Gifts to The Ridhwan Foundation

Transcription

1 Gifts to The Ridhwan Foundation The following is written with The Ridhwan Foundation as recipient of donations. The Ridhwan Foundation is a 501 (c) 3 charitable, non-profit US corporation and can receive donations in all the ways described below. Introduction The Ridhwan Foundation is committed to maintaining our relationships with our members free of the pressures or influences that can occur when donations are solicited. At the same time, Ridhwan is a tax-exempt organization, fully qualified under US Federal and State laws to receive such charitable donations. We have prepared this overview of giving to assist you in making a gift if that is your desire. Please bear in mind that this is general information and is not intended as specific legal or tax advice. Please consult with your appropriate legal or tax professional to ensure that any gift you make complies with all current, necessary, legal and tax requirements. Overview of types of gifts Essentially we will focus on two categories of donations: gifts given outright while you are alive and donations that may be provided for in a bequest in your will, trust, or other similar arrangement. 1. Cash Outright gifts Gifts of cash are the simplest and most common gifts to organizations such as ours. You may claim an income tax charitable deduction for the full value of your cash gift up to 50% of your adjusted gross income for the year. If you are unable to use your entire deduction in one year, you may carry over and deduct the excess into the following five years. 2. Marketable securities Giving marketable securities that have appreciated in value can be an especially prudent and economical way to give. A gift of listed stocks, bonds, or other publicly traded securities held for more than one year provides you with a double tax benefit: - You avoid capital gains tax on the appreciation; - You receive a charitable income tax deduction for the full fair market value of the securities. Gifts of appreciated securities are deductible up to 30% of your adjusted gross income. Any unused portion may be carried forward and deducted within the following five years. 3. Real Estate With an outright gift of an entire or partial interest in real estate, you receive a charitable deduction for 100% of the donated property s fair market value. You also normally avoid capital gains tax even though your property has appreciated. An outright gift of real property allows you to reduce your estate by the value of the property, possibly decreasing estate taxes. 4. Other Property The Foundation may be able to receive donations of other types of property (such as computers, furniture, etc.). The rules for deduction of value of such items are more complex and we advise you contact the Ridhwan office and your tax advisor prior to attempting such a contribution. Charitable Giving 2014 Page 1

2 Bequests, Life Insurance, Charitable Remainder Trusts, etc. A. Overview of available gifts through a will or living trust There are many different options through wills or living trusts that you may have heard of and be considering. Some of these are: 1. Outright bequests An outright bequest is a specified dollar amount, or specific asset (real estate, security, etc.), set aside in your will or living trust as a gift to the Ridhwan Foundation. 2. Residuary bequests A residuary bequest designates a percentage of your estate as a charitable gift, to be transferred only after other distributions are made. 3. Contingent bequest A contingent bequest specifies that your estate, or a portion of it, passes to the Ridhwan Foundation only if your other beneficiaries fail to survive you. 4. Charitable remainder trust A charitable remainder trust in your will or living trust allows for one or more named beneficiaries to receive income for life or for a term of years, after which time the trust assets revert to the Ridhwan Foundation. 5. Charitable lead trust A charitable lead trust in your will could provide income to the Ridhwan Foundation for a period of years, after which time the assets revert to your heirs at a reduced estate tax cost. Since the Ridhwan Foundation is a 501 (c) 3 church to which donations are tax deductible, all of the types of gifts enumerated above can at least in theory afford a considerable tax advantage to the donor. However, not everyone s estate can take advantage of estate tax charitable deductions. If your estate (including life insurance policies, retirement plans, etc.) is valued at less than $5.34 million in 2014, no federal estate tax is due. Please consult with your tax advisor to obtain up to date information on the tax benefits to which you may be entitled. To ensure that your intentions are carried out, wills, living trusts, and their codicils should be prepared by or with the advice of your attorney. You can share with your attorney the following sample language that can be included in your will or living trust and tailored to address your specific wishes. Outright bequest language: California, the sum of ($ ) to be used for its general purposes. or California, the [identify and describe specifically the real or personal property] to be used for its general purposes. Charitable Giving 2014 Page 2

3 Residual bequest language: California, all (or state a percentage) of the rest, residue, and remainder of my estate, both real and personal, to be used where it is determined the need is the greatest (or for the support of a specific fund or program). Earmarked bequest language: I give [sum of dollars or property] to The Ridhwan Foundation, a Colorado Corporation, with principal offices in Berkeley California, to be used for the following charitable purposes: [identify specific charitable purpose] subject to the right of the Governing Board of the Foundation to alter the foregoing designations in the event that any of them shall, by reason of changed conditions, become impossible of fulfillment, impracticable, or undesirable as determined by the governing Board of said Foundation. (Please note that while we will accept earmarked gifts it is easier on the Foundation and therefore more desirable to receive unrestricted gifts from our donors.) B. Gifts of life insurance and retirement plans 1. Life Insurance If you have a life insurance policy that you no longer need and you so wish, you can name The Ridhwan Foundation as its owner and beneficiary, and receive an income tax deduction equal to the policy s cost basis (total premiums paid minus total dividends received) or its replacement value. You can also assign to The Ridhwan Foundation ownership of an existing policy on which you will continue paying premiums. Under this arrangement, you will be eligible for an income tax deduction equal to the policy s cost basis (total premiums paid minus total dividends received), and you would also receive a deduction on your income tax returns equal to each premium payment. Alternatively, if you are providing for a loved one through an insurance policy, you can name The Ridhwan Foundation as either a secondary, residual, or contingent beneficiary of the policy. The proceeds would become a charitable gift for estate tax purposes if they pass to the Foundation. In order to make a gift to qualify for income and estate tax charitable deductions, it is important to make sure you name The Ridhwan Foundation, a Colorado Corporation, with principal offices in Berkeley, California. Since laws regulating gifts of insurance to charitable organizations may vary from state to state, it is advisable to consult with your insurance agent. 2. Retirement Plans Retirement plan benefits may be taxed as much as 85% if left to heirs other than a spouse since they may be subject to both income and estate taxes. For this reason it may be desirable to name a tax exempt organization as beneficiary or contingent beneficiary of all or a portion of your plan. This may allow you to avoid both the estate tax and income tax that would be due to those taxdeferred plans if distributed to your heirs. If you are planning on providing for The Ridhwan Foundation from your estate already, it may be wise to use retirement plan assets for this gift and leave other assets to heirs in order to maximize the giving power of your estate. Charitable Giving 2014 Page 3

4 If you do desire to name The Ridhwan Foundation as the beneficiary of a retirement plan, you must do so directly through your plan s beneficiary designation form rather than through your will. In this way, those assets will not pass through your probated estate and will not be subject to taxes. If you decide to make a gift of your retirement plan to the Foundation, simply provide the Ridhwan Foundation s full legal name, address, and tax payer identification number (see below).on the retirement plan s beneficiary designation form C. Charitable Remainder Trusts A charitable remainder trust (CRT) is a gift arrangement that enables you to contribute to The Ridhwan Foundation while at the same time providing income to yourself and or a loved one. This tax-exempt irrevocable trust is designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the Ridhwan Foundation. CRTs are separately managed trusts that can be tailored to accommodate a wide variety of gift assets and to meet your personal financial and philanthropic goals. CRTs may offer you a number of important financial benefits: * An income tax charitable deduction * Increased spendable income * No capital gains tax when appreciated property is transferred to the trust * Reduction of your taxable estate To establish a CRT, you make an irrevocable contribution of cash, securities, or other property to a trustee of your choice and designate a person or persons who will receive income. The trust assets are separately invested and individually managed. The Trustee can be any person or institution that you choose. The beneficiaries designated by you may receive income generated by the trust in several ways: (a) for as long as the beneficiaries are alive; (b) for a period not to exceed 20 years; (c) or for a combination of term and life-span. For example, if the individual dies during the 20-year period, payments stop and the remainder interest passes to the Ridhwan Foundation. When the specified time of payments has concluded, the appointed trustee pays the principal to the designated charitable organization. There are administrative and start-up costs associated with a CRT that make this arrangement most sensible for contributions of $100,000 or more. When you establish a CRT, you determine the annual income paid by the trustee. You select a percentage payout, which must be at least 5%. There are two main types of CRTs: a charitable remainder unitrust and a charitable remainder annuity trust. A unitrust provides a fluctuating annual payment based on a percentage of the trust s assets as revalued each year. If the assets grow over time, the beneficiaries receive a larger annual payment. The converse is also true. A charitable remainder annuity trust, on the other hand, pays a fixed dollar amount each year, regardless of how investments perform. The annuity trust provides the donor with the most secure income, as each payment is always the same. When you make a gift to establish a CRT, you are entitled to an immediate income tax charitable deduction for a portion of the value of the donated assets. The size of the deduction is based on the projected value of the remainder interest that is given to the qualified charity. This is calculated by an IRS prescribed formula, taking into account the age and number of income beneficiaries (for the number of years, if a term of years trust), the annual payout, a Federal discount rate, and the type of CRT you select. The charity s remainder interest must be at least 10% of the assets placed in trust. Generally, the older the beneficiary (or the shorter the term) the lower the rate of payout, the larger the charitable deduction. Charitable Giving 2014 Page 4

5 CRTs may be set up during your lifetime or provided for in your will. If provided for in your will instead of you receiving an income tax charitable deduction, your estate would realize an estate tax charitable deduction for the present value of the charitable remainder interest. Testamentary CRTs are an excellent vehicle for providing for family and other loved ones with a secure income stream while simultaneously benefiting a charity. For more information on whether a CRT would be an appropriate option to fulfill your financial and charitable goals please contact your financial and/or legal advisor. Conclusion We hope this general information has been helpful to you. There are, of course, many technical considerations to estate and gift planning than could not be covered in this general information document. This document was not intended and should be used in place of obtaining financial, legal, and tax advice from a qualified professional. The author and Ridhwan Foundation are not engaged in providing legal or tax advice. Please consult with a qualified financial, tax, and legal professional(s) when considering any type of gift. If you need more information about The Ridhwan Foundation, please contact Rob Newmarch, Executive Director at , or Lisa Bruzzone, Administrative Manager at The street address, sometimes required for legal documents, for The Ridhwan Foundation 2075 Eunice St Berkeley, CA The mailing address is: P.O. Box Berkeley, CA The IRS tax identification number for The Ridhwan Foundation, should you need it, is Charitable Giving 2014 Page 5