Botanical Society of America - "Ways to Give"
Give the gift of tomorrow - become a member of the Botanical
Society of America's Legacy Society
-
http://www.botany.org/BSA-Legacy/BSALegacyForm.pdf
Thank you for taking the time to explore some of the options
available for providing charitable gifts to the Botanical Society
of America. Below we outline several mechanisms for giving and
provide examples of how each might work for you and benefit the
BSA. We thank The
Dini Partners for their input and advice. Please
note: the information is provided as an example only. Please consult
your tax advisor for the option(s) that best fits your goals.
Your
Goal |
Your
Gift |
How
to Make the Gift |
Your
Benefits |
Make a quick and easy gift |
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Write a check, make a donation on the website,
ask the organization to put it on your credit card |
Income tax deduction |
Make a quick and easy gift |
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Using the stock transfer form, transfer stock directly
to the Society |
Income tax deduction and avoidance of capital gains
tax |
Eliminate capital gains tax on the sale of a home or other
real estate |
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Donate the property to the Society or sell it to the Society
at a bargain price |
Immediate income tax deduction and avoidance of
capital gains tax |
Give your personal residence or farm, but continue to live
there |
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Transfer the deed of your home to the Society, but retain
occupancy |
Charitable income tax deduction and lifetime use
of home |
Make a large gift with little cost to yourself |
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Give a policy with the Society as owner and beneficiary
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Current income tax deduction; possible future deductions
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Avoid the twofold taxation on retirement plan assets |
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Name the Society as beneficiary of the remainder of the
retirement assets after your lifetime |
Avoidance of heavily taxed gift to heirs, allowing
less costly gifts |
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Create and/or increase income from assets |
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Create a charitable annuity that pays you a set income
annually |
Immediate income tax deduction and fixed income
for life, remainder of the corpus passes to the Society |
Create and/or increase income from assets; Create a hedge
against inflation over the long term |
|
Create a trust that pays you a fixed or variable percentage
of the trust's assets, valued annually |
Immediate income tax deduction, annual income for
life that has potential to increase, remainder of the corpus
passes to the Society |
Reduce gift and estate taxes on assets passing to heirs
|
|
Create a trust that pays the Society a fixed or variable
income for a set term, and the remainder passes to your heirs
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Reduced size of taxable estate; keeps asset in
family with reduced taxes ramifications |
CASH
When a donor makes a "cash" gift to the Society, if
he or she itemizes tax returns, that gift is fully deductible,
up to 50% of his or her adjusted gross income. If the total gifts
exceed this limit, the excess may be carried forward for tax purposes
for up to five years. Some employers will match charitable gifts,
making the gifts worth even more to the Society.
Example:
Sue writes a check for $10,000 to the Society. At her 33% tax
bracket, she saves $3,300 in taxes. Thus, her actual cost of the
gift is $6,700. If her gift were matched, for her net gift of
$6,700, the Society would receive $20,000.
TRANSFER OF STOCK
In most cases, a gift of appreciated securities entitles the
donor to an income tax charitable deduction for the fair market
value of the securities on the effective date of the gift. The
donor avoids the capital gains tax that would be due if he or
she sold the stock. Public and privately held securities must
be marketable and convertible to cash within a short-term
timeframe. Gifts of publicly traded securities will be valued
at the average market value on the date the full interest in the
transferred property is received.
Gifts of closely held stock will be valued based on a qualified
independent appraisal at the time of the transfer. Generally,
gifts of privately held securities will be accepted only when
conversion into cash within a five to ten year timeframe is expected.
Example:
Harry and Sally have pledged a $100,000 gift to the Society. They
own stock valued at $100,000 to use for the gift, but have not
yet decided whether to give the stock or sell the stock and gift
the proceeds. The stock was purchased pre-IPO for $10,000. Harry
and Sally believe the stock price has peaked.
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Sell Stock: |
Gift of Stock: |
|
Value of Stock |
$ 100,000 |
$ 100,000 |
|
Basis of Stock |
$ 10,000 |
|
|
Gain on Sale |
$ 90,000 |
|
|
Capital Gains Tax Rate |
20% |
|
|
Capital Gains Tax |
$ 18,000 |
|
|
|
|
|
|
Net Gift to Charity |
$ 82,000 |
$ 100,000 |
|
|
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Tax Deduction |
|
|
|
Assuming A 40% Tax Rate |
$ 32,800 |
$ 40,000 |
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Harry and Sally would be better off donating the stock to the
Society as then they will never be taxed on the $90,000 of appreciation.
Selling the stock and gifting the proceeds results $18,000 worth
of capital gains tax and only credits them $32,800 in tax savings.
The $100,000 gift of stock generates $40,000 in federal tax savings.
As such, the net cost of the $100,000 gift to Harry and Sally
is only $60,000. In addition, gifting the stock allows Harry and
Sally to avoid a $90,000 increase in income that would have resulted
from the stock sale.
REAL ESTATE GIFT
Quite often families have real estate for sale that has appreciated
significantly in value - residential property, vacation property,
farmland, or commercial property. Prior to the sale of the real
estate, it is possible to make a gift to the Society through an
undivided interest in the property. Upon the sale of the property,
the Society's attorneys attend the closing proceedings along with
the majority owner. The title company writes a check to the Society
for the value of their ownership in the property, and the donor
receives a charitable tax deduction for the current fair market
value of the property given to the Society. No capital gains taxes
are levied on the appreciated value of the property given to the
Society. The Society could then dispose of the real estate as
they wish. However, if the property is sold lower than the appraised
value within three years of the gift, there are donor tax consequences.
Example:
Mary gives the Society a vacation cottage she no longer uses.
It originally cost $50,000 but is now worth $150,000. She gets
a $150,000 charitable deduction, which represents a tax savings
of $42,000 in her 28% tax bracket. She also completely avoids
tax on the $100,000 of appreciation. Now she no longer has to
maintain the cottage, and the property will not be taxable in
her estate.
RETAINED LIFE ESTATE
A family with a personal residence or farm - preferably one on
which there is no existing debt - can transfer the deed to the
Society and reserve for themselves the right to live on or use
the property for their lifetime. While the donor is required to
maintain the property and pay the taxes, the donor also receives
a tax benefit for the gift based upon their age and life expectancy.
The donor receives immediate recognition for this irrevocable
gift.
Example:
Mrs. Smith, age 78, donates her home, valued at $200,000, to the
Society for a retained life estate. She continues to pay for its
maintenance, taxes, and insurance, and lives there for the rest
of her life. In exchange for her gift, she qualifies for a charitable
income tax deduction of $115,949. After she passes away, the Society
will sell the home and use the proceeds for the funding area she
designated.
LIFE INSURANCE GIFT
When a life insurance policy is initially purchased, it is usually
intended to ensure the financial stability of a family should
a tragic event occur. However, life insurance can be a tool with
many purposes. If a family has a whole life insurance policy they
no longer need for its original intent, they can contribute it
to the Society. Purchasing a new policy and naming the Society
as beneficiary is another possibility. This often makes a significant
future gift feasible and affordable, especially for younger donors.
Alternatively, perhaps someone is considering a sizable bequest
to the Society, provided his or her family's future inheritance
is not affected. Life insurance can play a part in meeting this
goal, too, by replacing the amount donated back to the estate.
Naming
the Society as Beneficiary - If an individual names
the Society as beneficiary of a life insurance policy that the
individual owns, no income tax deduction is available because
the donation is not a complete interest in the policy. Thus, an
individual may fulfill his charitable intentions by naming the
Society as beneficiary of a life insurance policy; however, the
individual will not receive the benefit of a lifetime income tax
deduction.
Transferring
Policy Ownership to the Society - Contributions of
a life insurance policy to a charitable organization generates
an income tax deduction generally equal to the fair market value
of the policy, reduced to the donor's basis in the contract (generally,
the total of the premium payments).
Paying
for a Policy and Naming the Society as Beneficiary
- A donor may choose to buy a new policy or transfer an existing
policy to the Society while premium payments are still being made.
The subsequent payments made each year by the donor are tax deductible,
or the donor may write a check to the Society and have the Society
continue the payments. Under either scenario, the payments are
tax deductible.
Example:
Bill owns a $250,000 whole life policy with a cash value of $50,000.
He chooses to transfer the policy to the Society, naming the Society
as the new owner and the beneficiary. Bill receives a charitable
tax deduction for $50,000. If Bill continues to make the premium
payments each year, those payments are also tax deductible.
Indirect
Use of Insurance for Wealth Replacement - In recent
years, probably the greatest increase in using life insurance
in philanthropic plans has been to replace for heirs of an estate
a value given, by one means or another, to a charitable organization
like the Society. A significant outright charitable gift might
reduce the projected value of inheritances for family members.
However, depending on the age, health, and marginal income tax
rate of the donor, income tax savings from use of the charitable
deduction can be enough to purchase life insurance, whose death
benefits equal the value of the gift.
Example:
Joan makes a charitable gift of a building that has appreciated
since she acquired it long ago. She knows that, among other benefits,
this allows her estate to realize greater tax savings than if
she had bequeathed the building to her children. (She might also
have sold the building, but then she would have to pay capital
gains tax.) She then purchases life insurance for the benefit
of her children, an expense that she would have paid anyway in
taxes, had it not been for the charitable deduction she received
for her gift to us. Instead of receiving a building, her children
will receive cash from the insurance policy - and all of this
happens outside the probate process.
RETIREMENT PLAN GIFT
Retirement plan assets (e.g., interests in qualified plans and
IRAs) often are a significant portion of an individual's taxable
estate. These assets are income in respect of a decedent ("IRD")
and subject to income tax when received by the owner or beneficiary.
Because the combined estate and income taxes imposed on these
assets may consume much of the plan balance, planning for their
distribution is imperative. A charitable bequest of retirement
plan assets is one alternative for minimizing the taxes imposed.
Retirement
Plan Assets to the Society - When a donor has accumulated
significant amounts in a retirement plan or IRA, one strategy
to minimize tax under the IRD rules is to use retirement plan
benefits to fund charitable contributions. Assets transferred
to charities are sheltered from estate and gift tax because of
the unlimited charitable deduction, and are deductible for income
tax purposes as well (although certain limitations may apply.)
Donors that desire to make charitable bequests at their death
should consider using retirement plan assets. In this situation,
the estate avoids recognizing taxable income related to the IRD
items. Instead, the charity receiving the IRD recognizes the income
but pays no income tax because it is tax exempt. In addition,
the estate receives an estate tax charitable deduction equal to
the fair market value of the donated IRD items. Thus, it owes
no estate tax or income tax on the IRD items.
Example:
Sam had a $2,000,000 retirement plan account at the time of his
death (the entire $2,000,000 is IRD.) Sam's Last Will and Testament
makes a bequest of the plan assets to the Society. The Society
will recognize the IRD when it receives the plan assets; however,
it will not pay tax on the distribution because of its tax-exempt
status. In addition, the estate receives a S2,000,000 estate tax
charitable deduction and does not report the $2,000,000 IRD for
income tax purposes.
If Sam had left the Society S2,000,000 in cash instead, his estate
would still receive a $2,000,000 estate tax deduction, but would
have to report the $2,000,000 RD for income tax purposes when
the plan assets were received. Thus, the balance of the estate
available to non-charitable beneficiaries would have been reduced
not only by the $2,000,000 charitable bequest but also by the
estimated $800,000 income tax paid on the $2,000,000 of IRD.
Example:
Under the rules governing her company's profit-sharing plan, Anne's
account must be distributed within five years after her death.
She estimates that when she dies, the account balance could be
at least $200,000. If she were to name her daughter, Sandy, as
the beneficiary, the entire amount would go to Sandy as ordinary,
taxable income, incurring probable federal and state income taxes
of more than $40,000. In addition, a federal estate tax of more
than $90,000 would be due if Anne's other assets equaled more
than the amount exempt from estate tax. Less than $70,000 of the
$200,000 could be left for her daughter after payment of all the
taxes!
Instead, Anne creates a charitable remainder unitrust and names
it as the beneficiary of her profit-sharing plan. She arranges
for the unitrust to pay 7% of the value of the assets to Sandy
each year for life. The net result is significant income tax deferral.
The entire $200,000 can be invested to produce investment income.
The estate tax on the value of Sandy's interest would typically
be paid from other assets. The partial estate tax charitable deduction
for the present value of the charitable remainder interest will
reduce Anne's estate tax.
CHARITABLE
TRUSTS
Many families rely on investment income to maintain their standard
of living, especially people who are retired. Quite often, these
families are reluctant to sell assets that have appreciated in
value due to capital gains tax liability. A form of charitable
trust enables a family to transfer assets to a trust. These assets
- corporate stock, real estate, etc. - may then be sold without
being subject to capital gains taxes. The family enjoys the income
from the trust for life. The assets of the trust then pass on
to the Society after the death of the last beneficiary. A charitable
trust may be a useful tool to families who fit the following pattern:
- They have significant appreciated assets.
- They have assets that are not producing income.
- They are reluctant to sell the assets due to capital gains tax
liabilities.
- They would like to increase the income from these assets.
- They have a desire to make a major gift to the Society.
Charitable
Gift Annuity - This is a legal contract between the
donor and the charitable organization, through which the donor
exchanges cash, stocks, or other assets for an agreed-upon income
for life. The donor qualifies for an income tax deduction the
year when the gift is made. In addition, a portion of the income
received is tax-free, and capital gains taxes may be reduced if
the annuity is funded with appreciated stocks or securities. After
the income recipient(s) have passed away, the corpus of the annuity
will be used by the Society as designated by the donor.
Example:
Janice Smith, age 79, donates $25,000 cash to the Society for
a charitable gift annuity. Based on her age, she will receive
a fixed payment of 9% for life. This will produce an annual income
of $2,250, of which $1,368 is tax-free. She will also qualify
for an income tax deduction of $11,452.50. After her lifetime,
the corpus will be used as she has designated.
Charitable
Remainder Trusts - A charitable remainder trust (CRT)
is a tax-exempt trust that pays all or a portion of its income
to one or more beneficiaries for a specified term. At the expiration
of its term, the remainder interest passes to the designated charity.
Generally, a CRT is used when a donor would like to make a gift
to the Society, but does not want to give up the present income
stream that could be generated by the property. There are two
forms of CRTs - the annuity and the unitrust.
Income from a unitrust is variable, increasing
if the value of the trust increases and decreasing if the value
of the trust decreases. Unitrusts invested for growth over the
long term can be a hedge against inflation.
Through the annuity trust, the yearly payout
amount does not change; it is set when the trust is established
and must be at least 5% of the initial trust value.
Example:
Bill Smith, age 70, owns stock worth $1,100,000 for which he originally
paid S100,000. He donates the stock to a charitable remainder
unitrust to benefit the Society. He receives an income of 6% of
the trust's value, which initially pays him $66,000 a year. After
his lifetime, the Society will receive the assets remaining in
the trust, which is estimated at $1,240,000 due to growth in trust
assets.
|
Without a CRT |
With a CRT |
|
Value of Stock |
$1,100,000 |
$1,100,000 |
|
Cost of Stock |
-$200,000 |
-$200,000 |
|
Gain on Sale of Stock |
$900,000 |
$900,000 |
|
Capital Gain Tax |
-$180,000 |
$0 |
|
Net Cash for Investment |
$920,000 |
$1,100,000 |
|
Payout Rate |
6.0% |
6.0% |
|
Annual Payout to Donor |
$55,200 |
$66,000 |
|
|
|
|
|
Charitable Tax Deduction |
$0 |
$562,500 |
|
Assumed Tax Rate |
40% |
40% |
|
Tax Savings |
$0 |
$225,000 |
|
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Estate Tax Savings |
|
|
|
Value of Property Less Taxes on Sale |
$900,000 |
$1,100,000 |
|
Charitable Estate Tax Deduction |
$0 |
-$1,100,000 |
|
Taxable Amount |
$900,000 |
$0 |
|
Top Estate Tax Rate |
55.0% |
55.0% |
|
Estate Tax Due |
$495,000 |
$0 |
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Summary of Advantages of CRT versus Outright Sale of Assets:
- $10,800 in increased annual income ($66,000 - $55,200 = $10,800)
- $225,000 in income tax savings from charitable deduction
- $495,000 in estate tax savings
- Assets avoid probate
- Satisfaction of leaving assets to a worthy cause
Charitable
Lead Trusts - This trust is established by a donor
transferring assets to a trust that provides income to a nonprofit
organization for a period of years. At the end of that period,
the trust assets revert either to the donor (grantor) or to someone
else the donor designates (non-grantor). Therefore, the Society
receives an income stream for a period of years, while the donor
receives a current gift tax deduction for the value of the Society's
interest in the trust. Gift tax is then due only on the present
value of the remainder that eventually goes to a beneficiary and
in some cases, no gift tax is payable. Even if trust assets appreciate
by the time the trust term ends, no additional gift or estate
tax will be due when the beneficiaries receives the trust assets.
However, the beneficiaries may incur some capital gains tax ramifications.
Example:
John Jones establishes a lead trust, valued at $500,000, to benefit
the Society. The arrangement will pay the Society an annual income
5% of the trust's value for 15 years, starting with an initial
payment of $25,000. Over the term of years, the sum of payments
to the Society is estimated to total $456,597. At the conclusion
of the trust's term, the corpus of the lead trust, which has grown
to $815,502, passes to Mr. Jones' family. In addition to benefiting
the Society, Mr. Jones receives a charitable gift tax deduction
of $236,585 at the time of the gift and is able to pass on $315,502
in growth to his family, which will end up saving $173,526 in
gift or estate taxes.
Give the gift of tomorrow - become a member of the Botanical
Society of America's Legacy Society
-
http://www.botany.org/BSA-Legacy/BSALegacyForm.pdf
Special thanks to The
Dini Partners for the preparation of the BSA "Ways
to Give" materials. Please note: the information
is provided as an example only. Please consult your tax advisor
for the option(s) that best fit your situation/needs.
Contributions and gifts may also be made to BSA sections, awards
and educational activities online through - https://secure.botany.org/secure/contribution/Contribution.asp.
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