Planned Giving
The information below is provided by Parent Sandra M. Rodriguez-Diaz, Esq., LL.M. in Taxation
Gifts by Will (unrestricted bequests or restricted bequests)
You can donate to The School by making a gift to it through your will. For example, you may wish to make a cash bequest of a specific sum of money to The School or you may wish to leave the residue of your estate to The School.
You have the option of restricting your gift to specific area or program of The School such as the library or the speech therapy. However, if you do not wish to restrict your gift to a specific area or program, you can always make unrestricted gifts to The School and we will allocate your funds to those areas or programs that need them.
By making a testamentary gift, your estate will obtain an unlimited charitable contribution deduction for estate tax purposes and therefore, potentially increasing the amount of property that can be transferred to your beneficiaries.
Special Needs Trusts
Another option for you to consider if you have a child with special needs (e.g., autism, ADHD, ADD, mental illness, etc.), is to create as part of your will a special needs trust. Special needs trusts are also known as supplemental needs trusts.
The purpose of a supplemental needs trust is to provide funds to a beneficiary to pay for "additional expenses" not covered by the governmental benefits (e.g., Social Security, Medicaid, and any federal, state, county, city or governmental benefits) without disqualifying the beneficiary for such benefits or diminishing the amount of such benefits. In general, the terms of such a trust provide that the trust assets may be used for "additional expenses" but not for any expenses otherwise covered by governmental benefits or any expenditure that would disqualify the beneficiary from governmental benefits.
It is critical that the terms of a special needs trust be carefully drafted and that they meet specific guidelines because the government has strict requirements for certain benefits.
In general, special needs trusts created by third parties (as opposed to the recipient of government benefits or his or her spouse) are not considered an available resource for the purpose of determining Medicaid eligibility.
In addition, a special needs trust can be created by a living trust or an irrevocable life insurance trust. A special needs trust can be funded with life insurance, as many are. Upon the grantor's death, the insurance company pays the policy proceeds to the trustee and they are held in trust for the benefit of the grantor's beneficiaries, as the trust instrument provides.
Gifts by Living Trusts
You can name The School as a beneficiary of a Living Trust (i.e., inter vivos trust). A living trust can be either revocable or irrevocable. There are many reasons, tax and non-tax related, for establishing this kind of trust during your lifetime. Some of the reasons are the following: you may want to see how the appointed trustee manages your assets while you are alive so that you can get a good indication of how the trustee will run your estate after you die; you want your beneficiaries to avoid the state's probate costs and delays; you do not have the time or inclination to manage your financial affairs; your probate estate (the property passed by a will) could be subject to creditors and you want to isolate it from their reach; and you want to keep certain estate information confidential.
Charitable Remainder Trust
A charitable remainder trust ("CRT") is a tax-exempt trust that allows a donor to give to a charity, diversify assets and receive annual payouts. A donor could transfer appreciated assets to a CRT and potentially avoid immediate capital gains on the transfer. The trust would provide the donor with an annual payout stream, which may be subject to income tax. For making a lifetime gift to a CRT, the donor may receive income and gift tax charitable contribution deductions. If the CRT is testamentary, established as a result of the donor's will or by a trust upon the donor's death, the donor's estate may receive an estate tax charitable deduction. The amount of the deduction is the fair market value of the asset less the present value of the payment stream.
If the CRT pays a fixed amount (not less than 5% of the value of the property at the time it is transferred to the trust) at least annually to an individual or to a non-charitable organization for not more than 20 years (or for not more than the live or lives of living individuals, if the recipient is not an organization), it is called a charitable remainder annuity trust. ("CRAT"). If the CRT pays a fluctuating amount fixed in terms of a percentage of the annual value of the trust assets (and no less than 5% of the value) at least annually to the an individual or to a non-charitable organization for not more than 20 years (or for not more than the live or lives of living individuals, if the recipient is not an organization), it is called a charitable remainder unitrust ("CRUT").
Charitable lead trusts
A charitable lead trust ("CLT") pays an annuity or unitrust interest to a named charity (e.g. The School) for a certain number of years (i.e., the charitable term) and then pays the remainder to designated non-charitable beneficiary. The value of the remainder interest that passes to the non-charitable beneficiary is either subject to gift tax if the donor makes the transfer during his or her lifetime or subject to estate tax if the transfer occurs upon the donor's death.
If the charitable lead trust pays a fixed percentage of the initial value of the trust assets to a charity (e.g., The School) for the charitable term, it is called a charitable lead annuity trust. If the charitable lead trust pays a percentage of the value of its assets, determined annually, to a charity (e.g. The School) for the charitable term, it is called a charitable lead unitrust.
Unlike charitable remainder trusts, CLTs are not tax-exempt entities. Depending on the type of CLT, the donor may be able to take a charitable income tax deduction at the time he or she makes the gift; either the donor or the trust must pay capital gains tax when the charity sells the appreciated assets transferred to the trust; and the donor or the trust must pay income tax on any income generated in the trust.
Life estate agreement
The donor would transfer real estate property to The School but retains the right to use the property for the rest of his or her life.
An immediate charitable income tax deduction is available equal to the present market value of the property less the value of the retained interest. The retained interest is the value of continuing to occupy the property for one's lifetime.
The donor retains the right to live on the property for the remainder of his or her lifetime and the lifetime of another designated individual.
Upon the death of the donor The School becomes the exclusive owner of the property, without the delays of probate and the expenses of estate settlement fees. Some of the advantages are the simplicity and low cost to establish, the avoidance of probate, and the receipt by the remainder beneficiaries of stepped up income tax basis in the property.
Life insurance
One of the most common ways that a life insurance can be used to benefit a charity is by designating the charity as beneficiary at the insured's death.
You can designate The School as beneficiary of your life insurance policy. You can change the designation of a beneficiary of your life insurance by obtaining from your insurer a change of beneficiary form and completing it.
Designating The School as beneficiary of your life insurance policy will not result in an income tax charitable contribution deduction. However, such a designation will avoid federal estate taxes upon your death because the transfer to The Charity will qualify for an unlimited estate tax charitable contribution deduction.
In addition, you have the options of either giving a charity a policy you currently own or giving the charity cash to purchase a life insurance policy, on your life, where the charity is designated as the beneficiary. Both options allow the donor to obtain a charitable income tax deduction subject to adjusted gross income limits, but certain state law requirements may have to be met for these options to be effective.
Retirement plans
If a person dies with retirement plan assets in his or her estate, those assets may face income taxation and estate taxation depending on the nature of the beneficiary of the plan.
Retirement plans are Income in Respect of a Decedent and thus they create income to the deceased person and are subject to an income tax.
The sum of the estate and income tax can be devastating and can significantly reduce the amount that normally would be passed to heirs or beneficiaries.
Because taxes are so high, many people consider using retirement assets to make a bequest to a charitable organization at their death. A properly structured gift naming The School as beneficiary of the retirement plan will avoid both the estate and income taxation of these assets.
Pooled Income Funds
Through the use of an income pooled fund a donor spouse can, for instance, make a charitable gift during his or her lifetime, retain a life income for his or her lifetime, and name his or her spouse as the beneficiary of the life income interest. Upon the death of the surviving spouse, the remaining share of the fund will be transferred to the charity.
The charity invests the funds that the donor contributes in a sort of a money market fund. The income interest amount paid to the donor spouse and his or her surviving spouse will be based on the value of the units that they hold and on the market performance of the fund. The donor spouse will qualify for a charitable contribution deduction for gift and income tax purposes.
Alternatively, the donor could contribute to the fund at his or her death. The estate will receive an estate tax charitable deduction for the projected value of the fund at the end of its term.
*The Child School/Legacy High School ("The School") cannot provide specific advice on legal and/or tax consequences. Contributors considering legal and tax benefits from their contributions should seek the counsel of their trusts and estates attorney and/or financial advisor to obtain legal and professional advice.
List of Recommended Trusts and Estates Attorneys and Financial Advisors
Sandra M. Rodriguez-Diaz, Esq., LL.M. in Taxation
Law Offices of Sandra M. Rodriguez-Diaz
375 South End Ave., Suite 5A
New York, NY 10280
Phone #: (646) 823-7208
Fax: (212) 945-6717
E-mail: smr263tax@yahoo.com
Edgardo Martinez
Financial Consultant
Smith Barney, Inc. a division of Citigroup Global Markets Inc.
100 S. Bedford Road, 1st Floor
Mt. Kisco, NY 10549
Phone #s: (914) 242-0290 or (800) 438-6509
Fax: (914) 242-0492
Website: http://www.fc.smithbarny.com/edgardomartinez
