Special Kinds of Planned Gifts

Contributions are tax deductible to the extent permitted by law, normally for individuals who itemize up to 50% of adjusted gross income for contributions paid by check. The deduction for contributed property is usually equal to the fair market value of the property at the time of the contribution. This general rule is subject to exceptions for property that has appreciated (i.e., value is greater than its adjusted basis).

Gifts Requiring Experts

Methods of giving other than cash may be appropriate for a number of donors. Some of these, such as bequests and charitable trusts, require the expertise of attorneys, accountants, and, sometimes, financial planners.

Churches with a legacy stewardship (endowment or planned giving program) will be in the habit of dealing with these issues. For those who do not have such programs, this could be the time to start.

Churches should know that with more complex gifts it is customary for the giver to use their own expert. In fact, providing an expert for them, especially in the case of wills, can leave the recipient open to an accusation from other heirs of exercising undue influence on the giver and eventually losing the bequest. These gifts are also subject to prevailing tax laws that tend to change from year to year. This aspect underscores the desirability of givers using their own experts and obtaining current information.

Some givers will be persistent in asking for a recommendation of an expert. When this happens, provide them with a list of at least three possibilities. In larger communities, this list will be longer. Do not assume that all attorneys have sufficient knowledge about planned gifts to help their clients adequately. In order to compile a list of experts, one diocesan legacy stewardship officer called suggested attorneys and asked how many charitable remainder trusts they had set up in the past year. Anyone responding with a number less than five did not make the list. Many communities have a planned giving association than can be helpful here, as can bank trust offices.

Do not overlook the excellent services provided by the Episcopal Church Foundation in West Texas. They provide information, fund management, and counsel for givers. Contact the Foundation by e-mailing nancy.stinson@dwtx.org.

Immediate Gifts

Cash

Gifts of Appreciated Property

Donations of stock that has appreciated in value since acquisition can be highly beneficial to a taxpayer. The value of the gift for purposes of taking a tax deduction is generally the mean market value of the stock on the day of donation, even through the cost to the giver is lower than this amount.

The actual gift may be more or less depending on the fair market value on the day the sale occurs. The charitable donation of appreciated stock usually avoids all income tax on the gain that would apply had the owner sold the stock. Even in those rare cases that the alternative minimum tax is a consideration, gifts of appreciated property provide considerable tax protection. Securities that have appreciated in value significantly, but pay low dividends, are ideal for charitable giving.

There are several ways to process such gifts. The simplest is to have the broker electronically transfer the stock into a church brokerage account (or contact the Foundation for assistance). The parish/mission should have a policy in place regarding disposition of such gifts. If the policy is that the stock be sold and the proceeds be deposited in a specified account, the commission on the sale will be paid by the church. The gift is recorded at the value of the stock with the sales commission recorded as an expense.

Gifts of Personal Property

Assets such as jewelry, automobiles, painting, and antiques can be given as immediate gifts, or to fund a deferred or life-income gift. As with real estate, the value of the item must be determined at the time of the gift by a bona fide appraisal for which the donor usually pays.

Valuation: Gifts of personal property must have a particular usefulness to the charity to which they’re given, related to the charity’s purposes, in order for the tax deduction to be based on their fair market value. For instance, a classical painting donated to an art museum would be deductible at its fair market value. But it might be far-fetched to establish that the same classical painting donated to a symphony can be used for the charitable purposes for which the symphony exists. When a gift is made with personal property that has no relation to the charitable purposes of the organization, the donor’s deduction may be limited to the cost basis of the object. Donors should consult their financial advisors for the appropriate evaluation and reporting requirements.

Retirement Assets

One of the most appropriate assets to donate to a charity is the corpus, or a portion of the corpus, of a retirement fund (401K plan, 403(b) plan, or personal IRA). Since most retirement plans are funded with “pre-tax” money, the Congress has set up complicated rules for the ways the money from these funds must be drawn. For Congress to recapture the tax that was not paid when the money was first earned, it is taxed at regular income tax rates when it is drawn.

If a person dies with assets remaining in his or her retirement account, those assets are likely to be taxed both as income and as assets for estate tax purposes, which can cause a retirement fund to be reduced by 70–75 percent before what’s left can be distributed to heirs. Therefore, it makes sense to fund charitable gifts and bequests from retirement assets and to leave “regular” assets to be passed on to the family.

Gifts of Real Estate and Other Marketable Assets

In addition to securities, gifts of appreciated property many include real estate or other marketable assets. These gifts will require an appraisal to establish their value. It is customary for the giver to pay for the appraisal.

Never accept a gift of real estate without an environmental impact study in addition to the appraisal. The classic horror story involves the Chicago charity that accepted a piece of property only to learn it had once been a toxic waste dump. The required cleanup cost more than the value of the property. Again, the custom is for the giver to pay the cost of this study.

Planned Gifts

“The Minister of the Congregation is directed to instruct the people, from time to time, about the duty of Christian parents to make prudent provision for the well-being of their families, and of all persons to make wills, while they are in health, arranging for the disposal of their temporal goods, not neglecting, if they are able, to leave bequests for religious and charitable uses.” (Book of Common Prayer, p. 445)

Endowment building is dependent on accepting gifts that will mature at some later date. The following is a brief discussion of just some of the possibilities.

Delayed Gifts

Bequests

Of all the planned gift arrangements, bequests are the most easily understood. Individuals both of great wealth and of modest means can make significant gifts in this way. Options include specific, general, devise, residual, contingent, or percentage bequests.

Bequests of all kinds are encouraged and will be part of a legacy society.

Insurance

Billions of dollars of life insurance policies are in force. In many cases, the original purpose for which the insurance was purchased is no longer applicable. For example, an individual may have purchased insurance to cover the cost of a child’s college education but was not needed; or a husband and wife may have purchased insurance to provide support for minor children who are now married with children of their own. These obsolete policies can be given to the parish/mission. Simply by naming the church as beneficiary and owner, the giver can make a marvelous gift without disturbing other assets and without loss of income.

There are a number of other ways that insurance policies, even ones that are not paid off, can be used in the development of planned gifts.

Deferred or Life-Income Gifts

A life-income gift is an irrevocable contract that provides for a gift to be received by the church, usually after a period of several years or after the death of the giver. Unlike a bequest (which is revocable during a giver’s lifetime), a deferred gift generally offers immediate income tax and other advantages not available through a bequest.

There are many kinds of deferred gift arrangements designed to meet giver needs. For example, one common form of deferred gift is the charitable remainder trust. Givers in or approaching retirement years often use charitable remainder trusts. Typically, the giver will have highly appreciated assets designated to provide the level of income needed for retirement. By placing these assets in a charitable remainder trust, the giver can ensure that the asset is sold and that the entire value of the asset is reinvested in a high-yield security paying the giver and or loved ones a lifetime income. The entire principal value can be reinvested because charitable remainder trusts are not subject to income tax! Only after the death of the giver and other named beneficiaries does the principal amount come to the church.

In addition to enhancing the giver’s income at a time of need, charitable remainder trusts have the advantage of providing what is usually a significant income tax deduction in the year the trust is established (sometimes carried forward to provide tax benefits for several years).

Good Practices

The following are some activities and policies that can streamline operations and minimize potential discord around issues of money in a diocese.

Adopt a policy for handling gifts of appreciated securities. A common practice is to instruct the brokerage firm who acts for the diocese to sell such gifts within one to three days of receipt and deposit the proceeds of the sale in a specified account. This policy should be made in the form of a resolution and recorded in the minutes.
Always obtain an environmental impact study for gifts of real estate.
Never suggest a single attorney, accountant, or financial planner to a potential giver. When asked for this type of assistance, provide a list of experts known to the diocese or congregations.
Adopt a policy regarding unrestricted bequests. It is important to do this when there is no specific bequest involved.

Adapted from The Alleluia Fund: A Guide for Diocese and Congregations