A.  A planned giving prospect usually shares one or more of the following characteristics:

A.  Bequests – One of the largest sources of income to nonprofit.

                depleting current assets.

           2.   A donor can change his mind and revoke the bequest if desired.

           3.   The gift avoids state and federal estate taxes.

     B.  Life Insurance

           University of Rio Grande.

•              Make a gift of an existing life insurance policy.
•              Establish a new policy and name the University as the owner and beneficiary of the                  policy.
•              Use life insurance to replace the value of gifts to the University.
•              Fund a Short-Term Endowment Policy (STEP).
•              Create a Twenty-First Century Endowment policy.

A new Life Insurance Policy naming the University as both owner and beneficiary allows the donor to deduct the payment of premiums as a charitable gift.

The gift of an old policy to the University allows the donor the right to deduct the present cash value of the policy as a charitable deduction.

INSURANCE MAY HOLD KEY TO DONORS’ DILEMMA

Donors often struggle between their desires to achieve philanthropic goals and their need to preserve their estates for their families.

To eliminate this conflict, life insurance may be a solution, enabling the donor to make a major gift while putting the estate back into the position it was in prior to the gift.  This approach works especially well if the gift is a planned gift, because the tax savings and/or stream income from the gift can be used to offset the cost of the insurance premiums.

For example, assume Mr. and Mrs. Smith have two children ages 30 and 28 and wish to make a gift of $400,000 to fund a chair at the University of Rio Grande.  A gift of $400,000 is a large gift for any family, and the funding of this chair would deplete a significant portion of most families’ estates.

Mr. and Mrs. Smith may wish to fund the chair and simultaneously fund an irrevocable asset replacement trust.  In anticipation of their receiving tax benefits and possibly a stream of income from their gift, they fund the trust with cash.  The trustee of the trust uses the cash to fund a “second-to-die” life insurance policy on Mr. and Mrs. Smith.  A second-to-die policy reduces the overall cost of the life insurance inasmuch as the policy accumulates and does not pay a death benefit until the death of the surviving spouse.

Second-to-die life insurance may be purchased for approximately 30 percent of the death benefit or face value of the life insurance.  The actual cost depends on the insurance carrier and the age and health of the donors.  Be sure to shop around for the carrier that offers the least expensive premiums, because costs do vary.

Upon the death of the survivor of Mr. and Mrs. Smith, the beneficiaries, the Smiths’ two children, receive the death benefit of the insurance policy.  Because the death benefit passes outside the estate, federal estate taxes are avoided.  The funding of the irrevocable life insurance policy will be treated as a gift for the gift tax purposes.

Mr. and Mrs. Smith may also consider making annual gifts to their children.  By gift splitting, the smiths could transfer up to $10,000 a year to each of their children.  The $10,000 gift would pass free of estate and gift taxes and may also be used to fund the premiums of the life insurance policy.

If the University is made both owner and beneficiary of the policy, the premiums and/or cash value of the policy are generally fully tax deductible as charitable gifts.

OUTRIGHT GIFTS OF APPRECIATED SECURITIES

A gift of appreciated securities to the University of Rio Grande can greatly benefit a donor by providing tax benefits through a charitable income tax deduction.  A gift of appreciated securities through a life income gift provides increased income to the donor as compared with CD rates or average stock dividends, and diminishes capital gains taxes while providing a charitable income tax deduction.

Long-term appreciated securities are stocks or bonds that have been owned for at least a year and have increased in value.  Making a gift of appreciated securities benefits a donor in two ways; the donor receives a charitable income tax deduction for the full fair market value of the securities, and at the same time avoids capital gains taxes on the appreciated securities.  The gain is measured by the difference between the cost basis (the amount originally paid for the stock), and its current fair market value.

For example, suppose you hold 1,000 shares of stock that were purchased at least a year ago.  When you bought the stocks they were worth $10 per share, and today they are worth $30 per share, for a total of $30,000.  If you make a gift of these securities outright to the University of Rio Grande, you immediately receive a $30,000 charitable income tax deduction and avoid capital gains taxes.  At a capital gains tax rate of 28 percent, the tax due on a gain of $20,000 is $5,600.

Stock Loss

If you have experienced a stock loss because of a drop in the value of your stock, it is unwise to give the stock directly to the University of Rio Grande.  It is far better to sell your stock, take the loss on your tax return, and then donate the proceeds to the University of Rio Grande, thus obtaining a charitable income tax deduction for your gift and a capital loss.

The owner of a closely held stock can make a gift to the University of Rio Grande and receive important financial benefits.  Closely held corporations are corporations whose stock is owned by family members or business associates.  The stock is private in that it is not publicly traded and in most cases there are restrictions on the transfer of the stock to third parties.

Donors considering a gift of closely held stock must not have entered into a prior written agreement with either the closely held corporation or a potential third-party purchaser.  The transfer should be an arms-length, independent transaction.  Donors who make gifts of appreciated assets should consult with their attorney or tax advisor.

Outright Gift

In making an outright gift, a donor typically transfers stock to the University of Rio Grande.  To determine its value, the donor has the stock appraised and obtains a charitable income tax deduction equal to the appraised value of the stock.  The appraisal must be conducted by an appraiser who is knowledgeable in establishing the value of closely held stock.  The University of Rio Grande then redeems the stock to the corporation and receives a check for the redemption price.  It is important that the appraised price reflect the redemption price.  If the stock is sold within two years for less than the appraised value, the University of Rio Grande is required to notify the Internal Revenue Service.

The stock may also be transferred through a purchase of the stock by the closely held corporation’s Employee Stock Ownership Plan (ESOP).  In either of these cases, the stock is reacquired for redistribution by the corporation to its shareholders or to ESOP.

Instead of redeeming the stock to the closely held corporation, the University of Rio Grande may transfer it to a third party purchaser as long as there are no restrictions on the ability to transfer the stock.

RESOLVE TO REVIEW YOUR EXISTING ESTATE PLAN

Now that this year’s tax returns are filed, it is time to make your resolutions for the new tax year.

If you have not reviewed your estate plan (will, trust, durable power of attorney, living will) you may need an update.  Changes in state or federal tax laws may have turned your plans into something that you did not intend.  In addition, you should update your will if you have married, separated, or divorced, had a child, inherited money, or moved out of state.

If you are interested in contributing to specific charities, for instance the University of Rio Grande, you should review your will to make provisions for charitable giving.  This is an excellent way to reduce your taxable estate.  Federal estate tax rates are assessed from 37 percent to 55 percent, to the extent the estate exceeds $600,000.  If you have not yet drafted a will or if your will is stale, have a new one drafted today.

Resolve to reduce your taxes.

Understand the tax rates.  Depending on your taxable income, tax rates are 15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent.  If you itemize your deductions, you can reduce your taxes through charitable gifts.  Charitable gifts reduce your taxable income, which may also reduce your tax rate.

Resolve to examine your investment strategies.

You may be holding stocks, bonds, or mutual funds that are no longer producing sufficient dividends or interest.  Perhaps your needs have changed; you may have previously invested for growth but now need income.  You may be holding securities that have greatly appreciated in value and have incurred significant capital gains taxes.  If this is the case, you may wish to consider making a gift of appreciated securities to a pooled income fund or to a charitable remainder trust, which offer you the following advantages:

     1.  You receive a charitable income tax deduction.

     2.  You avoid capital gains taxes.

     3.  You receive full fair market value credit for your gift.

     4.  An income stream based on the fair market value of your gift.

Resolve to examine your financial plans for retirement.

If you are contributing to a company pension plan, see whether you are investing the maximum, especially if the company is matching your contribution.  You will also need to reexamine your IRA investments.  In addition, you may wish to consider establishing a charitable deferred gift annuity, which will provide an immediate charitable income tax deduction and an income when you are in a lower tax bracket, perhaps at age 65.  This is a new and exciting way to make a gift and plan for retirement.

Resolve to review your insurance needs.

Find out whether you need additional insurance.  Be sure to reexamine your needs if you have recently had a child, bought a home, or acquired valuable property.

Resolve to learn more about investments.

It is smart to know all you can about your investments, because your finances are your future.  The more you learn, the easier and more interesting it becomes.