Making a Planned Gift

Bequests
After providing for loved ones, your clients may want to consider leaving a portion of their estates to the Ann Arbor Area Community Foundation. A charitable bequest is one of the easiest ways to make a lasting gift to the community. A bequest to the Community Foundation can be easily made through a simple designation in a will or trust. Click here to preview some sample testamentary language.

A charitable bequest can dramatically reduce estate and inheritance taxes. Because a bequest to the Community Foundation allows an unlimited charitable deduction and because combined federal and state taxes can exceed 67% of the estate, bequests typically generate tax savings that can be passed to your client's heirs.

Trusts
A trust is established when assets are transferred to a trustee to be held on behalf of specified beneficiaries during the trust's term. Commonly, the benefit received is the payment of income earned by the assets. When the term of the trust ends, the remaining property passes to another beneficiary.

A Charitable Remainder Trust (CRT) is a trust that pays the donor (and/or another beneficiary) either a fixed or variable income for the beneficiary's life, or a fixed term not exceeding 20 years, or a combination of the two.

This planned giving vehicle offers donors a great deal of flexibility. Payments may be made to the donor for life and then directed to a spouse or other beneficiary after death. The CRT may be set up during the donor's lifetime or established by his/her will. The eventual distribution to the Ann Arbor Area Community Foundation will take effect only at the death of the trust's income beneficiaries.

Charitable remainder trusts do not pay ordinary income tax. Income distributed to individuals is taxable to the recipients, while the principal is held for charitable purposes. If donors place highly appreciated securities in the trust, the trustee can sell them without having to pay the capital gains tax realized on the profits of the sale. Low-yielding stocks can be sold and the proceeds reinvested to produce higher income for the income beneficiary.

By creating a CRT your clients can enjoy a number of benefits, including professional management of the assets in the trust and a degree of financial protection. Additionally, donors may receive a charitable tax deduction depending upon their age, or the length of the trust term, payout rate, frequency of payments, and applicable federal discount rate. Creating one of these trusts frequently enables donors to realize greater spendable income.

A Charitable Lead Trust (CLT) is the reverse of a charitable remainder trust. Such trusts can be created by a deed of trust or by a will. Donors can stipulate than an annuity or unitrust payment be made to a fund at AAACF for a term of any duration, after which the principal is paid to donors or to any other non-charitable beneficiary.

Donors do not receive a charitable deduction for income tax purposes upon the creation of a CLT unless they choose to be taxed on the trust income (i.e. the income that will be paid to the Ann Arbor Area Community Foundation). Some people may find that the opportunity to take a federal income tax deduction in the initial year outweighs the disadvantage of paying taxes on the trust's income in later years. Donors can avoid a negative tax impact by funding the trust with tax-exempt securities.

A CLT in which the donors and their spouses are not taxed on the trust's income and that transfers the remainder of the assets to other family members allows the ultimate transfer of the property to be made at a lower transfer tax cost. This mechanism is especially useful for property with capacity for appreciation. CLT's are most sensible for a donor whose family can afford to relinquish the income from the gifted property during the term of the lead trust.

A CLT created in a will can substantially reduce the estate taxes payable at the time of death because of the charitable deduction for the Foundation's charitable interest in the annuity or unitrust payment. The value of the charitable interest depends on the length of the trust and the amount or percentage to be paid out each year. The saving in estate taxes means that family members may receive substantially more than if the property were left to them at your client's death.

Similarly, if the CLT is cerate during your client's lifetime, generally the income tax is eliminated on the income from the assets placed in the trust. Donors can also reduce the gift tax on the property eventually passing to their children or grandchildren.

Life Estates such as a remainder interest in a residence or a farm can be gifted to the Ann Arbor Area Community Foundation. Such gifts entitle donors to take a charitable income tax deduction for the present value of the remainder interest and to escape potential capital gains on the property's appreciation. The donor deeds the property to AAACF and retains the right to live in the home or on the farm until death. When the life estate terminates, the real estate is then sold and the proceeds used to support those organizations or purposes your client has specified.

By assigning a Life Insurance Policy to the Ann Arbor Area Community Foundation, your clients can support the causes and charities they believe in. Often people purchase life insurance when they need protection either for their family, business or estate. Later in life they may find that they do not require as much insurance and can find it desirable to use insurance policies for charitable gifts.

Donors receive a federal income tax deduction for the amount of the cash surrender value in the year of the irrevocable transfer of the policy to the Foundation. Provided the fund minimums are met, any type of fund may be established with an insurance policy. Life insurance enables donors to make a much larger gift than they thought possible, and in most cases a gift of insurance does not significantly reduce their current stream of income.