Types of Financial Giving
A gift of cash is the simplest and most popular way of supporting the Buddy Program. Gifts of cash are ordinarily tax deductible up to 50% of your adjusted gross income (AGI) in the year of your contribution (with a five-year carryover for the excess not utilized).
Next to cash, readily marketable appreciated securities are the assets most commonly donated to the Buddy Program. When you donate appreciated securities, you generally do not incur any capital gains tax. You also may be eligible to receive a federal income-tax charitable deduction (up to 30% of your AGI with a five-year carryover) for the securities’ full fair market value if you have held them long term (i.e., for longer than 12 months). If the donated securities were held short term (i.e., 12 months or less), your deduction may not exceed your cost basis. Because a gift of appreciated securities generally avoids capital gains taxes, this type of gift may have a lower after-tax cost to you than an equivalent gift of cash.
In addition to stock, you may donate bonds and mutual fund shares to the Buddy Program.
If you are considering making a gift of securities to the Buddy Program, please call 970-920-2031 for information on the proper procedures.
Bequests (specific, residuary, and contingent gifts made by will) are the most popular type of planned gift and are crucial for long term growth and success. Your bequest expresses your lasting commitment to The Buddy Program. A bequest may also help you meet your financial and estate-planning goals since an estate-tax charitable deduction for the entire amount of the gift is allowed. Your will (or codicil) should be prepared by your attorney in consultation with your advisors.
Charitable Remainder Trusts
Charitable remainder trusts allow you to make a gift to the Buddy Program and at the same time retain a benefit from the assets you give. These separately managed trusts can be tailored to meet your financial goals with respect to the payout rate, type of income stream (variable or fixed), and payment schedule. To establish a remainder trust, you make an irrevocable contribution of cash, securities, or other property, which is placed in trust. The trust pays an income stream to one or more named beneficiaries (which can include you) for life and/or for a set term of years (not to exceed 20), and the Buddy Program receives the right to principal as a remainder interest. The two most common types of charitable remainder trust are: (1) the annuity trust, which pays a fixed dollar amount each year based on a percentage (at least 5%) of the initial fair market value of the trust assets; and (2) the unitrust, which pays a variable income stream based on a percentage (again, at least 5%) of the fair market value of trust assets as revalued each year. A deferral feature is available for charitable remainder unitrusts. Because charitable remainder trusts (like an IRA or 401(k)) are tax-exempt, this deferral feature can make them a useful retirement planning tool if you are in a position to defer your receipt of an income stream. Charitable remainder trusts are typically funded with assets worth $100,000 or more. Establishing such a trust generally entitles you to claim an immediate income-tax charitable deduction. You should consult with your financial, tax, and legal advisors for more information on charitable remainder trusts as they pertain to your particular situation and needs.
Charitable Lead Trusts
A charitable lead trust is the reverse of a charitable remainder trust; the gift to the Buddy Program is the income stream from the trust, not the remainder. Charitable lead trusts enable you to provide an income stream to the Buddy Program immediately for a set term of years or for a term measured by one or more lifetimes after which the trust assets pass to you or your estate or to your heirs. Leaving the asset to heirs can significantly reduce the gift or estate tax that would otherwise apply. If you think a charitable lead trust could be a useful way to structure a gift to the Buddy Program, you should review the alternatives for structuring the trust with your financial, tax, and legal advisors.
Retirement Plan Assets
Assets in qualified (tax-deferred) retirement plans may represent a large portion of your total assets and therefore may be an important factor in planning testamentary charitable gifts. Retirement assets generally considered suitable for charitable gifts include such plans as IRAs, Keoghs, SEPs, 401(k)s, 403(b)s, and ESOPs.
Left to family members or friends, these assets are subject to income tax and may also be subject to estate tax and generation skipping transfer tax. Because of this potential double layer of tax, retirement plan assets may be particularly attractive as an asset to leave to the Buddy Program. In other words, if you designate the Buddy Program as a beneficiary upon your death of all or a specified percentage of a retirement plan, the portion of the plan payable to The Buddy Program will generally escape estate taxes, and the Buddy Program, as a tax-exempt institution, will not be required to pay income tax on the distributions. As a general rule, if you intend to make both non-charitable and charitable gifts at death, it makes sense to consider using your tax-deferred retirement plan assets for charity and other assets for heirs. If you are thinking about donating retirement plan assets to the Buddy Program, you should discuss the matter with your advisors beforehand.
Life Insurance Policies
Naming the Buddy Program the beneficiary of an existing life insurance policy that is no longer needed to provide for dependents offers a simple way to support the Buddy Program. Since you are the policy owner, the value of the policy will be included in your estate, but an offsetting estate-tax charitable deduction will generally be allowed. You may also be able to assign an existing whole life policy to The Buddy Program, irrevocably making The Buddy Program the owner and beneficiary, and claim an income-tax charitable deduction for the lesser of either your basis in the policy or its fair market value in that year. If the policy is not paid up and additional premium payments are due, you may donate cash or the equivalent to The Buddy Program to pay the premiums each year and claim a full tax deduction for the gift. Lastly, you may be able to purchase a new policy naming the Buddy Program as owner and beneficiary, pay the annual premiums (through the Buddy Program), and claim the premium amount as a charitable contribution.
If you are considering donating a life insurance policy to the Buddy Program, it is important that you consult your advisors about the possible state law restrictions on such a gift and about the amount of the charitable deduction you can expect to receive.