Retirement Living: Planning to Give...Planning to Live 
by Charles Ann Strickland
Contemplating retirement? How does this lifestyle change affect your charitable giving?
Retirement planning is incomplete without a component on charitable giving that enables you to leave a legacy to your favorite charitable organization, and potentially save substantially on taxes. Those who thoughtfully plan how to divide their estates focus on their lives and reward individuals and organizations they have come to love. For them, a whole new realm of giving opens up: gift planning.
Gift planning at its simplest is a bequest in your will to your favorite charity. But gift planning is also about finding ways to make charitable gifts from your estate while enjoying financial benefits for yourself. These types of planned gifts can include charitable gift annuities or charitable remainder trusts that pay you an income for life. Thus, estate planning and gift planning together enable you to provide in the manner you want for the people and the charitable organizations that you care about.
Leave a Bequest in Your Will
Include in your will a bequest of assets such as cash, specific personal or real property or a share of the remainder of your estate. Remember that a bequest to a 501c3 charity is free from federal estate tax. Many people find that through their will they are able to give a more generous gift than they can afford during their lifetime. In making this type of gift, your will can help provide for the future security and happiness of those people and organizations that you care about most. Your gift reflects your hopes, ideals, compassion and judgment. By thoughtfully planning your will’s contents, you make sure that your legacy survives you.
Planned Gifts That Pay You
A planned gift may also be a “life-income gift” because you receive an income from the donated assets (in most cases) for the rest of your life. A charitable gift annuity is a simple way to make a deferred gift that pays you an income for life. The rates are regulated by the American Council on Gift Annuities and are often higher than certificate of deposit rates. The rate is based on your age when you make the gift.
For example, the current rate for a donor aged 77 is 7.4 percent. In addition, nearly 50 percent of the gift is tax deductible, and just over 60 percent of income payment is tax-free. If this 77-year-old donor makes a $10,000 irrevocable donation to fund a charitable gift annuity, the tax deduction is $4,864 and $463 of the $740 yearly payment is tax-free. The deduction for gifts of cash is limited to an overall maximum of 50 percent of your adjusted gross income in any year. However, the excess tax deduction may be carried forward for five years.
If you would like your favorite charity to receive part of your estate at your death, you could place the assets in a charitable remainder trust while you’re living. With a charitable remainder trust, you are paid the income from the trust assets for the rest of your life. In the year you establish the trust, you receive a charitable deduction for the portion expected to remain for the charity after your lifetime. Plus, the trust assets will be removed from your taxable estate, so they’re not subject to estate tax. The remainder of the trust goes to your charitable beneficiary at your death.
You can choose between a unitrust and an annuity trust. A unitrust creates a hedge against inflation long-term. The assets are evaluated yearly, so the payment is adjusted accordingly. In addition, you may add assets to a unitrust. An annuity trust provides a secure fixed life income while avoiding market risks. The value and rate are fixed and will remain the same throughout your lifetime. Assets may not be added to an annuity trust.
Shield Your Heirs
From Undue Taxes
Do you have a significant amount of money in an employee benefit plan, an IRA or a tax-sheltered annuity? Are you hoping to pass those assets to your loved ones through your estate? While the huge growth in retirement assets during the last decade may have made you wealthier, this growth also makes your estate more vulnerable to taxation.
A qualified retirement plan usually comprises deferred funds that have yet to be included in taxable income. Because those assets have not been taxed as income previously, passing them on to individual heirs at your death will subject them to double taxing, both income and estate taxes, depending on the size of your estate. In some cases, taxes can take up to 65 percent of the assets. Thanks to the unlimited estate tax charitable deduction, no estate tax will be levied on an IRA left to charity, and because charitable organizations are tax-exempt, the charity won’t owe income tax.
Investigate Other Planned-Gift Options
Make a significant gift with little cost to you by contributing life insurance policies you no longer need. You can make a charity the beneficiary or transfer policy ownership to a charitable entity.
Avoid capital gains tax by giving appreciated stock. You are entitled to a charitable deduction for the full fair market value of the stock rather than the original cost, and you avoid the capital gains tax. There is a 30 percent limitation of adjusted gross income in any year on certain capital gains property.
Gifts regularly used to fund gifts to charity include assets and certain bonds, closely held stock, commercial business holdings, real estate (including undeveloped land or vacation homes) and tangible personal property such as artwork, jewelry or antique furniture.
Take the Next Step
Contact the gift-planning specialist at your favorite charity to learn more about which gift vehicle best suits your situation. Be sure to include your trusted financial, tax and/or legal advisors to help determine the best plan for your estate. Take this time to set your charitable giving goals. Review the strategies at your disposal for distributing your estate and creating extra income. Make your choices and complete a will.
Leave a legacy—make a difference!
Charles Ann Strickland is the executive director of the St. Tammany Parish Hospital Foundation.
