How does Planned Giving work?
Planned giving can be done in a variety of simple and effective ways, all of which benefit the donor as well as the College.
The simplest way to give to the NVCF is by will. If your will does not yet contain such a gift, a very simple amendment to it (called a “codicil”) can be executed with a minimum of effort and legal fees. The Foundation can recommend language to include. Amounts given by will are not taxable in the estate. By joining many fellow donors, you can become a member of the Legacy Society. We would appreciate knowing if you plan to make such a gift. It’s not necessary to tell us the amount of your bequest, but knowing you plan such a gift would be rewarding to you and to us.
2. Gifts that give back—Charitable Remainder Trust (CRT)
This gift allows the donor to keep the benefit of owning an asset while transferring the portion remaining after his or his heirs’ death(s) and receiving the tax benefits of the future gift while enjoying income rights from the asset. For example, donor owns an account with a brokerage worth $500,000, mostly in bonds and dividend stocks from which she receives $35,000 yearly in income for her daily living expenses. She has other assets and knows she will not need the principal from the investment, but only needs the income. She also has other income from stocks and pension funds. She sets up a CRT with her attorney which transfers to NVCF the remainder from the $500,000 in place at her death, after using the funds for her lifetime for the same income purpose for which she already uses them. She gets, immediately on transfer to the CRT, an income tax deduction for the present value of the future gift. She can use the deduction to offset other current income. Therefore, she comes out ahead financially by making the CRT. She is doing well by doing good. If the property is appreciated stocks or real estate, the additional tax advantage is that no capital gains tax is due when she sells the asset. Also, the amount of the transferred property is shielded from payment of estate tax on her death.
A CRT donor is free to designate a reasonable percentage of the annual return from the asset, with 5% as the minimum. In the above example, she would take at least $25,000 annually in income from the CRT. If she specified an 8% annual payout, she would actually receive $40,000/year during her life. She can also specify a fixed amount per year, like an annuity, to be generated from trust income and assets.
Many donors own appreciated real estate on which the earnings are fairly small. They don’t wish to sell the asset and incur the resulting capital gains. By deeding it to the CRT, the trustee can sell the asset without capital gain tax, put the money in a more productive investment and provide the donor with a higher lifetime income, all while reaping the immediate income tax benefits from the value of the future gift.
A CRT to NVC through its Foundation provides the satisfaction of giving to a very worthwhile college while enjoying considerable tax benefits and the peace of mind of knowing that you will be paid a specified amount or formula amount for the duration of your life. These benefits may also extend to the lives of spouses or certain heirs.
When you think about it, most of us have these investments to provide income. The CRT accomplishes this very well and adds a lot of tax benefits.
3. Gifts that give back—Charitable Gift Annuities (CGA)
A CGA can be a win-win for the College through its Foundation and the right donor. The CGA is like the CRT above, but has the added feature of having the payments for life guaranteed by the institution issuing it. NVCF uses the League of California Community Colleges program through US Bank to write CGAs. The donor transfers the asset to NVCF and receives a binding written contract guaranteeing payment of a specified amount per month for life. The amount of the payment is determined by the age and gender of the donor and the investment/interest rate environment at the time of the transfer. For instance, a transfer in January 2013 of a 65-year old would yield a lifetime annual payment at the rate of 4.7%; at 70 it’s 5.1%; at 75 it’s 5.8%; at 80 it’s 6.8%; and at 85 the lifetime payout is at a 7.8% annual rate. You must be at least 65 years old to enter into a CGA contract, and the payment can be for your spouse’s life as well as yours, but would be slightly reduced in percentage because of the two lives. In 2013, this rate of return is nearly five times higher than interest offered on a certificate of deposit (CD) or Treasury bill. Guaranteed payment rates will vary over time, so a potential donor needs to contact the Foundation at 707-256-7170 for current rates and projections for her specific circumstances.
4. Retirement plan donations
Your IRA or retirement plan has been accumulating on a tax-deferred basis for many years. If you bequeath one of these assets to your children, they will pay income tax on the lump sum or income from the plan. If you give the plan proceeds to the Foundation, no taxes are due. You can then give your heirs something else (like real estate) which will be much easier on their taxes.
5. Life Insurance
A donor who designates NVCF as the beneficiary of an existing life insurance policy or who takes out a new policy naming Napa Valley College Foundation as beneficiary will get substantial tax benefits.