Part 5 of 9
- Part 1 -- The Place of Endowment Funds in the Local Church
- Part 2 -- How Pastors Can Encourage Planned/Deferred Gifts
- Part 3 -- Encouraging Gifts to a Local Church Endowment Fund
- Part 4 -- Guide to Memorial and Honor Giving in the Local Church
- Part 5 -- Descriptions of the Major Planned Gift Vehicles
- Part 6 -- Planned Giving Resources for Your Use in the Local Church
- Part 7 -- Getting Started on a Local Church Endowment Fund
- Part 8 -- Holding an Estate and Gift Workshop in Your Church
- Part 9 -- A Model for an Estate Planning Seminar in Your Church
This material is excerpted from the "Planned Giving Handbook for Local Churches" published by the National Association of United Methodist Foundations.
There are many ways to give. The wise steward looks at that which God has entrusted with him or her and decides what will constitute a worthy gift. It therefore follows that one needs to decide:
- How much to give
- To what cause(s)
- When to make the gift(s)
- How the gift(s) can best be made
- Whether to give cash or other property
- Tax consequences of the gift
- Whether to give now or later
The purpose of this chapter is to help the Permanent Endowment Fund Committee position itself so that donors can receive both information and assistance in making these decisions. While this chapter is not an attempt to provide an exhaustive and comprehensive listing of all gift options, it is presented as basic information about the most common vehicles or options for charitable gift planning.
Unless you are an attorney, a CPA, or a development officer, there is no need for you to become an "expert" on these gift plan options; but a basic knowledge will be valuable as you provide leadership in your church's stewardship program. The detailed professional advice and assistance needed can be secured by both the church and the donor from qualified professionals. While Conference/Area United Methodist foundations may not be equipped to provide legal and tax consulting services, they are positioned to be a valuable source of information and guidance in matters relating to all of these charitable gift plans and welcome opportunities to assist both the church and prospective donors.
Giving Cash
The cash gift is always a welcomed gift to any charitable cause. More people give cash (usually in the form of a check) than any other type of gift. Cash gifts may be deductible on your income tax return if you itemize deductions (limited to 50% of adjusted gross income). However, the cash gift is sometimes smaller than the donor would like to give because of limited cash available at the time of the gift. The cash gift may also cost the donor more to give than a gift of some other kind of property. Thus, the donor is also encouraged to look at other kinds of gifts.
Giving Appreciated Securities
A gift of appreciated securities may enable the donor to give at a lower cost. In addition to the donor benefitting from a charitable tax deduction for the full value of the securities on the date they are given, capital gains tax may also be avoided on gifted long-term securities. Many persons own appreciated securities which are paying minimal dividends and which they have chosen not to sell due to the capital gains consequences. (If the owner sells these securities, capital gains tax must be paid on the difference between their tax basis, i.e. the value of the securities when they received them, and the value at the time the securities are sold.)
When giving appreciated securities, the donor not only satisfies a need and desire to make a charitable gift, but also takes advantage of making the gift at a reduced cost. If the proper procedures are followed, the donor can avoid paying any capital gains tax. And, the church which receives the appreciated securities can sell them without paying any capital gains tax.
Giving Through Your Will
The easiest way for many persons to make a charitable gift may well be through their will. Yet, few church members have included their church in their estate planning.
Statistics across our nation indicate that more than half of the adults who die each year die without a valid will. If there is no valid will, the laws of the state decide the disposition of one's estate; and in no state are charitable gifts a part of that plan of distribution.
It is very unlikely that many members of your church have made any provision to include their church in their will. And, records indicate that persons who have made charitable gift planning a part of their will have included their college or university, a medical center, or some national charity (such as the American Cancer Society, The American Bible Society, or the American Heart Association) ... but not their church.
These are all good causes, but the question arises, "Why are so many other causes named in wills, and not the Church?" The majority of church members have not included the church in their will because no one ever seriously asked them or explained how and why they might consider doing so. The other charities have clearly given them this option and provided both information and assistance in carrying out this act of Christian stewardship.
There are several ways to include charitable giving through your will:
- A fixed amount: Your will can state a specific amount which you would like to be given to your church or other cause of the Church following your death.
- A specific item or some designated property: Your will can direct that specific real or personal property be given to your church following your death.
- A percentage of your estate: For many persons it may be better to designate a percentage of your estate rather than a specific dollar amount. That percentage will then grow or shrink in the same proportion as your entire estate.
- A residual bequest: After all other bequests are granted, the residual (what remains) can be left to your church. The residual might also be left to your church in addition to a specific bequest named earlier in the will.
Through their estate plans members can also leave the remainder of a trust to benefit their church. Through the use of a testamentary trust a family member (or anyone named) can receive the income from designated assets for their lifetime or for a specific number of years. Following the death of that person (or at the end of the stated number of years) the remainder in the trust goes to the church.
Giving Real Estate
Some of the largest charitable gifts made each year are gifts of real estate. Gifts of real estate can be made in a variety of ways:
- An outright gift. Many of the same advantages indicated earlier for gifts of securities apply to gifts of real estate. Thus, highly appreciated real estate makes a very cost-effective gift since a charitable income tax deduction may be realized along with the avoidance of capital gains taxes. If the income tax deduction is larger than the donor can take the year of the gift, the excess may be carried over for up to five additional years. (Some special benefits may also exist for the donor of depreciated property.)
- Reserving a life estate. The donor who deeds his or her home or family farm to the church, while reserving the right to use the property for life, benefits from a significant income tax deduction (the year the gift arrangement is made) for the present value of the gift to the church and removes the property from the reach of estate settlement expenses.
- Funding a life income gift. There are numbers of life income plans which can be funded with real estate. Each plan has unique benefits for the donor as well as for the church to which the gift is made. The donor can benefit from a life income and may also benefit from significant income tax deductions, avoidance of capital gains tax, and a reduction of estate taxes
Giving Personal Property
Personal property such as automobiles, works of art, antiques, coin or stamp collections, jewelry, and other items can make generous gifts to the church. There are some tax benefits for the donor which depend upon the value of the property given and how the gift is to be used by the church.
Giving Through Life Insurance
There are many ways to make charitable gifts through life insurance -n each with significant benefits for the church and for the donor.
- A paid-up policy. The owner and beneficiary designations must be changed to the charity, and a charitable deduction equal to the replacement value of a comparable policy may be realized by the donor.
- A policy on which you are still paying premiums. The charity must be made owner and beneficiary, and the cash value (at the time the policy is given) plus all future premiums paid may be treated as charitable deductions.
- A new policy to benefit the church. When the church is both owner and beneficiary, the donor's premiums may be treated as charitable deductions.
- Name the church as a beneficiary of an existing policy. The church can be named to receive all or to share in a portion of the death benefits payable through the policy.
- Assign the dividends of the policy to the church. The dividends become tax deductible contributions to the church.
- Use an insurance policy to replace gifted assets. Life insurance is useful in replacing assets which have been given to the church so that family members will receive as much (or more) than they would have otherwise received through the will.
- Use a life insurance policy to guarantee a charitable pledge. This policy might be a part of the donor's gift, or the charity might decide to purchase the policy on its own. This procedure is often used in case of significantly large pledges.
Life insurance can be used to fund future life income arrangements. Life insurance proceeds can fund a trust which will in turn provide future income for a family member with the trust remainder going to the church after a specified number of years or at the death of the trust's income beneficiary.
Remember, the fact that one is uninsurable does not always rule out using life insurance to make charitable gifts since the policy can be written on the life of another family member.
Giving Through Life Income Plans
There are times when people want to give an asset they own to the church, but they need (or want) to retain the lifetime income from that same asset. For these people life income gifts provide excellent opportunities to make a gift while retaining the income for a specified number of years, for their lifetime, or for their and their spouse's lifetime. Life income gift plans offer opportunities to plan for educational expenses, retirement needs, and other present and future needs of family members along with significant income tax and estate tax advantages. The income can be fixed or variable, depending on the needs and desire of the donor. Examples of life income gift plans are:
- Charitable Gift Annuities
- Deferred Payment Gift Annuities
- Charitable Remainder Unitrusts
- Charitable Remainder Annuity Trusts
- Pooled Income Funds
Your Detroit Annual Conference United Methodist Foundation can assist donors with life income gift plans. It may serve as trustee and administer such plans which benefit local churches and other causes of the Church which the donors have designated, or if it does not serve as trustee it may assist the donor in securing a trustee. Conference/Area United Methodist foundations have expertise and technical support to work together with the local church and the donor to accomplish the needs and wishes of both the donor and the church. For assistance in the Detroit Annual Conference, call John G. Fike, CFRE, Executive Director of the United Methodist Foundation at 734-484-2166 or send an Email to johnfike@msn.com.
Giving Gifts of Income
The charitable lead trust has been called the reverse of a life income trust. The donor, through this gift plan, assigns the income to the church with the remainder (at a specified time) being returned to the donor or passed on to other family members. There can be significant tax benefits to the donor since a charitable tax deduction is available up front when the charitable lead trust is created.
Giving Through Retirement Plans
Donors can oftentimes include the church as a beneficiary of their IRAs, profit sharing plan, Keogh Plan, tax sheltered annuity, or other pension plans. The charitable gift thus comes from the remainder in the plan following the death of the donor and/or all other named beneficiaries. Not all retirement plans allow this to be done; but with plans that do, donors will need to discuss this with their plan administrator and complete the necessary documents to name their church as a beneficiary: to receive part or all of the remainder as a secondary beneficiary of the remainder in the plan, only after the death of the donor and spouse as the final beneficiary to receive any remainder in the plan when all other beneficiaries are deceased
Giving Government Bonds
"E", "EE", and "H" bonds may be used to make outright gifts. They may also make very meaningful gifts through one's will. These bonds are also useful in funding life income plans with some distinct advantages for the donor. Unlike other types of gifts which have increased in value, government bonds must be cashed by the owner; but through careful planning a large portion, if not all, of the taxes on the earnings of the bonds may be offset. When government bonds are transferred to the Church through one's will, all of the income and estate taxes can be avoided.
NOTE! Some Facts That Need To Be Considered
The United Methodist Foundation is positioned to provide assistance in consultation and planning with donors and in the administration and management of the gift plan options discussed in this chapter. However, the donor should always be advised to consult his or her own legal and financial advisors.
AN IMPORTANT NOTE TO CHURCHES: Churches (and all other charitable organizations) are advised to make an intentional effort to fully understand all facts and implications as to gifts which are offered and should take prompt and appropriate action to accept or reject those gifts to avoid potential problems.
(For example: Present state and federal environmental regulations and laws make it absolutely critical that a church investigate thoroughly any real property for environmental concerns before the property is accepted. Once it has been accepted by the church the environmental liabilities pertaining to that property rest with the church. Always consult with your attorney and other professional advisors before real property gifts are accepted.)
The purpose of this publication is to provide accurate and authoritative information of a general character only. Conference/Area United Methodist foundations are not engaged in rendering legal or tax advisory services. For advice or assistance in specific cases, the services of an attorney or other professional advisor should be obtained.
