NEW! Giving Guide Click here to download. To request a copy by mail, contact the Community Foundation's office at 513-874-5450.
The Community Foundation of West Chester/Liberty is a valuable resource for those who are considering a charitable provision in their estate plan. The Foundation will meet with interested individuals and their legal or financial advisors to discuss ways in which their charitable objective can be fulfilled.
Lifetime giving through The Community Foundation offers donors two important tax benefits:
- a charitable income tax deduction in the year of the gift, and
- reduction of future estate taxes.
In addition, if donors use long-term appreciated property (publicly traded stock and securities, closely-held company stock, mutual fund shares and real estate) to make their gift, they generally can avoid capital gains taxes on that property. They can also receive the full, fair market value of the gift as their charitable deduction. Charitable gifts at death generally result only in a reduction of estate taxes, however, gifts of retirement plan assets, U.S. savings bonds and other untaxed assets will also result in income tax savings.
Charitable Lead Trust
The lead trust is a powerful tool for many donors to reduce gift, estate, and generation-skipping taxes in passing assets to heirs. A lead trust is essentially the opposite of a remainder trust. That is, a donor places assets in trust and specifies that a fixed amount or fixed percent of the value of the trust each year will be paid to charity for a period of years. At the end of the trust term, the principal of the trust passes intact back to an individual beneficiary. The income tax ramifications of a lead trust depend largely on whether the trust is drafted to be a grantor or nongrantor trust. Although there are several ways to create a grantor trust, one easy distinction is based on the remainder beneficiary. If the donor or the donor's spouse will receive the remainder, the trust is a "grantor trust." If the donor's heirs will receive the remainder, then the trust is a "nongrantor trust" unless the draftsman includes certain other provisions in the trust that would cause the trust to be a grantor trust. See I.R.C. §§ 671-679.
Timing Gifts of Appreciated Assets
It is important to time gifts of all appreciated assets carefully. Your client will not avoid the capital gains tax if there is either an express or implied obligation to sell the appreciated asset. In such a case, the donor will be treated as having sold the property for cash and thereby recognizing gain and then contributing the cash.
Gifts by will to a community foundation are deductible for federal estate tax purposes. A bequest or testamentary gift is the simplest way for many donors to make a significant, lasting gift to their community and beyond. After the needs of spouses, children, and other loved ones have been addressed, many individuals find it satisfying to know that a portion of their resources will go toward the common good. When you are preparing a will, the inclusion of the simple question, "Are there any charitable interests you would like to support through your will?" can be very meaningful to your client. A testamentary gift can also significantly reduce the federal estate tax and the state inheritance tax (in states where applicable) due at the donor's death.
Because a bequest to create a named fund in a community foundation qualifies for an unlimited charitable deduction, and because combined federal and state taxes can exceed 55% on larger estates, a testamentary gift can create a dramatic tax savings for the estate. Thus, many individuals can make significant testamentary gifts at a relatively small cost to their heirs. A testamentary gift to establish a named charitable fund at a community foundation creates a permanent legacy, in the donor's name or in the name of a loved one, that will serve its charitable purpose for generations to come. If a donor advised fund is established, donors can involve their families in the decisions about charitable grants on an ongoing basis.
The Foundation's variance power is particularly meaningful for donors making testamentary gifts, because they are assured that their basic intent will continue to be honored even if their exact specifications are made obsolete by the passage of time. Donors have several options if they are considering a bequest:
- Residuary Bequest: Utilized if donor wishes to leave remaining property after providing for payment of all debts, taxes, expenses and other bequests.
- Percentage Bequest: A donor may designate that the Foundation receive a percentage of the residuary estate.
- Specific Bequest: Allows a donor to designate a specific dollar amount or specific item of property including securities, real estate or tangible personal property.
- Contingent Bequest: Specifies that a bequest be made to the Foundation upon a certain condition, such as the death of another beneficiary.