Charitable Giving Vehicles

Creating your legacy through planned giving (or gift planning) can be as straightforward or as complex as your personal or family situation necessitates.

The following summarized options are not designed to say everything about each kind of gift. Our goal is to acquaint you with them to help you decide where more information would be helpful. Some of these strategies may also allow you to enhance your lifestyle preservation and legacy planning goals.

Straightforward options

Bequest in a will or living trust. This is the most common kind of planned gift. As part of the final distribution of your assets, you simply provide that the Jewish Home and other favorite charities receive either a specific dollar amount or percentage of what remains.

Often overlooked is the opportunity to do sequential planning. For example, you may wish to provide for the care of a loved one for life, or to make educational opportunities available for children and grandchildren. Funds are frequently left over when these personal obligations have been met. This is an ideal time to provide for a charitable gift.

IRA or other retirement account. A charity may be named as one of the beneficiaries of your IRA. This easy strategy ensures that your gift will be distributed quickly, without the delays and expenses of probate.

The special benefit of gifts from an IRA concerns income taxes. Traditional IRAs are taxed for the first time when they are distributed. In other words, when an IRA is left to individuals, they must pay taxes when the gift is received. However, gifts to the Jewish Home pass entirely free of income (and estate) taxes. Therefore, if you are going to make gifts to both individuals and charities, it makes sense to select assets for charity that will save your family additional taxes. IRAs are that kind of an asset.

Life insurance. Another use of beneficiary designations is life insurance. You may name the Jewish Home and other favorite charities to receive all or a percentage of life insurance proceeds. These gifts pass tax-free to charity and free of probate.

If you wish to make a life insurance gift and receive a current income tax deduction, you can transfer the ownership of a current life insurance policy to the Jewish Home. Your immediate tax deduction is approximately equal to the policy's cash surrender value.

Gifts with a personal income component

Charitable gift annuities (CGAs). A CGA is a contract between you and the Jewish Home. When you give the Home a sum of money ($10,000 or more), you are entitled to receive a fixed, annual annuity for your life (or the life of you and another). Distribution to charity for its use does not occur until all annuitants have passed away. The annuity rate is based on your present age.

Your immediate charitable deduction will generally be 35 percent to 50 percent of the initial value of the gift. Why is it not 100 percent? The likely reason is that your annuity payment will consist of both fund-earnings and the return of some principal to you. The good news is that the return-of-principal amount is never taxed to you as income. In other words, a portion of your annual annuity payment comes to you tax-free.

In California, the authority to issue charitable gift annuities comes from a state license. The Jewish Home issues its CGAs through a licensed third party. The entire balance of gift annuities remaining at termination will become an asset of the Home.

Charitable remainder trusts (CRT). A CRT is an arrangement whereby you transfer assets now for the ultimate benefit of the Jewish Home, subject to you receiving income for a term of years or life. Although this is a complex legal document, it provides income flexibility beyond that available from a charitable gift annuity. Your income can either be fixed at the time the instrument is created (annuity trust) or it can be a percentage of the value of the trust, recalculated annually (unitrust). Again, there is a significant up-front charitable deduction, and the charity only receives distribution after you are gone.

Real estate where you keep possession for life. The technical name for this approach is “gift subject to a retained life estate.” This is how it works: You give the Jewish Home either your personal residence or vacation home, and keep the right to live in and use the property, exclusively, for the rest of your life (or lives, if more than one person is involved). During your lifetime, you continue to treat the property exactly the way you do now (paying taxes, insurance, utilities, and upkeep). When you pass away, the Home takes over the real estate, free of taxes and probate, and either uses it for the Home's purposes or sells it.

The immediate benefit of this gift is a current income tax deduction based on your age and the "useful life" of the improvements to the property.

Complex Planning

Partial gift of real estate prior to its sale. People who have owned their homes for many years often find they will owe significant capital gains taxes upon its sale. The partial gift of real estate, prior to its sale, can eliminate many of those taxes. This is a fairly complicated transaction, and although the benefits may be substantial, timing is critical. Therefore, the full engagement of your planning professional is essential in this regard.

Charitable lead trust (CLT). Unlike a charitable remainder trust, where income goes to individuals first with the remainder to charity, a charitable lead trust provides for income to charities for a term of years, with the remainder to individuals. This option is most beneficial where one of your planning goals is to have children (and especially grandchildren) receive significant assets and you are encountering personal gifting amount limitations.

It always makes sense to engage professional advisors (such as attorneys, CPAs, and financial planners) when doing legacy gift planning. We would be pleased to share our insights and expertise with you or your advisors at any stage of your planning.