Planned Giving

Many people desire to benefit a charity, but cannot donate property to the charity while still alive. For example, an individual may need certain property to cover their living expenses or rising health care costs. A bequest is a gift to a charity at the time of one’s death. It is the simplest type of planned gift and one of the easiest to implement. Donors can leave property to a charity by including a bequest in their will or trust, or, in the case of property that passes by beneficiary designation, a gift can be made by designating specific charities as beneficiaries. With a bequest, donors can retain ownership and use of the property during their lifetime and still benefit the charity by leaving the property to them upon their death. The charities benefit by receiving cash or property, the donors’ heirs benefit, because the amount given to charity is not subject to federal estate tax, and the donors benefit through the flexibility of being able to use and control the property while alive.

With a CGA, in exchange for a gift of cash or property, a charity agrees to make fixed payments for life. This benefits donors who want to make a gift to charity, but need regular payments to supplement their income. The charity benefits through the receipt of the cash or property. By entering into a CGA agreement, the donor receives fixed payments to one or more individuals for life, a portion of each gift annuity payment is tax-free, the annual gift annuity payouts are based on the donor’s age (rates are higher for older donors), and the donor receives a current federal income tax deduction. CGAs especially help older donors who desire fixed payments for life. CGAs are also attractive to donors with cash or appreciated property that produce little or no income. In a CGA, payments are not dependent upon the charity’s rate of return. Instead, they are based on a rate schedule. Many charities use a rate schedule set by the American Council on Gift Annuities (ACGA). Under the ACGA’s schedule, the older a person receiving gift annuity payments, the higher the rate. A CGA contract can begin making payments immediately (“current gift annuity”), or defer payments for at least one year (“deferred gift annuity”). Annuity payments are backed solely by the full faith and credit of the issuing organization and are not insured or otherwise guaranteed by any government agency.

Life insurance is a common choice of planned gifts. Making a gift of a life insurance policy to one’s favorite charity appeals to a variety of donors, because it is a flexible, cost-effective and, in many cases, tax-advantaged way to make a major gift that will benefit the nonprofit after the donor dies. Life insurance can also be used as an asset-replacement strategy. Under this strategy, a donor makes a gift of an asset (such as real estate or appreciated securities) to the nonprofit and replaces the value of that asset to benefit his/her heirs with a life insurance policy owned in a way that eliminates estate taxes on the benefit that is paid to the donor’s heirs. The use of life insurance as a charitable gift doesn’t have to be a boring choice, however. There are many ways to “change it up” to suit the needs of the nonprofit organization and a donor’s planning goals. Most donors and nonprofit organizations think of life insurance only as an asset that produces a future benefit for the nonprofit organization. However, by using the wealth-replacement strategy and/or the life settlement solution the needs of the donor’s family and the nonprofit can be met.