Giving Opportunities

The 2007 North Dakota State Legislature has given a boost to ND taxpayers and the charitable organizations they support. Senate Bill 2363 was passed overwhelmingly and creates an individual income tax credit for planned charitable gifts made to North Dakota charitable organizations if completed in taxable years beginning after December 31, 2006.

The amount of the credit is 40% of the Federal income tax deduction allowable for the planned gift. The maximum credit amount is $20,000 ($10,000 for single taxpayer), which can be used to offset the North Dakota individual income tax in the year of the gift, plus a three year carryover.

It is important that charitable trusts and gift annuity agreements contain conforming language to follow the Legislation’s specifications and allow such gift arrangements to qualify for the credit.

"Planned gifts" for purposes of this credit include:

• Charitable Remainder Trusts
• Charitable Lead Trusts
• Charitable Gift Annuities
• Charitable Pooled Income Funds
• Charitable Life Estate Agreements
• Certain paid-up life insurance policies

A qualifying planned gift favoring Luther Memorial Home will likely enable a North Dakota taxpayer to enjoy the benefits of this new credit. You should check with your tax advisor to determine how the credit would apply to your situation.

There are numerous planning arrangements available to charitably-minded individuals. Through careful gift planning, individuals can maximize their giving potential.

Planned giving is compelling to many because the methods are well-established in tax law and are relatively easy to initiate. Through thoughtful planning with trusted advisors, donors can find appropriate means to benefit themselves, their families and worthy charities.

Charitable gift plans may help the individual achieve some or all of the following financial objectives:

• Increase annual income
• Supplement retirement income
• Reduce income taxes
• Reduce or eliminate capital gain tax
• Diversification of invested assets
• Management of income-producing assets
• Reduce estate taxes
• Replace gifted assets for heirs

Types of Planned Gifts
There are many ways to design and fund planned gifts. The following information provides an overview of the more popular planning tools that are utilized in planned giving. Most planned gifts fall into three broad categories:

• Major lifetime gifts
• Life income agreements
• Gifts made at death of donor

These three categories are described in the information that follows.

Assets which have increased in value (and are held for over one year) are beneficial gifting alternatives, since the donor receives a double tax benefit. One can usually deduct the fair market value of the gifted asset, and also avoid a potential capital gain tax. For some individuals, an additional benefit is the removal of the asset from the estate taxation.

• Appreciated Stock and Securities
  Many individuals have investment assets which are worth more than their original cost. These assets, which include listed securities, mutual funds or closely-held business interests, are excellent candidates for lifetime giving.
• Real Estate
  Farms, commercial and residential properties and "second homes" have often appreciated in value since they were purchased or inherited. Additionally, building depreciation deductions lower the owner’s cost basis, creating additional tax liabilities when the asset is sold. For these reasons, real estate gifts are often considered by well-advised donors.
• Personal Property
  Examples of such gifts include automobiles, art, stamp collections and the like. As with real estate and closely-held business interests, there are appraisal requirements for larger gifts of personal property.
• Life Insurance
  Often, individuals find that they no longer need the protection afforded by an "old" policy and will gift the policy to a charitable organization. Alternatively, one can purchase a new policy and donate it to charity.

These plans are available to donors who desire to make an irrevocable gift during their lifetime. Such an agreement will benefit one or more charities at their death (or at a specified future date), while the donor (and/or other beneficiary(s)) usually retains the right to an income stream during one or more lifetimes. Life-income agreements are often funded with highly appreciated assets (worth more than their cost) such as real estate or stock. Potential benefits to donors include increased income, income tax deductions, avoidance and/or deferral of capital gains tax, and estate tax relief.

• Charitable Gift Annuity
  The donor transfers an asset to a charity and in return receives fixed annuity payments for one or two lifetimes. The income beneficiary(s) is selected by the donor. Most charities use a percentage rate for payouts (based on age) suggested by the American Council on Gift Annuities. These rates are more favorable to elderly individuals, yet protect the interest of charities. Donors receive an income tax deduction for a portion of the value of the gifted asset. In addition, the income beneficiary(s) receives partially tax-free income for a period of years and the donor receives capital gain benefits if the gift is funded with appreciated property.
  
  A variation of this gifting method is the deferred gift annuity. Here, the income payments begin in a later year, typically with a higher return rate. Often, donors choose to defer their income until retirement age.
• Charitable Remainder Trust
  Donors make a substantial irrevocable gift to a trust that they have established and the selected beneficiary(s) receives annual payouts in either a fixed amount or an amount based on a fixed percentage of the year-end value of the trust assets. Selected charities typically receive the trust assets either upon the death(s) of the income beneficiary(s) or after a selected term of years. Some donors utilize part of the additional income they receive from the trust (as well as tax savings) to purchase life insurance to benefit family members, thereby replacing the gifted asset.

Many donors make revocable (can be changed) commitments to charitable organizations. The donor receives no income tax advantages from such gifts. However, estate tax benefits may occur for those donors who wish to maintain control over their assets until they are directed to charities at their death.

Bequests
It is important that we all maintain an up-to-date will or living trust, directing the disposition of assets at our death. Many Americans leave a portion of the assets to charities as their final act of philanthropy. It is possible to favor charities with a specific asset, a fixed dollar amount or a percentage of the "residual value" of one’s estate.

Beneficiary Designations
Various assets may be directed at death through means which avoid probate. Retirement accounts, life insurance proceeds, financial accounts and other assets can be distributed through beneficiary designation. Changing beneficiary designations to include charities (all or in part) represents a compelling way to direct one’s assets for the public good, without amending one’s will.

Beneficiary designations on retirement plans (IRAs, 401(k)s, etc.) allow individuals to give charity all or a portion of their retirement funds at death. It is also possible to name a charitable remainder trust to receive retirement fund assets and name one’s spouse as the trust’s income beneficiary. In either case, the donor has directed to charity an asset on which his or her heirs would have been subject to income taxation in future years.

Luther Memorial Home relies on bequests and beneficiary designations so that it can continue to confidently look to the future. You can name Luther Memorial Home as a beneficiary of an insurance policy, financial account or retirement plan, thereby leaving a legacy without changing your will. An example of a charitable bequest favoring our organization is as follows:

I hereby bequeath and devise $______, or ______% out of my residuary estate for the use of Luther Memorial Home, Mayville, ND.

Gifts to Luther Memorial Home are tax-deductible under federal income tax law.

Disclaimer: The concepts described herein are intended to provide information of a general nature only. They should not be construed as legal, tax and/or financial advice. Readers are urged to consult with their own professional advisors for their specific situations.