Consult
with your financial planner, accountant and/or attorney
to determine which categories best fit your individual
and family situation.
Charitable
Remainder Trusts
It is possible for a donor to make
a gift in trust for the future use of PRASAD and still
retain an income for life from the donated property.
A donor may like to make a contribution, but currently
needs to retain some income from the donated assets.
A Charitable Remainder Trust can be a cost-efficient
and tax-wise way to benefit PRASAD. This type of trust
allows a donor to make an irrevocable gift of assets
to a trust, receive an immediate income tax deduction
for the present value of the gift, while receiving guaranteed
income for a period of time the rest of his or her life.
If the donors are married, in¬come can be guaranteed
for the life of each spouse. Income can continue on
to children or other beneficiaries as well. There may
be gift or estate taxes to consider when naming a beneficiary
other than your spouse.
There are two basic types of Charitable
Remainder Trusts:
The Charitable Remainder
Annuity Trust pays to the donor or another
beneficiary an annual income that is a specific dollar
amount or a fixed percentage of the original principal
of the trust. This type of trust assures the recipient
the payment of a fixed annual income. Payments remain
constant for the life of the trust, regardless of
the actual income of the trust.
In a Charitable Remainder
Unitrust, the annual income paid to the beneficiary
is based on a percentage of the fair market value
of the trust assets each year. If the value of the
assets increase, then the annual income to the donor
increases. Conversely, if the value goes down, then
the beneficiary’s annual income goes down. One
advantage of this type of Charitable Remainder Trust
is that the donor may contribute additional assets
in the future to this trust without the necessity
of creating a new trust instrument. The trust can
also be designed to provide a hedge against inflation.
A Charitable Remainder Trust is a
flexible instrument. It can be used to provide a lifetime
income for the donor and his or her spouse, family members,
or other individuals. The amounts and frequency of these
payments can vary within certain guidelines set by the
government. A Charitable Remainder Trust can be established
during a donor’s lifetime or can be established
on a testamentary basis to commence after your death
to provide income for a loved one.
In general the tax deduction allowable
for establishing a Charitable Remainder Trust is based
on several factors: the age of the income beneficiaries,
the interest rate to be paid, and the applicable interest
rate used by the IRS at the lime of the gift to the
trust. The older the beneficiary of the trust, the greater
the income tax deduction in the year the trust is established.
Additionally, the lower the interest rate to be paid
on the trust, the larger the income tax deduction will
be in the year the trust is established.
A Charitable Remainder Trust can
be funded with cash, equities, bonds, real estate, art,
business ownership, etc. Funding a trust with appreciated
assets can be extremely advantageous because the donor
avoids tax imposed on gains from a sale of the assets.
This can result in greater income to the beneficiary
than if he had sold the assets himself, paid the tax
and invested the proceeds. In addition, a large income
tax deduction can create tax savings that can in turn
be invested or gifted. A Charitable Remainder Trust
can also result in a larger gift in the future to PRASAD,
since principle has not been lost to capital gains tax
and assets in the trust are allowed to grow tax-free.
Example: Mr.
Cohen, who is 65,funds a Charitable Remainder Trust
with $250,000 worth of appreciated stock paying a 2%
annual dividend. If he were to sell the stock to obtain
higher yields and more income for his retirement, his
capital would be partially depleted by the tax imposed
on the gain from the sale of stock, thus reducing future
income.
Based upon his age (65), assumed
payout rate of (6%) and the applicable IRS rate used
in computing deductions (assume 7.6% for this example),
Mr. Cohen is entitled to an income tax deduction of
approximately $107,500 on his federal and state in¬come
tax return.
In addition to the current large
income tax deduction, Mr. Cohen will now receive $15,000
annual income from the trust instead of the $5,000 he
was earning before. This annuity will continue for his
lifetime. The extra income, along with the savings from
the tax deductions can be used, gifted to family, or
may become a source of additional annual contributions
to PRASAD.
After Mr. Cohen’s death,
the remaining trust assets will be transferred to PRASAD.
Gifts
of Life Insurance
A gift of a life insurance policy,
along with a gift of the ongoing premium, is an effective
way to make a significant contribution to PRASAD and
may have tax advantages. It can be a great way to provide
benefit to PRASAD from an
existing policy that is no longer needed by a spouse
or grown children. It can also be an effective way to
create a lasting legacy with a new policy paid for
through annual tax-deductible gifts.
Gifts of
Home with Retained Life Interest
Donors sometimes find they own a
valuable personal residence (either a
vacation home or primary residence) that their children
or heirs will not need. In this case, they may choose
to make a gift of their home through a bequest to PRASAD
or there is another option available. A donor may continue
living in the home and at the same time use its value
to make a tax-deductible gift to
PRASAD. The donor can deed the home to the PRASAD, with
the condition that the donor and spouse will retain
the right to use or rent the ~property for a period
of years, or for as long as they live. The top deduction
is based on the value of the property and the donor’s
life expectancy
A gift of a home with a retained
life interest to PRASAD offers the satisfaction of making
a substantial contribution with a sizable tax advantage
while
allowing the donor and spouse to remain in the home
for the rest of their lives or for a specific number
of years.
Example: John
and Betty Parker are both 60 years old and live in a
home valued at $500,000 that they intend to live in
for the rest of their lives. They have also provided
in their wills to make a gift of the property to The
PRASAD Project at the end of their lifetimes. By establishing
a Life Estate today, they irrevocably deed the trust
to PRASAD, but retain the right to live in or rent the
property as long as either of them is living. Because
they can make this commitment now, they will receive
a deduction of approximately $80,000**. If
the Parker’s were in their late sixties when they
established the Life Estate, their tax deduction would
be substantially more.
Beneficiary
Clauses
Sometimes donors may not want
to include charities in their wills or amend them, yet
they want to have some way to contribute to PRASAD in
the event of their death. In this case, it may be possible
to make PRASAD the beneficiary of a bank account, insurance
policy retirement plan, or U.S. savings bond, directly
by completing the appropriate simple forms available
from your bank, insurance agent, or retirement plan
administrator.
For further information, write to:
Donor Development, The PRASAD Project, 465 Brickman
Road, Hurleyville, NY 12747-5314, email development@prasad.org
or telephone (845) 434-0376 x131
Thank you for your thoughtful
consideration to contributing to the work of PRASAD.
We welcome you as a valued partner and look forward
to working with you in the future.
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