Gifting is a personal matter and generally requires professional assistance to assure that the donor's intentions are correctly fulfilled. Timing can be very important for full tax benefits. Giving can be an important social and financial aspect of your lifetime planning and long term estate plan. You should consult your legal or financial advisor prior to making a gift.
Gifting is one element of a complete estate plan which we encourage you to investigate. We would be glad to obtain professional advice for you, and help in any way. You can contact our office with any questions.
The following topics explain methods and benefits of making gifts to The Society for the Propagation of the Faith.
Did You Know?
Understanding the Tax Benefits
There is an income tax deduction for outright gifts to the Propagation of the Faith. The deduction is equal to the value of the cash or appreciated property. When state and federal taxes are taken into consideration, a gift valued at $1 may actually cost you only 65 cents, since 28 cents could otherwise go to federal taxes, and 7 cents to the state.
In addition to saving income taxes your family may receive estate tax savings. Many people forget about the estate tax because it is only paid once, at death. The estate tax operates in this general fashion: for each $1 of your estate over $600,000 (including your house, investments, face value of life insurance, pension accounts, etc.) your heirs will pay from 37 cents up to 55 cents. The estate tax is a much higher percentage than the income tax you pay each year, and many families are surprised to learn about the tax when the time is too late. Even if you pay capital gains tax at 35%, your heirs may have to pay an additional 55% on what remains in estate taxes. Once the value of real estate, stocks & bonds, life insurance and pension plans are summed up in an estate, it is remarkable how quickly the taxes can add up in the absence of charitable giving. Let us tell you how a current lifetime gift, reducing the amount of property remaining in your estate, can result in additional savings, and how gifts made to the Propagation of the Faith by will or through a revocable living trust can result in estate tax deductions.
Avoiding the Capital Gains Tax
Many of us have been fortunate to own real estate over the years. The properties have appreciated tremendously. When a person needs to sell an asset for income in retirement, or when market conditions suggest that a sale would be timely, or when the duties of management begin to outweigh the benefits from cash flow, capital gains tax must be faced. Both the federal and state governments collect a capital gains tax. A gift of the appreciated asset avoids recognition of the gain. As a result, no capital gains tax is paid when you give the asset to charity. in fact, there is a DOUBLE BENEFIT, since the gift of the appreciated asset provides both savings from the income tax deduction and savings from avoiding the capital gains tax. The tax law limits the amount of deduction which can be taken each year, but there is a carryover for gifts which exceed the personal limit.
Life Income Plans
If you need to continue to receive income from assets you decide to give to charity, a life income trust can be created. This type of trust can provide lifetime income to you and to your spouse. Trusts can be established for others as well. Life income trusts can help you sidestep the capital gains tax. The real attraction of this is increasing your income. You can UNLOCK income from gifts of low yield growth stock or non income producing raw land, as well as from traditional investment assets. The trust will sell the initial stock or real estate in order to reinvest all of the proceeds for higher income. The donor can select an income of greater than 5%, say 6% or 7%, as the rate desired from the charitable trust. The charitable trust can be very useful as a means of providing a chosen rate of income from 100% of the proceeds from the sale of an asset. Creating a life income trust generates an income tax deduction which adds to your total benefit (the income tax deduction will be reduced for life income gifts by the IRS specified value of the retained life income).
Combining a Sale with a Gift
In some cases the donor will combine a sale of part of the asset with a gift in trust so that the deduction helps to cover the capital gains tax liability for the part that is sold. in essence the donor and the charitable trust share in the proceeds. The donor receives both the immediate cash and a life income from the trust.
Let's look at some examples. You purchased your home in the hills some years ago for $100,000. It is now worth $650,000. You wish to move to a condominium with a value of $200,000. You gift one-half of your house to the Propagation of the Faith and then sell. You receive half the proceeds or $325,000. Because you are over age 55 you can use the $125,000 exclusion and pay no capital gains tax. The Propagation of the Faith invests its $325,000 for you at 7% and gives you a lifetime annual income of $22,750. Had you sold your house without the gift your capital gains tax would be $90,750.
If you plan to live in your house indefinitely, and your heirs are financially independent, consider leaving your house to the Propagation of the Faith. This can be done as a bequest in a will or trust, or you can do it today and take a tax deduction. Here's how it works: Robert and Jackie are both 68 and have a home worth $500,000. Rather than making a gift by will they retain a lifetime right to occupy the house and execute a deed for the remainder to the Propagation of the Faith. Robert and Jackie continue to pay all the bills as usual (property tax, insurance, maintenance, etc.), however, because the gift was made in writing today, they receive a tax deduction of $75,000 (the deduction is based on the age of the donors). Additionally they have removed the property from their estate, saving their heirs at least $185,000 in estate taxes.
What About the Children: How to Give and Still Provide for the Family
Many are motivated to make gifts but are rightfully concerned about their children's' reaction. After all, any gift you make decreases the amount your children will inherit. Is there a way to make a gift and keep your heirs happy also? Yes. Many donors find that with the accumulated tax savings (income tax, capital gains tax, and eventually estate tax) and the new income from the life income trust they are able to pay for life insurance for their heirs in an amount which may equal the value of whatever asset they gifted to the Propagation of the Faith.
Other Ideas About Insurance
Many younger families obtain life insurance for good reasons - to provide financial resources to raise children, pay living expenses, collect tuition, etc. should the primary wage earner die. But now the family has grown, you have achieved a comfortable estate. Does that old life insurance policy have much importance to you. Why not change the beneficiary to the Propagation of the Faith. Such a gift is painless because it does not require a cash outlay and makes good use -of an asset that produces no current benefits for you and has future benefits no longer needed by the family. An outright gift of the policy can offer an income tax deduction instead of the tax which would apply should you cash in the old policy.
The Propagation of the Faith gratefully accepts and acknowledges Memorial Gifts in the name of an individual. A call or note to our office will provide you with information on ways we can acknowledge such gifts. Some donors have chosen to create a memorial fund in their own name or on behalf of family members. A memorial fund can be established by the purchase of a life insurance policy for which the Propagation of the Faith is named owner and beneficiary (to avoid estate tax). When properly structured, premiums paid on life insurance to benefit the Propagation of the Faith are fully deductible.