- Charitable Gift Annuities
- Deferred Charitable Gift Annuities
- Charitable Remainder Trusts
- Charitable Lead Trusts
- Gifts of Retirement Plan Assets
- Gifts of Real Estate
- Retained Life Estate
- Tangible Personal Property
- Life Insurance
A will is a vital document that protects your family and those you care about. Bequests are provisions in your will or revocable living trust that designate how your assets will be distributed after your lifetime. Charitable bequests can eliminate or reduce federal estate taxes and they are one of the simplest and most flexible ways of giving. You have the option of naming the Museum as the beneficiary of a fixed dollar amount or a percentage of your residuary estate. You can also determine whether you would like your bequest to support the Museum’s Permanent Endowment Fund or Annual Fund.
Types of Bequests
- Cash Bequest. You may designate a specific sum of money be given to the Museum in your will or trust.
- Residuary Bequest. In your will or trust, you may designate where the remainder of your estate will go after all other bequests, debts, and taxes have been paid. You can designate the Museum as beneficiary of all or a portion of your residual estate.
- Specific Bequest. You may designate that a specific item, such as personal property (real estate, artwork, jewelry, a collection of stamps or coins, etc.) or a certain stock be given to the Museum.
- Contingent Bequest. This is a bequest made on the condition that a certain event must occur before distribution to the beneficiary. For example, you may designate the Museum as a beneficiary if your spouse or other heir or legatee predeceases you.
The charitable gift annuity (CGA) is a simple form of life-income gift that will pay you and/or someone you choose a fixed income, part of which may be tax-free. In addition, you will receive an income-tax charitable deduction for a portion of your gift and a potential reduction in gift and estate taxes. Best of all, your gift will ultimately support the Museum’s Permanent Endowment Fund after your lifetime.
A charitable gift annuity may be structured as either a one-life gift annuity, in which you or your designated beneficiary receive the income for life, or as a two-life gift annuity that provides income to you and another beneficiary, such as your spouse, for as long as you are living. The minimum amount for a charitable gift annuity with the Museum is $5,000 for a gift funded with cash and $10,000 for a gift funded with securities. At least one annuitant must be at least 60 years old.
The annuity rate which you, or you and your spouse/beneficiary, will receive is calculated based upon your age(s) at the time of the gift. The older you are, the higher the annuity rate you will receive. The Museum follows the rates established by the American Council on Gift Annuities.
You will be entitled to claim a charitable deduction on your income taxes in the year you establish a charitable gift annuity. The amount of your deduction is the present value of the charitable portion of your gift, determined by your age(s), the payout you will receive, and the federal discount rate in effect at the time you make your gift. A charitable gift annuity may be established by making an irrevocable gift of cash or appreciated securities (in limited circumstances, other assets may be utilized). If you use securities, you may considerably reduce your capital gains tax liability.
Upon termination of the charitable gift annuity, the remaining principal will be used to support the Museum’s Permanent Endowment Fund or another specified purpose you may have designated.
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The deferred charitable gift annuity (DGA) is a form of charitable gift annuity that will pay you, you and your spouse, or another individual you designate a fixed annual income starting at least one year after you establish the gift. The minimum gift amount is $5,000, the minimum age to establish a deferred gift annuity is 35, and the minimum age to begin receiving payments is 60.
The deferred charitable gift annuity is an ideal choice for younger donors or those who have not yet retired because it provides an income-tax charitable deduction now and tax-favored retirement income later. Such a deferred investment can supplement other tax-sheltered investment plans, such as IRAs, 401(k)s, 403(b)s, or Keogh plans. And if you donate appreciated securities instead of cash, you may be able to reduce your capital gains tax liability as well.
You would receive a fixed annuity starting at a future date you select, as long as at that future date at least one annuitant is at least 60 years old. When you defer the payment date, the rate to which you will be entitled may be considerably higher than if you were able to receive payments immediately.
The annuity rate is calculated based upon your age(s) and the length of the deferral period. The longer you defer the payments, the higher your annuity rate will be.
If you defer until retirement, you will receive income when you likely will be in a lower tax bracket than you currently are. Therefore, you will retain a greater portion of the payments after taxes.
You will be entitled to a current income-tax charitable deduction for the year you establish the deferred charitable gift annuity. The amount of your deduction is equal to the present value of the charitable portion of your gift and is determined by the applicable federal discount rate when the gift is completed, the deferral period, and your age(s) at the time of the gift.
The Museum’s planned giving and endowments professionals are happy to provide you with a free, no-obligation illustration of how you might benefit from a charitable gift annuity or a deferred charitable gift annuity. Please e-mail firstname.lastname@example.org, call 202.488.2681, or use our gift calculator.
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You establish a charitable remainder trust by making an irrevocable transfer of assets (cash, stocks, bonds or real estate, in most cases) to a trust. The trustee may be a financial institution or an individual of your choice. When you contribute appreciated property to fund the trust, you avoid any initial income tax on the capital gain. The trustee may sell the assets and reinvest the proceeds in a portfolio of stocks and bonds. You and/or a designated beneficiary receive an income for life, after which the trustee distributes the remaining assets to the Museum and any other charities you have designated. You have the choice of setting up an annuity trust, which pays a fixed income, or a unitrust, which pays variable income based on a fixed percentage.
The charitable remainder annuity trust is a way to avoid the fluctuation in interest rates and ensure fixed income for life. This trust agreement locks in a fixed annuity rate, and donors or their designated beneficiaries receive regular annuity payments for life or a period of time not to exceed 20 years. The contributed property is received by the trust at its fair market value, and the annuity rate is multiplied by this value to calculate the periodic payments to the income beneficiaries. In addition, you are entitled to a current income-tax charitable deduction based on the present value of the remainder interest to the Museum.
The other type of charitable remainder trust, referred to as a unitrust, may be used to provide a variable payment, based upon a fixed rate multiplied by the value of the assets in the trust, as recalculated each year. In an inflationary period, when trust assets grow, the increasing value of the trust portfolio will result in larger annual payouts.
You establish a charitable lead trust by transferring cash or appreciated assets, such as securities or real estate, to the trust. The trustee may be a financial institution or an individual of your choice. Your trust will provide annual income (a fixed amount or a percentage of the trust principal as revalued annually) to the Museum for a period of years. After this term ends, the principal is transferred to your beneficiaries, enabling you to pass significant assets to family members, with little or no gift or estate tax.
You may also establish a charitable lead trust under the terms of your will. This is an effective way to make a sizable gift to charity while reducing your estate taxes. The Museum’s planned giving and endowments professionals are happy to work with you and your advisor to determine if a charitable lead trust will meet your financial and philanthropic goals.
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Many people may think they can’t afford to be charitable during their lives. But with the creative use of excess retirement assets, they’re often able to contribute philanthropically as well as provide for heirs. Additionally, the Museum may help preserve—or perhaps even increase—the amount of remaining assets available for heirs.
As a holder of traditional IRAs, 401(k)s, or other qualified retirement plans, you may not realize that you can leave your non-spousal heirs only a small portion of the remaining retirement monies after taxes. You have not yet paid income taxes on these monies; therefore, just as IRA withdrawals are taxed during your lifetime, the remaining monies will also be taxed before they are passed to your non-spousal heirs. However, in addition to income taxes, there may be estate taxes and possibly generation-skipping taxes also due on these inherited assets. In the end, as much as 65% of your retirement monies may be depleted in taxes.
Upon reaching retirement, some people have found that they no longer need their IRA assets to maintain their lifestyles. Others have also seen their retirement accounts grow with remarkable returns. They watch their stock-invested IRAs grow faster than they can or want to use them, even with market volatility. As a result, these assets continue appreciating well into retirement years, and many individuals may find they have in excess of a half-million dollars of unused IRAs. Finally, few have focused attention on the effect of the significant combined taxes associated with leaving any unused portion of these assets to their heirs. To maximize the use of the remaining portion of these assets, here are three charitable approaches to consider:
- Beneficiary Designation. Name the Museum as the beneficiary of excess or unused retirement assets after your (and/or your spouse’s) lifetime. Consider leaving heirs assets less heavily taxed than traditional retirement funds.
- Charitable Remainder Trust after Your Lifetime. Create a charitable remainder trust through your will, naming the trust as the ultimate beneficiary of excess or unused retirement assets. The trust can provide income to your heirs for a period of years after your lifetime, and then the trust monies can fund charitable endeavors. Since it is a charitable trust, there is more money available to generate income for heirs. At the end of the trust’s term, the remaining assets are distributed to the Museum to support its mission.
- Charitable Remainder Trust during Your Lifetime. Create a charitable remainder trust during your lifetime, funding it with excess retirement or other assets. The lifetime benefits of the trust may relieve some of the tax burden associated with the withdrawal of these assets to fund the remainder trust.
You may convey real estate to the Museum either as an outright gift or by establishing a charitable remainder trust.
In the case of an outright gift, the property is transferred by deed to the Museum and is subsequently sold. In the case of a trust, the property is transferred by deed to the trust and the trustee then sells the property and uses the proceeds to pay income to the beneficiaries.
In you make an outright gift, you receive a current income-tax charitable deduction based on the appraised fair market value of the property and you avoid any income tax on the capital gain.
Charitable Remainder Trusts
With a charitable remainder trust, you will also avoid tax on capital gain and, as an income beneficiary, you will receive annual income from the trust that is based on the proceeds of the sale of the property. When the trust is established, a current income tax charitable deduction based on the present value of the remainder interest to the Museum will result.
Fractional Interests in Real Estate
Lastly, it is possible to convey a fractional interest in real estate (such as a vacation home) to the Museum, thereby allowing you to retain use of the property for a portion of each year. This generates an income-tax charitable deduction equal to the contributed fractional interest of the fair market value of the property, while guaranteeing the enjoyment of the property for the portion of the year for which you retain the right to use it.
The Museum’s planned giving and endowments professionals would be glad to explore with you how such a gift can help you combine your charitable and financial objectives. Please note the Museum must review and approve any potential gift of real estate before the transfer of any real property can be finalized.
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Through a retained life estate, you can transfer the deed to your primary or secondary residence or farm to the Museum now, while retaining the right to live there for the rest of your life (this arrangement is known as a life interest or a life estate) or for a specified term of years. You may also provide for another individual to live there for the rest of his or her life. This transfer avoids tax on the value of the property, generates a current income tax charitable deduction, and removes the property from your estate, thereby reducing estate taxes.
If you decide in the future to move from the home, you can relinquish the life estate to the Museum and obtain an additional income tax charitable deduction.
We would be glad to explore with you how such a gift can help you combine your charitable and financial objectives. Once again, the Museum must review and approve any potential gift of real estate before the transfer of any real property interest may be finalized.
You can contribute personal property to the Museum in ways that afford you many benefits. You may generate productive income from these gifts, while also realizing income and estate tax benefits.
You can contribute an item of property to a charitable remainder trust, which pays you income for life. By selling the property that is contributed to the trust and investing the cash realized from the sale, the trust is able to pay you lifetime income.
Taxes are avoided in many ways. By contributing the property to a trust instead of selling it yourself, you may avoid recognition of the capital gain on the appreciation of the item, thereby avoiding capital gains tax. The trust pays no capital gains tax because it is tax-exempt. Also, the property is removed from your estate, thereby avoiding federal estate taxes.
You can establish a trust with various forms of tangible property. Trusts have been funded with the contribution of a rare musical instrument, a precious gemstone, a diamond ring, and a valuable costume collection. These once unproductive assets now generate significant income.
The benefit of income productivity, accompanied by avoidance of capital gains tax and reduction of estate taxes, makes this a charitable giving transaction of substantial benefit to those who have tangible personal property. It is a nontraditional form of charitable giving but one you and your advisor should consider when designing financial and estate plans.
You may also want to contribute tangible personal property directly to the Museum. The available deduction would, however, be subject to the so-called "related use" rule relating to outright contributions.
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You can designate the Museum as a beneficiary of all or a portion of a life insurance policy that has served its original purpose. Many find this enables them to make a larger charitable gift than otherwise possible. Your estate may receive a charitable estate tax deduction for the amount of the insurance received by the Museum.
Another option is to name the Museum as the beneficiary and owner of certain types of insurance policies. Designating the Museum as the owner of the policy may entitle you to an immediate income tax deduction. Additional premium payments you make may also be deductible as a charitable contribution.
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