When most people think of making a gift, they think of writing a check or giving cash, but other assets may provide greater advantages in terms of tax avoidance, net cost, and eventual charitable impact. You should consult with your financial advisors and the Foundation Office to determine the most advantageous ways to fund a gift.
Kinds of Assets to Give
The list of assets you might give includes: Cash, Securities, Property, Retirement Funds, or Insurance.
Cash
A gift of cash may be made as either a one-time contribution to The Tuomey Foundation, or as a pledge to be paid on a schedule determined by the donor. If you want to make a commitment to a gift in the future and would like a gentle reminder at that time (Next December? Your Fiscal Year?), please indicate. Checks may be made out to The Tuomey Foundation and mailed to 115 N. Sumter St., Suite 120, Sumter, S.C. 29150. Credit card gifts may be made over the phone by calling the foundation office at 803-774-9014.
Securities
Many people find it preferable, from a tax standpoint, to make gifts of securities (stocks or bonds), which have risen in value since the time they were purchased. Such "appreciated securities": have two advantages: You can deduct the full value on the day they are given, and you will avoid capital gains tax on their growth.
If you have some shares you are reluctant to part with (a favorite old holding, a family company), talk to us about how to give them, take your deduction, and buy them back later at a stepped-up basis to decrease your tax exposure. There are two ways to make gifts of securities: You may have your broker or mutual fund company transfer them directly to The Tuomey Foundation’s account, or you can mail them (unendorsed) to the foundation office. In either case, you may want to contact a tax attorney and/or your financial advisor before you call the foundation office to ensure the transfer is done safely and effectively. We may be reached at (803) 774-8664.
Property
Personal property that has gained in value since you acquired it (such as real estate works of art or rare books, for instance) can be an especially effective way to make a gift. The tax rules supporting such gifts are a bit more complicated than those for cash or securities, so please call us in the foundation office and we will work closely with you and your advisors to help you make a choice that feels good and works well. Many people make important gifts this way, especially of real estate. Here is a creative way to make a wonderful gift: you can give your home to The Tuomey Foundation, take a substantial tax deduction right away, stay in your home for the rest of your life, and designate the future use of your gift for the project of your choice. If you are interested in further information, please call (803) 774-8664.
Retirement Funds
Retirement funds seem to be the best kept secret in gift planning. Gifts from these assets often make better financial sense to the donor than gifts of cash, securities or property. As always, talk with your advisor and the foundation office before making a gift. In the years since IRAs and 401Ks and other personal retirement plans were established, many people have deposited significant funds, which have grown rapidly as the financial markets have set records. Your retirement funds may well be a very significant part of your estate now. In your estate, those funds will be taxed more heavily than others and it may make good sense to commit those to your favorite charitable institutions instead of other funds. In some estates, retirement funds can face taxes as high as 80%, leaving little for heirs. You are encouraged to seek advice from an attorney or CPA not only about what to give away, but also about which assets are better to keep in the family.
Insurance
Have you reached a point in your life where you don't need your life insurance any more? The insurance coverage you have developed over the years may now be valuable enough to cause some large estate taxes, which, if you still own the policy, will be expensive to your heirs. A gift of a life insurance policy provides a particularly appealing way of making a substantial gift to The Tuomey Foundation. It allows us to acknowledge and recognize the donor now, it allows the donor to make a larger gift than would normally be possible from current income, and it puts to good use assets that are becoming less important to you. To make this gift deductible, it must be irrevocable and The Tuomey Foundation must be named the owner and beneficiary of the policy. If your gift is of a paid-up (there are no additional premiums to be paid) life insurance policy, you will receive an immediate income tax deduction generally equal to the sum of the premiums you have paid. If it is a policy on which you are still paying premiums, your deductions will be different but still very advantageous. As always, we encourage donors to discuss with us the future uses of their gifts and their choices for naming opportunities.
Here is another important use for life insurance in your charitable decisions: wealth replacement. If you make a substantial gift to charity, you are often reducing the amount of your assets that will go to your heirs. Increasingly, major donors are using some of their tax savings (from their charitable deduction) to purchase an insurance policy on their own life and make their heirs the owners and beneficiaries of that policy. When properly constructed, this wealth replacement strategy can permit both a larger gift and a larger legacy for your children. Please give us a call to discuss this and other charitable strategies (803) 774-8664.
How to Make a Gift in Your Will
Many people are more comfortable with the idea of retaining control of their assets during their lifetime and making charitable commitments to be fulfilled by their executors. The Tuomey Foundation is grateful to know that many people have included the foundation in their estate plans. If you do so, please tell us, so that we may say thanks and can be sure to understand and honor your intentions. We also want to include you in the Tuomey Legacy Partners.
Using A Bequest to Endow Your Annual Gift
Many faithful supporters have steadfastly made yearly gifts to the Foundation’s Annual Campaign. You may wish to continue your annual giving for generations to come by endowing it with a bequest. If you would like some help working out the numbers, please contact the foundation office.
Language for Wills
In your will you may name specific beneficiaries of your estate such as family friends, and favorite charities. If it is your pleasure to include The Tuomey Foundation in your plans, we suggest the following wording: "I give to The Tuomey Foundation, a not-for-profit corporation, (the sum of $______) (____% of the rest and residue of my estate) to be used at the discretion of the Board of Governors of the Foundation." If you or your attorney prefer alternative wording, please call the foundation office and we will work it out to your satisfaction.
Ninety Percent
Nine out of ten Americans never get around to putting charitable gifts in their wills. The vast majority does make gifts during their lifetimes, but miss the chance to leave a lasting legacy. The chief reason for the resulting higher estate taxes… Procrastination!
How To Give Without Depriving Your Heirs
Many people are understandably reluctant to give assets to charity that would benefit their heirs. The tax laws and good planning provide ways for you to restore the value of those assets into the hands of your heirs. Please consider the following three points: If your estate is greater than $1,500,000 per spouse, it will be subject to estate taxes that begin at 45% (on the first dollar over $1,500,000) (these numbers rise to $2,000,000 at 49% in 2006) and rise to 55% (and sometimes more) on estates over $3,000,000. Those are high rates, and they apply to many thousands of people each year. Remember that your IRAs and other retirement plans are included in your taxable estate, as are your house(s), property and other investments that may have appreciated substantially over the years. By some estimates, over half of the people who have an estate large enough to be taxable do not realize it and are not prepared with an estate plan. The things you intend to leave to your heirs may not reach them without paying substantial estate taxes.
When you make a charitable gift you experience a reduction in your taxes. Income taxes are decreased, and you avoid capital gains taxes, gift taxes, and estate taxes according to the kind and size and timing of your gift. Nevertheless, to accomplish your charitable intent you have indeed given something away.
To restore to your heirs the value of what you gave, buy insurance on your life and give it to your heirs. If they own it, or if you put it in a trust, it is not part of your taxable estate. You or they can pay for it, at least in part, with the tax savings from your charitable gift. The amount of insurance you buy need not equal the amount of your charitable gift. For practical purposes it can equal the amount your heirs would have gotten if the asset you gave were taxed as part of your estate. In this line of reasoning it is better to make your charitable gifts early enough, while you are still insurable at reasonable rates. That also gives you more time to enjoy the impact of your generosity.
How To Make A Gift Now and Then Receive Income
The Tuomey Foundation encourages donors to think about making a "life income" gift by transferring assets into a charitable agreement, which provides substantial benefits for both parties. The donor (and perhaps a spouse or other beneficiary) receives income from those assets for life; after the death of beneficiaries The Tuomey Foundation receives the remaining assets. Donors may designate the future use of those assets by the foundation. In addition, donors will receive an income tax deduction, an estate tax reduction, and perhaps avoidance of capital gains taxes. There are several popular ways to do this, and you should consult with your advisors and with the foundation office to see what might be best.
Charitable Gift Annuity
A donor may make a gift of cash or appreciated securities to The Tuomey Foundation, which guarantees, by written contract, to pay the donor (and second beneficiary, if appropriate) a specific amount quarterly for life. A portion of the income may be tax-free. If appreciated securities are used to make the gift, there is a capital gain liability, which can be spread over the actuarial life of the donor. The amount of the income and the charitable deduction is based upon the amount of the gift and the age of the donor or beneficiary. For more information, see our Charitable Gift Annuity brochure.
Charitable Remainder Trusts
A charitable remainder trust is similar to other types of trusts except that it has a charitable beneficiary. A donor transfers property irrevocably to a trust and specifies how the income and principal are to be distributed. The trust can be funded with cash, real estate or – ideally – with long-term, highly appreciated securities to avoid the capital gains on the transfer to the trust. The trustee, who is designated by the donor, manages and invests the assets and pays to the beneficiary an income of usually between 5 and 8 percent for life or for a term of years.
There are two types of charitable remainder trusts: a unitrust which pays a variable income based upon a percentage of the fair market value of the trust's assets, as revalued annually, and an annuity trust which pays a fixed amount each year -- at least 5 percent of the market value of the assets at the time the trust is established.
Charitable Remainder Unitrust
A unitrust pays the beneficiary a fixed percentage of the trust assets valued annually. The dollar amount paid to the beneficiary depends on the performance of the trust's investments. For example, if the donor creates a 7% charitable remainder unitrust and transfers $50,000 to the trust, the beneficiary would receive $3,500 ($50,000 x 7%) the first year. If the assets of the trust appreciated during the second year to $60,000, the trust would pay the beneficiary $4,200 ($60,000 x 7%). Should the assets in the trust depreciate in future years, the amount paid to the beneficiary would be lower. The income tax charitable deduction is based upon 1) the amount of the gift, 2) the percentage payout selected by the donor, and 3) the age/s of the beneficiary/ies.
Charitable Remainder Annuity Trusts
The annuity trust pays a fixed amount to the beneficiary annually. For example, a friend of The Tuomey Foundation transfers $50,000 worth of low yielding securities to an annuity trust and stipulates that he or she receive $4,000 annually. The trust is obligated to pay the $4,000 each year, the "overage" is added to the trust principal. Conversely, if the trust earns less than the stipulated $4,000, the shortfall would be made up by invasion of principal. The beneficiary is guaranteed a $4,000 annual income as long as the trust has assets.
Charitable Lead Trust
A Lead Trust is in many ways the opposite of the Remainder Trusts discussed above. A donor puts assets into the Lead Trust and designates the income from those assets to be used by The Tuomey Foundation. At the end of the Trust (donor's lifetime or a term of years) the assets revert to the donor or to a beneficiary of the donor's choosing. This is a great way for a family to move assets (especially a family company) to the next generation without incurring estate taxes. If you have assets you want your heirs to have, and you don't need the income from those assets now, a Lead Trust can be a good choice.
