Leaving a Legacy
People are often unsure of the definition of ‘planned giving.’ A gift is “planned” to the extent that the donor purposefully integrates a charitable gift into the donor’s overall financial, tax, and estate planning. A ‘planned’ gift enables a donor to make a positive financial difference for the donor and for his family, while also making an important gift to Penn State. Planned gifts are often thought of as ‘leaving a legacy’ that benefits not only the donor and the donor’s family, but also future generations.
Under the right circumstances, a planned gift can provide a donor and his family with a variety of benefits including:
- Increasing current income for the donor or others;
- Reducing income and/or estate taxes;
- Reducing or avoiding capital gains taxes;
- Passing assets on to family members at reduced tax costs;
- Making an important gift to Penn State.
While there are various kinds of planned giving vehicles, the three most common are:
- Charitable Bequests
- Charitable Gift Annuities
- Charitable Remainder Trusts
Many people who would like to make a gift to Penn State feel that they need to retain and use all of their assets during their lifetimes. A charitable bequest allows people to retain assets during their lives and then make a significant gift to Penn State after their deaths, when the assets are no longer needed. A charitable bequest is accomplished when the donor leaves assets to Penn State in his Will (or Revocable Trust).
Estate assets can be heavily taxed. Not all estates are subject to Federal estate and gift taxes, but for those that are, the current tax rates start around 37 percent and quickly go as high as 48 percent depending on the size of one’s estate. When a donor makes a charitable bequest to Penn State through his Will, the donor’s estate receives a charitable estate/gift tax deduction that can help to offset or eliminate Federal estate taxes thus leaving more assets for the donor’s spouse or family.
Charitable Gift Annuities
A charitable gift annuity is a contract between a donor and Penn State whereby the donor transfers cash or marketable securities to Penn State in return for the University’s agreement to pay as many as two ‘annuitants’ (usually the donor and spouse) quarterly fixed income payments for the remainder of the annuitants’ lives. Penn State invests and manages the money and distributes the quarterly payments to the donor(s). When the last beneficiary passes away will the remaining funds become available for Penn State to use.
Gift annuities can help donors convert low-income producing assets (such as non-dividend paying stocks) into a stream of income for the rest of the donor’s life. The donor can also claim a charitable deduction to reduce income taxes. In addition, if the donor funds the annuity with long-term appreciated securities, the donor will have to report only a portion of the capital gain. Some portion of the quarterly payment may also be a tax-free ‘return on investment.’
Charitable Remainder Trusts
Charitable remainder trusts permits one to irrevocably transfer assets to a trust and receive income from the trust for life or for a term of years, at which time the “remainder” goes to a charitable beneficiary, in this case Penn State. Charitable remainder trusts can be created while you are alive or through your will. Benefits of establishing a charitable remainder trust generally include:
- Removing assets from your estate for tax purposes.
- Generating an income tax deduction for the ‘remainder’ value of the trust.
- Receiving income for your lifetime and that of your spouse, or, with a testamentary trust, generating income for designated beneficiaries avoiding capital gain taxes on the sale of appreciated assets used to fund the trust.
- Providing a gift to Penn State.
Whether a charitable remainder trust is right for you and can help you to accomplish your specific financial goals depends upon your specific individual circumstances and what you hope to accomplish in your estate and financial planning.
Making a planned gift is always a big decision and is not to be taken lightly. Under the right circumstances, planned gifts can generate income, save on taxes, benefit a donor’s loved ones, and provide a wonderful gift to Penn State. Representatives from our office are always available to discuss planned giving options with you and with your financial and/or legal representatives.