PLANNED GIVING AND OTHER WAYS TO CONTRIBUTE TO NJ AID FOR ANIMALS
This information is approved for use with the public. It is intended for informational purposes only.
You can make a gift to NJAFA in your Will or Living Trust, which will provide an unlimited tax deduction for your estate.
You can name NJAFA as a beneficiary in your Will for a specific amount or a specific assets (shares of stock, insurance policy, annuity beneficiary, etc) or donate real estate. Your gift can be outright or you can add NJAFA to your existing will through a codicil, without even having to rewrite your will.
Please use the following language for a bequests in your will or trust:
” I give and bequeath to NJ Aid for Animals, a not-for-profit corporation, with principle offices at 25 Edgewood Road, Sicklerville, NJ 08081 the sum of $_________ to be used for general purposes (or for a specific purpose indicated).”
Your existing Life Insurance policy, paid-up or new, can be used to make a gift to NJAFA. Generally, to receive an immediate tax deduction, the policy should be transferred to NJAFA as owner and beneficiary. You remain the insured. Specific information regarding tax deductions should be referred to your own tax consultant
DONATE APPRECIATED STOCKS
If you have stocks that have grown significantly in value over the years, you can donate them to a charitable organization. Not only will the charity benefit, but so will you. That’s because you will owe no capital gains tax when the stock is sold if you’ve owned the appreciated stock for at least a year. Better yet, you can deduct all or part of the gift from your taxes.
ESTABLISH A CHARITABLE REMAINDER TRUST
You can also help you estate planning by making your donation through a CRT. Here is how it works: You contribute appreciated assets…stocks, real estate, etc. to the charitable remainder trust. The trust sells the assets and uses the proceeds to purchase a portfolio of securities. The trust then pays you an income stream for life and the organization receives the principal upon your death.
By setting up such a trust, you avoid capital gains taxes and you can claim a deduction on your current year taxes. Furthermore, because you are moving assets from your estate, your beneficiaries will have fewer estate taxes to pay.
WHAT IS A CHARITABLE REMAINDER TRUST?
It is an irrevocable trust that can be used to allow a donor to make a current gift while retaining an income stream for their lifetime. Because the trust names IRS qualified charity as “remainderman” (the beneficiary receiving assets after the grantor’s death), the grantor is entitled to income tax benefits during lifetime and reduced federal estate taxes at death. Thus the grantor receives income and tax benefits, and the charity receives a posthumous gift.
WHY IS A CRT OFTEN FUNDED WITH LOW BASIS ASSETS?
Because of the trust’s charitable intentions, it is exempt from paying capital gains tax on the sale of low basis assets. Therefore, CRTs may be used to convert a highly appreciated asset (e.g. stock, real estate) which has not produced much income into a current income stream for the grantor during his/her lifetime. If the grantor had sold the asset prior to transferring it to the trust, any resulting gain would be netted on a Schedule D and carried over to his/her Form 1040. Currently, capital gains are taxed at 20%. This allows more of the grantor’s assets to be reinvested, often permitting better diversification for meting current needs.
ARE ALL CRTs SET UP IN THE SAME MANNER?
No. One option is a charitable remainder UNITRUST (CRUT). This type pays a fixed percentage of trust assets to income beneficiary’s annually. Therefore, income may fluctuate when trust assets are revalued each year.
Another possibility is the CRAT (Charitable Remainder Annuity Trust). In this type of CRT, the income beneficiary receives a steady annual income that does not fluctuate. While this choice may be fine for an elderly individual, it obviously carries some risk of depleting principal if asset performance lags severely or inflation rises.
ARE THERE ANY RULES ABOUT PAYING TRUST INCOME?
The grantor can have the attorney draft the trust to pay income for his/her lifetime. If the grantors are husband and wife, income can be paid for as long as either of them lives. The trust can also be drafted to pay income for a state number of years, not to exceed 20 years.
HOW MUCH OF AN INCOME TAX DEDUCTION DOES THE GRANTOR RECEIVE?
Either the estate planning attorney or a CPA should help the client estimate the possible income tax deduction that would be created. In general, the deduction varies according to the annual income received, the type and value of trust assets, income beneficiary ages, and the applicable federal rate which fluctuates.
Federal income tax deductibility can vary from 20%-50%, but is usually limited to 30% of adjusted gross income. Much depends on how the IRS categories a charity and the assets held in trust. If the entire deduction created cannot be used in the first year, it an be carried forward up to five years.
WHAT ARE SOME CONSIDERATIONS WHEN SELECTING A TRUSTEE?
It is most common for these types of trust to name a corporate trustee when the trust is established. The ongoing administration of a CRT, as well as the investment of assets within the CRT, are crucial to qualifying as a charitable trust for tax purposes. Because of the complicated nature of these instruments a corporate trustee is usually in the best position to monitor the trust and its activities, although grantor’s can name themselves as trustee. It is critical that investments be carefully selected and the trust be properly administered .If not, the trust will likely be penalized with a loss of tax benefits and/or penalties.
WHY DO SOME GRANTORS INTEGRATE LIFE INSURANCE INTO THIS PLAN?
Some grantors use insurance to replace the value of trust assets transferred to the CRT. When this is done, estate planning attorneys frequently us an Irrevocable Life Insurance Trust, commonly called a wealth replacement trust, to own the insurance policy. This removes insurance proceeds from the grantor’s estate, thereby avoiding federal estate taxes. Another benefit of a wealth replacement trust is the ability to control distributions to your beneficiaries.
WHAT ARE THE CHARACTERISTICS OF A CRT PROSPECT?
Individuals who have:
Highly appreciated assets (not annuities or tax deferred accounts) and desire to diversity and defer capital gains tax
People who are inclined to give to charity
Already established an estate plan (will, trust, etc)
A sizeable income and seeking a current charitable income tax deduction
A taxable estate for federal estate tax purposes
A desire to create an income stream for life or a term of years
WHAT ABOUT MY HEIRS:
If you transfer the bulk of your appreciated assets to a charitable remainder trust, what will be left for your heirs? You may wish to use the income from the CRT to purchase a life insurance policy on yourself. It is important to note, that the proceeds from such a policy will go into your taxable estate.
If you want to avoid this, consider purchasing an insurance policy in an irrevocable life insurance trust. Because the trust actually owns the insurance policy, the proceeds are kept out of your taxable estate and your heirs will owe less in estate taxes. You can also direct the trust to provide your heirs with regular income.
Before establishing a trust, consult with your legal adviser to learn the full advantages and disadvantage of these complex estate planning instruments.
EVERYONE IS A WINNER
Should you simply donate an appreciated stock or make your donation through a CRT? The answer depends on your financial goals. If a tax deduction is your primary objective, a straight donation may be the best choice for you. If you would like to establish a steady stream of income, a CRT may be the more attractive option.
Regardless of which option you choose, you will be helping a valued institution and yourself. In short everyone benefits.
If you have some questions and/or would like to donate to NJAFA, click here to contact us.