Planned Giving Part 4: Giving From Your Assets

This week we are mainly concerned with long term or capital assets – securities, IRA’s real estate and life insurance and donating them to help the church with future needs.  In some cases you may be giving assets that don’t provide you with much income during the year so you ultimately may realize more value here with a church donation. In other cases you are donating appreciated assets, and avoiding some or all of the tax consequences.

So what’s in it for you? Let’s look at several types of assets:

1. Stock – If you sell stocks or mutual funds that have appreciated in value over your original investment, you will be liable for capital gains taxes. Here is a true story from someone name “Sharon” who wanted to offset it:

   “Years ago, I inherited stock from my grandmother. We held the stock for several years, but decided to sell a portion of it this year. The stock had gone way up in value, and our CPA informed us that we had a capital gain of nearly $120,000. We had always planned on making a charitable gift and the CPA reminded us that if we were to make a gift of this stock before the end of the calendar year, we would receive a charitable deduction on the gifted shares. This deduction will help offset the capital gain tax on the stock we sold.”

   This is called a “gift and sale transaction.” You gift part of the shares to St. George’s and sell the remainder through your broker. Part of the proceeds would come to you as the seller which would be subject to capital gains and the remainder of the stock donated to St. George’s to avoid the gains and acts as the offset.

   You can avoid the gains and gain a tax deduction entirely if you donate all of the appreciated stock to St George’s. You received the donated value of the stock on the day of donation which increases your donation if the stock has gained in value over the time you have owned it.

   Note that the full fair market value of assets is deductible up to 30% of adjusted gross income in any year. However, the excess can be carried forward 5 more years.

   So what if the stock has gone down since you bought it? It would be wiser to sell the stock, claim the capital loss as a tax deduction, and donate the cash.

2. IRA – Some long term assets become vehicles later in life. The Charitable IRA is one such vehicle. When a person who has a regular IRA reaches age 70 ½, the person must begin making a Required Minimum Distribution (RMD) from the IRA based upon age and the balance in the IRA on the previous December 31st. The shocker is that the RMD usually generates taxable income. By donating the RMD to the church through the holder of your IRA you can avoid that tax. Please note the donation has to come from the holder of your IRA and not simply a check written by you. Also, you cannot claim the donation twice – as an IRA donation AND a Church donation.

   Even if you are not 70 ½, donating an IRA or even a 401K to St. George’s may be an idea to consider. If you leave them to your heirs, they must pay income taxes when they withdraw the funds. Charities, in contrast, do not pay income taxes. Thus, wise planning leaves the tax-heavy assets to charities, such as St. George’s.

3. Real Estate – If you donate real estate, you can deduct the fair market value of the property and avoid capital gains if you sold it otherwise. The church could sell the property and use the proceeds toward buying new property or toward expanding the existing plant.

4. Life Insurance – Life insurance is another way to make a sizeable gift to the church and often targeted for younger parishioners. Here you could make a gift from income rather from capital. For example, you can purchase a new policy and make the church the owner and beneficiary of the policy. This enables you to “leverage” your gift, ultimately making a much larger gift than otherwise possible. You would pay the ongoing premiums but they become tax deductible.

   You can also make the church the owner and beneficiary of an existing policy. This gift will generate an initial tax deduction: the lesser of the policy’s fair market value or the total of your net premium payments. (You will need the insurance company to help with the calculation!). As with the new policy mentioned above, you make the premiums, but they are tax deductible. You can also make the church a contingent beneficiary of an existing policy, or name the church to receive the proceeds of the policy if the designated beneficiaries predecease the insured.

5. Cash – It is fully deductible for itemizers (up to 50% gross income). If your donation is greater than that, the excess may be carried forward 5 additional years. Note there are phased out restrictions for high income borrowers.

I am ending these articles with a question for you – “Do you have appreciated stock or real estate that you are considering as long-term gift to St. George’s now or in the future? Provide some details particularly if you want to restrict your gift for one of our existing trusts and funds.    Let me know ben.hicks@stgeorgesepiscopal.net.  I will pick the best answer of if there are too many a random one that is complete. The winner gets a $5 Hyperion card to “have one on me.”