Just as there are many types of funds, there are many ways to give. Not only can you contribute different types of assets; you can make a current and/or or a deferred (“planned”) gift. And because the Community Foundation for Nantucket is recognized by the Internal Revenue Service as a public charity, your gift will provide the maximum tax benefits allowed by law.
What is “Planned Giving?”
Simply put, planned giving is a way to accomplish a charitable gift via your estate plan. Planned gifts are generally established through a will, trust or retirement plan, enabling a much larger gift than you might be able to make during your lifetime. Some planned gifts, such as naming a charity as beneficiary of your will or retirement plan, can be changed or even revoked while you are living. Others may not be revocable, but they can provide immediate financial benefits such as tax savings or additional income. In some cases, a planned gift must drawn up by an attorney. Others may not require an attorney, but you should always consult your legal, tax or financial advisor before you proceed. Like most community foundations, CFN is not in a position to offer legal or tax advice. However, we are happy to work with you and your advisor to provide information about your giving options and the island’s nonprofit landscape.
Planned Giving Options
All of us leave a legacy – the values we teach our children, the memories we create with friends. But with careful planning, you can accomplish even more. You can reach beyond your circle of friends and family to create a legacy that touches the entire community and improves the quality of life for generations to come. Through your will, trust and other means, you can set up and add to a fund in your name or that of a loved one. Your gift can be used to accomplish almost any charitable goal, including:
- Establishing a scholarship fund.
- Creating an endowment for a favorite charity.
- Leaving a family legacy that allows your children, and successive generations, to continue your involvement in charitable giving.
Retirement Plan Beneficiaries
A retirement plan is one of the best types of assets to transfer to a charity because it produces taxable income. Although most inherited assets are free from income tax, a non-spousal beneficiary will pay income tax on disbursements from a decedent’s retirement plan – such as a profit sharing plan, 401(k) plan or IRA. If you intend to make a charitable bequest, it is usually better to transfer the taxable assets to a tax-exempt charity like the Foundation and leave the non-taxable assets to your heirs.
With the help of your attorney, you can establish an irrevocable charitable remainder trust, which provides income to your beneficiaries and leaves the remainder to the Foundation for the purpose you specify. Or you can do the reverse with a charitable lead trust, which provides income to the Foundation for a period of years and then pays the principal to your beneficiaries. If you fund the trust with appreciated property, such as securities or real estate, the tax benefits may be especially advantageous.
If you don’t have liquid assets right now but want to support a favorite charity, a gift of life insurance may be a good option. There are several ways to apply life insurance policies to your charitable giving, including:
- Irrevocably designating the Foundation as owner of the policy. In this case, you receive a tax deduction for the annual premiums and the Foundation receives the policy benefits upon your death.
- Irrevocably contributing a paid-up policy, resulting in a tax deduction for its cash value.
- If you would like to contribute the policy’s proceeds to help the community but are not ready to give up ownership, you can name the Foundation as sole beneficiary. In the meantime, you can retain ownership of the policy and can access the cash value while retaining the right to change the beneficiary.
Keep in mind: As long as you remain owner of the policy, there is no charitable deduction either when you designate us as beneficiary or pay for subsequent insurance premiums. However, proceeds payable to the Foundation at your death will not be subject to federal estate taxes.
Again, we urge you to work with your lawyer or financial advisor as you consider these options, and we are eager to work with both of you in this process. If you have questions or would like additional information, please contact us at 508-825-9993.