A good advisor can walk clients through the decision about the timing of charitable gifts and the various types of planned gifts, which involve advance planning for a charitable gift to take effect upon the happening of a certain event (such as a donor’s death or the passage of a certain period of time). The Community Foundation staff works with donors and their advisors to help determine what type of giving strategy is appropriate for the particular gift being considered.
A Planned Gift is an ideal choice for someone wants to provide ongoing support to his or her favorite charities or charitable causes during or after his or her lifetime. A planned gift allows an individual to leave an enduring Legacy for the community while at the same time providing significant tax benefits.
A bequest to the Community Foundation can add to an existing fund or establish a new fund. The fund can be anonymous or named. It can make grants in a wide area of need that interest the Donor or it can benefit designated charities and churches, which will receive a grant each year in perpetuity. Wills can also provide for scholarship funds. The Community Foundation of Cleveland and Bradley County is dedicated to carrying out the donors’ wishes; we work with the donor and his or her professional advisors to establish the fund that will achieve his or her unique charitable goals.
Types of Planned Gifts
Outright gifts can include cash, publicly or closely traded securities, tangible personal property, real estate, insurance and retirement assets and are eligible for tax deductions.
Bequest by Will or Trust
A bequest to the Foundation can be easily made through a simple designation in a will or trust to either establish a fund or add to an existing fund. Suggested language can be provided to your attorney to be included in your estate planning documents. The Foundation accepts bequests in several forms, including specific sums or assets, a percentage of the estate or trust, residue of the estate, and contingent bequests.
Gifts of Appreciated Assets
Gifts of long-term appreciated stock, mutual funds or real estate offer an easy and tax-efficient way to make a lasting contribution to the Community Foundation while avoiding capital gains tax and reducing federal income tax. In general, when a person sells an appreciated asset, he or she must recognize capital gain on the sale of such property. If, instead, you gift the securities or real estate to the Community Foundation, you will avoid the capital gain, and also be entitled to take a charitable deduction on your federal income tax return, potentially saving in federal income taxes and in state taxes as well. To ensure you are entitled to receive the most beneficial tax treatment, please contact us or your tax/legal advisors BEFORE you sell your securities.
A donor will also be entitled to a tax deduction as a result of a contribution of personal property to the Community Foundation. The deduction would be based on whether the item donated is related to our mission. If the gift you make is used in furthering our mission, you will receive a charitable deduction for income tax purposes for the full fair-market value of the property donated. But if you donate artwork, jewelry, or other non-mission related property, you receive an income tax charitable deduction equal to your cost basis in the asset (typically the amount you paid for the property).
Retirement Plan Assets
Gifts of retirement plan assets may include IRAs or assets in qualified retirement plans such as Keogh plans, and Section 401(K) and 403(b) plans. Retirement plan assets accumulate on a tax-deferred basis and are subject to income tax, in addition to estate tax. When making a charitable contribution, it is usually best to transfer an asset that is subject to income tax (like a retirement plan) to a tax-exempt organization, such as the Community Foundation, and leave assets not subject to an income tax to your heirs. These assets can be contributed directly to the Community Foundation of Cleveland and Bradley County by naming the Foundation as a beneficiary on a beneficiary designation form provided by your retirement plan administrator.
You can receive an income tax deduction equal to a policy’s cash value for transferring a whole or universal life policy to Community Foundation. However, the Community Foundation can also be named as a beneficiary on life insurance policies, with the proceeds being used to establish a fund to be used in accordance with the fund agreement between you and the Community Foundation. To establish this type of gift, you request a “Change in Beneficiary Designation” form from your insurance agent.
Charitable Lead Trust
A charitable lead trust is a gift plan defined by federal tax law that allows a donor to liquidate an asset or transfer assets to family members at reduced tax cost by making annual payments of the income from the asset to the Community Foundation for a limited period of time. Depending on the exact structure of the trust, you can use an income tax deduction and spread the income recognition from a highly appreciated asset over the trust term or remove an asset’s value from your taxable estate, or both.
How it works: The donor transfers assets, usually cash or securities, to a trustee of his or her choice, such as a bank trust department. During the trust’s term, the trustee invests the trust’s assets. Each year during the trust term, the trustee pays either a fixed percentage of the trust’s current value, revalued annually (lead Unitrust), or a fixed dollar amount (lead annuity trust) to the Community Foundation. The payments to the Community Foundation can be used for the purposes the donor designates. The trust’s term may be for a specific number of years (10 to 20 years is common), one or more lifetimes, or a combination of the two. When the trust’s term ends, its charitable payments cease and the trust’s principal is distributed to the beneficiaries named by the donor.
Charitable Remainder Trust
A charitable remainder trust is a powerful tool for donors who desire the security of a lifetime income and who want to make a significant future charitable gift and receive a current income tax deduction. This type of gift produces income that may continue for the lifetimes of the beneficiaries, a fixed term of not more than 20 years, or a combination of the two.
How it works: The donor, donor’s attorney and the donor’s trustee of choice, such as a bank trust department or trust company, work with the Community Foundation staff to prepare a trust agreement. The donor irrevocably transfers assets, usually cash, securities, or real estate, to the trustee to fund the trust and the donor receives an income tax deduction equal to the trust’s remainder value to the Community Foundation, subject to IRS limitations. During the trust’s term, the trustee invests the trust’s assets. Each year the trustee pays the income beneficiaries (designated by the donor) either a fixed percentage of the trust’s current value, revalued annually (remainder Unitrust), or a fixed dollar amount (remainder annuity trust). Payments of income may be made annually, semiannually, or quarterly. When the trust term ends, the trust’s principal passes to the Community Foundation, to be used for the purpose the donor designates.
Gift of a Remainder Interest in a Residence or Farm
This gift can be ideal for a donor whose home represents a major portion of his or her net worth. A retained life estate deed can allow you to remain at home and also provide a substantial gift to charitable causes. Once our due diligence process is complete, the donor gifts the home to the Community Foundation, but retains the right to live there for life. This gift creates an up-front charitable deduction for the remainder value of the property, removes the property from your taxable estate, and relieves your heirs of the burden of managing and/or selling the property. While living on the property you continue to be responsible for all routine expenses such as maintenance, insurance, and property taxes. When the retained life estate ends, the Community Foundation can use the property or proceeds from the sale of the property for the purpose you designate. Donors can often use a portion of the tax savings to purchase life insurance to replace the value of the home or farm for their heirs.
Note: There are a number of requirements that must be met in order for a Charitable Trust to provide the tax advantages discussed above. The Foundation suggests working with a tax/legal counsel for details on implementation of a Charitable Trust.
*Please be advised that Community Foundation of Cleveland and Bradley County is not a tax or legal advisor. Anyone intending to execute any of the strategies contained in this planned giving document should seek the advice of a competent tax or legal advisor before so doing.
If including the Community Foundation in a Will or other estate plan, we should be named as:
Community Foundation of Cleveland and Bradley County
A non-profit corporation designated 501(c)(3) by the IRS, organized and existing under the laws of the State of Tennessee
Principal Business Address:
PO Box 4474
Cleveland, TN 37320-4474