Planned Giving 101

Planned gifts provide an opportunity to have a positive, lasting impact on our community. Like any successful endeavor, they require careful thought and analysis. Once you have decided which programs or organizations you want to support, you'll want to consider the most effective ways to achieve your goals.

This guide is designed to answer some specific questions you might have about some of the most common types of planned, charitable gifts and their basic tax advantages as well as some common terms and their definitions. We hope this helps you better understand and plan how to make a gift to your favorite charities and causes.

"Why do I need a will?"
At your death, a will serves as a road map telling your personal representative how to distribute your property and assets to other people and/or charities. Without a will, you are powerless over how your assets are distributed. Instead, the laws of the Ohio determine how assets are divided- which may not be the way you would have wanted.

"What is a bequest?"
A bequest is a gift by will to a specific recipient. A charitable bequest is a transfer of assets or property at death by will to a nonprofit organization or organizations for charitable purposes.

"How do I make a charitable bequest?"
Contact your attorney to draft a will with a charitable provision or a codicil to your existing will. If you do not have an attorney, contact the Attorney Referral Service of your local bar association for a referral to an attorney experienced in charitable gift planning.

"What are some of my bequest options?"
There are many ways to structure your charitable bequest. Talk with your attorney about these options: a percentage of the residue of your estate, a specific asset or dollar amount, and contingent bequests.

"I intend to make several charitable bequests in my will. Can I also make other charitable gifts during my lifetime that will pay an income back to me?"
Yes, both a charitable remainder trust and a charitable gift annuity can pay you an income for a specified period of time or the rest of your life.

"What is a charitable gift annuity?"
A charitable gift annuity is a contract between you and a charitable organization. In return for your gift, the charity agrees to pay you a fixed amount (based on your age) for the rest of your life. At your death the assets held for the annuity transfer to the charitable beneficiaries you designated. The benefit of a charitable gift annuity is that you make a one-time gift and receive a fixed amount of income for your lifetime.

"What are the tax advantages of a charitable gift annuity?"
With a gift annuity, you can claim part of what you contribute to fund the annuity as a tax deduction and part of the income you receive each year is tax-free. Additionally, if you fund the annuity with an appreciated asset- such as stock, art, a car, jewelry, a house or building- you also escape some of the capital gains tax that you would owe if you had sold the asset.

"Then, what is a charitable remainder trust?"
A charitable remainder trust- much like a living trust- holds assets on your behalf. However, a charitable remainder trust can only be used to hold gifts that ultimately will benefit a charity. You and the trustee agree at the time the trust is established on a type of payment to you: either an annuity payment representing a fixed dollar amount or a unitrust payment representing a fixed percentage of the trust assets, which are revalued annually. At your death, the assets remaining in the trust are transferred to the charities you designated when you established the trust.

"What are the tax advantages of a charitable remainder trust?"
You can claim a charitable deduction for a portion of the amount you contribute to the trust- more specifically, for the calculated, present value of the remainder interest that ultimately will pass to charity. However, some of the income that you receive annually may be considered taxable income to you.

"If I use stock, will either a charitable gift annuity or a charitable remainder trust be able to increase my income?"
Yes. You may own stock that has greatly appreciated in value, but pays only a small dividend. By gifting that stock to a charity or charitable trust, you defer paying the capital gains tax, you realize a tax deduction equal to a portion of the value of the stock, and you could receive a much greater income than you realized from the dividends.

"Can the income from one of these gifts benefit both my spouse and myself for our lifetimes?"
Yes. Income gifts can be established to support the surviving spouse for his or her lifetime.

"Does the income from one of these gifts have to go to me or can someone else, like my mother, receive the income?"
Income gifts can be very useful to provide support for a person dependent on you, such as a parent or student. You receive the charitable deduction for making the gift, but the income recipient- for instance, your mother- declares the income for tax purposes. In all likelihood she is in a lower tax bracket, so there is less tax owed than if you received the income and used it to provide for her support.

"Is there any way I can pass money on to my grandchildren and save on estate and gift taxes?"
A charitable lead trust can be used to pass on assets to individuals other than yourself- for example, your grandchildren. A lead trust pays an income to the charity for a set number of years or a lifetime. Then the trust terminates and the assets can, in this example, go to your grandchildren. Estate and gift tax laws put limits on the amount of property that can be handled this way without incurring the generation-skipping transfer tax (GSTT). However, you can currently transfer up to $2,000,000 free of the GSTT in 2006-2008.

"What are the tax advantages of a charitable lead trust?"
Most donors use a charitable lead trust to obtain a charitable gift tax deduction and to reduce the size of their estates. After a number of years of supporting the charity, your children or grandchildren may receive a sizable gift under the trust. Under certain circumstances, you can claim a charitable income tax deduction for the present, calculated value of the amount of income that is paid to charity.

"Is stock the only type of appreciated asset I can use to make a gift to the charity?"
No. Many charities gladly accept gifts of land, manufacturing/office buildings, apartment buildings, limited partnership interests, cars, art, boats, planes, etc. It is always best to consult with the charity early in the planning process if you wish to make a contribution of this type, and to determine if the property's use is related to the mission of the charitable organization so that you may qualify for maximum income tax advantages.

"Is life insurance a good way to make a gift?"
Yes. You can give a life insurance policy to charity and take an income tax deduction for this gift as well as a deduction for any additional gifts to the charity to allow it to pay any ongoing premiums. Alternatively, you can retain ownership of the policy and just name the charity as beneficiary, though no income tax deduction is available for this approach. In both cases, there are no estate taxes on the life insurance proceeds.

"What about using some of the money in my IRA or other retirement plan to make a charitable bequest? Is this a good idea?"
Yes. The combined impact of estate and income taxes can, in some cases, take up more than 70% of the assets in a retirement plan. However, if you fund a bequest to a charity from retirement plan assets, the full amount of the retirement plan assets can pass to the charity without estate or income taxes.

"Are there other types of charitable gifts I should consider?"
It is always best to consult with your favorite charity/charities before making a planned gift. The staff of the charity will be happy to explain the various types of giving opportunities they offer their donors. You should also seek advice from your attorney and/or financial planner.


Glossary of Terms

The following is a glossary of commonly-used terms related to planned giving.


The person appointed by the court to manage one's estate when he or she dies without a will. Administrators have the same duties as executors.

Annual Exclusion from Gift Tax:
No tax is owed on the first $10,000 given by one person to any one other person. There is no limit on the number of recipients. A married couple can jointly give $20,000 to each recipient.

Appreciated Property:
Property, such as real estate or stock, which has increased in value.

Attorney at Law:
A person who is legally qualified and authorized to represent and act for clients in legal proceedings. This is different from an attorney in fact.

Attorney in Fact:
A person who, acting as agent, is given written authorization by another person to transact business on their behalf out of court. This is different from an attorney at law.

The amount paid for an asset. Capital gains tax is paid on capital gains that are measured by the difference between the selling price and the basis. Property that is inherited receives a "step up" in basis so that the basis- to the person inheriting the property- is what the property was worth at the time of inheritance. A person receiving property by a lifetime gift has the same basis as the previous owner.

A person who is named to receive benefits, for example in an insurance policy.

To give or leave something, typically personal property or assets, by will to a specific recipient. A charitable bequest is a transfer at death by will to a nonprofit organization for charitable purposes.

Charitable Gift Annuity:
A form of annuity in which a charity is the obligor. The donor transfers money or property to the charity and in turn receives income for a specific period or for life. Some income tax deduction may be available.

Charitable Exemption:
There is no estate or gift tax for property going to a qualified charity.

Charitable Lead Trust:
A special kind of trust in which property is transferred to a trust. Income from the property is paid to a qualified charity for a specified period of years, with any property remaining going to the trust maker or persons designed by the trust maker. There may be income tax, capital gains tax and estate tax advantages to the trust maker.

Charitable Remainder Trust:
A special kind of trust in which property is transferred to a trust. Income from the property is paid to the trust maker or persons designated by the trust maker for a specified period of years or for life, with any property remaining going to a qualified charity. There may be income tax, capital gains tax and estate tax advantages to the trust maker.

A legal instrument made to modify an earlier will.

Durable Power of Attorney:
A written legal document that lets an individual designate another person to act on his or her behalf even in the event the individual becomes disabled or incapacitated.

Durable Power of Attorney for Health Care:
A special kind of durable power of attorney that designates a particular person or persons to make decisions regarding health care for a person who has become unable to make or communicate their own health care decisions.

Everything a person owns or has control of at the time of their death. This includes life insurance payable upon the personÕs death.

Estate Tax:
A tax levied on a person's estate upon their death. The federal tax is a very heavy tax and quickly reaches 55 percent and can exceed 60 percent for large estates. Most states also impose an estate tax or inheritance tax.

A person designated to manage an estate including gathering assets, paying expenses and taxes and making distributions to beneficiaries. The executor is often called a personal representative. If there is no will, the executor may be called an administrator. There are variations to terms depending on masculine or feminine form.

A person in a position of trust and responsibility, such as the executor of a will, trustee of a trust or agent under power of attorney.

Generation-Skipping Transfer Tax (GSTT):
A transfer tax generally assessed on gifts in excess of $1 million to grandchildren, great-grandchildren or others at least two generations below the individual making the gift. It is a flat tax computed with reference to the minimum federal estate tax applicable at the time of the transfer, which is currently 55 percent. There may also be a state generation-skipping transfer tax.

Gift Tax:
A tax imposed by the federal government, and some states, on a person giving money or property to a non-charitable person or organization. The giver owes the tax.

Gross Estate:
The total property or assets held by an individual as defined for federal estate tax purposes.

An individual legally appointed to manage the rights and/or property of a person incapable of taking care of his or her own affairs.

The term applied when an individual dies without a will.

Irrevocable Life Insurance Trust (ILIT):
A type of irrevocable trust designed to hold life insurance so it will not be taxed in the insured's estate. Intestacy: The state of dying without a will. State law governs who gets the property owned by the deceased person.

Joint Tenancy:
Two or more people owning property jointly in a form that allows the property to automatically become titled in the names of the remaining owners upon the death of any owner.

Life Insurance Trust:
A trust that has the proceeds of an individual's life insurance policy as its principal.

Living Trust:
A trust created during your lifetime. It is revocable, which means it can be amended or terminated anytime while you are competent. It is legally referred to as a revocable inter vivos trust. The trust becomes irrevocable upon your death. A living trust is used primarily to avoid probate and manage property. It does not save taxes.

Living Will:
Frequently confused with a will or a living trust. A living will is a document giving instructions about health care. It is also called a physician's directive or a health care directive and is commonly said to give instructions for ending nutrition and hydration, and extraordinary medical measures.

Marital Exemption:
No federal estate or gift tax is owed for property passed to a spouse who is an American citizen.

Payable on Death or Transfer on Death:
A form of ownership in which the owner has control of the account or property during his or her lifetime. When the owner dies, the property automatically goes to the designated person.

Pour-Over Will:
A will that transfers property owned by you at your death to a trust. There must be a previously existing trust to receive these assets.

Power of Attorney:
A legal document allowing one person, the agent, to act on behalf of another, the principal. It may be general and unlimited, or special and limited to specific purposes. The death or incompetence of the principal revokes a power of attorney unless it is a durable power. A durable power is not affected by the incompetence of the principal.

A legal proceeding to determine the validity of a will. If the deceased person had no will, the probate court will determine the disposition of the estate in accordance with Ohio laws.

A contract between a trust maker and a trustee, establishing a separate legal entity for the benefit of beneficiaries. The separate entity is now the owner of the property in the trust. Since the entity owning the property does not die, there is no need for probate on the death of the trust maker to pass on the property. Trusts can be irrevocable- cannot be changed- or revocable, also called a living trust.

The person designated to safeguard the assets and properly distribute them, according to the terms of the trust.

A legally executed document that directs how and to whom a person's property is to be distributed after death.