjusted gross income. Much depends on how the IRS categories a
charity and the assets held in trust. If the entire deduction created cannot be
used in the first year, it an be carried forward up to
five years.
WHAT ARE
SOME CONSIDERATIONS WHEN SELECTING A TRUSTEE?
It is most
common for these types of trust to name a corporate trustee when the trust is
established. The ongoing administration of a CRT, as well as
the investment of assets within the CRT, are crucial to qualifying as a
charitable trust for tax purposes. Because of the complicated nature of these instruments a corporate trustee is usually in the best
position to monitor the trust and its activities, although grantor’s can name
themselves as trustee. It is critical that investments be carefully selected
and the trust be properly administered .If not, the trust will likely be
penalized with a loss of tax benefits and/or penalties.
WHY DO
SOME GRANTORS INTEGRATE LIFE INSURANCE INTO THIS PLAN?
Some grantors
use insurance to replace the value of trust assets transferred to the CRT. When
this is done, estate planning attorneys frequently us
an Irrevocable Life Insurance Trust, commonly called a wealth replacement
trust, to own the insurance policy. This removes insurance proceeds from the
grantor’s estate, thereby avoiding federal estate taxes. Another benefit of a
wealth replacement trust is the ability to control distributions to your
beneficiaries.
WHO IS A CHARITABLE REMAINDER TRUST RIGHT FOR?
A CRT is ideal
for individuals who have:
·
Highly
appreciated assets (not annuities or tax deferred accounts) and desire to
diversity and defer capital gains tax
·
People who are
inclined to give to charity
·
Already
established an estate plan (will, trust, etc.)
·
A sizeable income
and seeking a current charitable income tax deduction
·
A taxable estate
for federal estate tax purposes
·
A desire to
create an income stream for life or a term of years
WHAT ABOUT MY HEIRS?
If you transfer
the bulk of your appreciated assets to a charitable remainder trust, what will be left for your heirs? You may wish to use the income
from the CRT to purchase a life insurance policy on yourself. It is important
to note, that the proceeds from such a policy will go into your taxable estate.
If you want to avoid this, consider purchasing an insurance policy in an
irrevocable life insurance trust. Because the trust actually owns the insurance
policy, the proceeds are kept out of your taxable
estate and your heirs will owe less in estate taxes. You can also direct the
trust to provide your heirs with regular income.
Before establishing a trust, consult with your legal adviser to learn the full
advantages and disadvantage of these complex estate planning
instruments.
EVERYONE
IS A WINNER
Should you
simply donate an appreciated stock or make your donation through a CRT? The
answer depends on your financial goals. If a tax deduction is your primary
objective, a straight donation may be the best choice for you. If you would
like to establish a steady stream income, a CRT may be the a
more attractive option.
Regardless of which option you choose, there are benefits to you and the ABILITIES
CENTER OF SOUTHERN NEW JERSEY, INC. will be able to continue providing a unique roster of services
for its consumers.