Many donors choose to leave charitable assets upon their deaths. After assuring that their loved ones have been cared for, donors can use a variety of assets, such as pension plans, life insurance or the proceeds from the sale of a house, for charitable purposes.
You can establish or add to your named fund in your will or trust through a bequest. Your gift can be used to accomplish almost any charitable goal:
- Establishing a scholarship fund
- Creating an endowment for a particular charity
- Leaving a family legacy, which allows children to continue their involvement in charitable grant making.
Pension Plan Beneficiaries
A retirement plan is one of the best types of assets to transfer to a charity because it produces taxable income. Most assets an heir inherits are free from income tax. However, an heir will pay income tax on disbursements from a decedent’s retirement plan such as a profit sharing plan, Section 401(k) plan or IRA. If you are going to make a charitable bequest, it is usually better to transfer the taxable assets subject to income tax to a tax-exempt charity such as a community foundation and to transfer the assets not subject to income tax to heirs.
For a taxable estate over $3 million, the combination of estate and income taxes will frequently exceed 75 percent of the total amount even more if the generation skipping transfer taxes are triggered. At a cost to your heirs of only 25 percent of the fair market value of these type of assets, you could apply 100 percent of the assets to a named charitable fund to accomplish your specific charitable objectives.
Life Insurance Beneficiaries
Perhaps you would like to contribute the proceeds of a life insurance policy to help the community, but you are not yet ready to give up ownership of the policy. By naming a community foundation only as beneficiary, you retain ownership of the policy and have access to the cash value as well as the right to change the beneficiary.
If you dont have liquid assets right now but want to support a favorite charity, a gift of life insurance may be a good option. While you retain ownership of the policy, there is no charitable deduction for the value of the policy when you designate a community foundation as the beneficiary or for subsequent insurance premiums. However, proceeds payable to the community foundation at your death will not be subject to federal estate taxes.
We encourage you to work with your lawyer or financial advisor as you consider these options. Our staff is experienced in the use of these giving vehicles and is eager to work with you and your advisor in this process. If you have questions about remainder gifts that have not been answered in this section, please contact us.