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You can satisfy your family’s needs,
leave something for your heirs, and still make a difference with a
charitable gift. There are several
options for these special contributions.
1. Donation of Appreciated
Assets. Stocks, bonds, property,
and other appreciated assets can be transferred directly to Habitat.
You may then take the fair market value of the assets as a charitable
income-tax deduction. This method conserves your cash while avoiding the capital
gains tax that you would be charged if you sold the asset yourself.
2.
Charitable Gift Annuities. A
charitable gift annuity is an irrevocable agreement in which you or you and one
other beneficiary receive a guaranteed, lifetime income in exchange for a
charitable gift. A portion of the
value of the donated assets is tax-deductible.
The annuity may be funded by
a “lump-sum” distribution of retirement savings.
Appreciated securities or property may also be used to fund the gift and
thereby defer and reduce the capital gains tax. The donated assets are removed from your estate and are not
subject to estate taxes.
3.
Direct Gifts of Life Insurance. Do
you own a life insurance policy but no longer need the coverage?
Transferring the policy to Habitat would
be a generous gift. If the
policy has cash value, you may take that amount as a charitable deduction on
your current income tax. If the
policy is not fully paid, you can
maintain the policy by making contributions of cash to Habitat for the premium
payment and take a charitable income tax deduction for each contribution.
4.
Charitable Remainder Trusts. Trusts
can be wonderful tools for retirement and estate planning.
They can provide steady income for you and financial and tax benefits for
the ones you love and for the ones you love to help.
There are several different types of trusts to suit your needs.
A “wealth replacement” trust, for example, is itself made up of two
different types: a charitable
remainder trust and an irrevocable life insurance trust.
With a charitable remainder trust, you actually transfer ownership of
your charitable gift to the trust. The
trust then pays regular income to you or your chosen beneficiary.
The trust’s assets are not given to the charity until you have died or
the trust’s term has expired. At
that time, the assets go to the charity. A
charitable remainder trust funded during your lifetime allows you to claim a
current income-tax deduction in the year the trust is funded and, if the
deduction cannot be fully used in the year the trust is funded, for
the ensuring five years. To
conserve wealth for your heirs, the
tax savings and/or additional income from the charitable reminder trust is
placed in an irrevocable life insurance trust. The trust purchases a life insurance policy; the proceeds
will be paid to your beneficiaries at your death to "replace" the
wealth transferred to charity. As
long as the irrevocable trust or the beneficiaries own the policy, the insurance
proceeds will not be included in your estate.
The life insurance benefit usually will provide as much as or more to
your heirs than the amount donated to charity and
your heirs will not have to pay estate taxes on the benefit.
5.
Charitable Lead Trusts. A
charitable lead trust is essentially the mirror image of a charitable remainder
trust. With the most common form of
lead trust, the income interest in the property is provided to the charity,
while the donor transfers the remainder interest to heirs.
The value of the remainder interest in the asset that is transferred to
heirs is reduced for gift tax purposes by the value of the charity’s income interest.
A lead trust is most
appropriate if you and your family have little need for the additional income an
asset generates, but wish to transfer the asset to heirs with the least amount
of tax consequences. There are no
minimum pay-out requirements with a lead trust and no specific limitations on
the trust’s term.
Unlike a charitable remainder
trust, a lead trust generally will not entitle you to an income tax deduction at
the time the trust is established. However
any income generated by the donated assets will be reported by the trust.
The trust is then entitled to a charitable deduction for any income it is
required to pay out to the charity.
If interested in further
information contact Stefka Fanchi at 303-454-8965 or Cal Judson, Habitat for
Humanity of Colorado’s financial advisor at A.G. Edwards, 303-763-8300
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