CHARITABLE GIVING. 2 Creative Giving. 4 Charitable Gift Annuities. 6 Charitable Remainder Unitrust. 8 Covenant Endowment Trust

Transcription

1 CHARITABLE GIVING 2 Creative Giving 4 Charitable Gift Annuities 6 Charitable Remainder Unitrust 8 Covenant Endowment Trust

2 Creative Giving Most of us have a favorite ministry we want to support that ministry s goals are important to us and we o en look for ways to help them grow. Covenant Trust Company (CTC) believes that investments, including IRAs, are a vital part to everyone s financial security; we also believe they can play an important role in reaching charitable goals, too. Covenant Trust Company offers several charitable gi planning op ons such as Charitable Gi Annui es and Charitable Remainder Unitrusts. However, if these op ons aren t right for you, there are ways to ensure your charitable dreams will provide the greatest impact. We will consider two op ons in this brochure: dona ng appreciated assets naming a charity as a beneficiary I would like to use appreciated assets to donate to a Covenant ministry. What about capital gains? If you donate the appreciated assets directly to a Covenant ministry, you will avoid the capital gains tax. The ministry, due to their tax exempt status, won t have to pay any taxes when they sell the assets. Addi onally, if the appreciated assets have been held long term (i.e., longer than one year), the assets value on the day of the dona on can be claimed as a tax deduc on. (The deduc on for assets held less than a year is equal to the assets purchase price). I have assets that are worth less than I paid for them. Can I s ll use them to help a ministry? If you have assets that are worth less than what you paid for them, you can sell the assets instead of dona ng them. By selling the assets at a loss instead of dona ng them directly to the ministry, you will be able to claim the loss on your taxes. Doing so may reduce your taxable income which in turn may mean a lower tax bill. You can s ll donate the proceeds from the sale to a Covenant ministry and receive a charitable tax deduc on as you normally would from giving a cash gi. How can Covenant Trust help? CTC is happy to facilitate your gi to your favorite Covenant ministry. CTC will take delivery of the donated security on behalf of the Evangelical Covenant Church, and upon receipt of the stock, will sell the shares. Upon receipt of the proceeds of that sale, we will send a check to the ministry along with a le er indica ng the check is proceeds from a stock gi from you. To begin this process, contact Mike Magnusson at Covenant Trust Company: or mkmagnusson@covenan rust.com.

3 Why should I consider naming a charity as beneficiary of my IRA? When you name one or more chari es as the beneficiary of your IRA (or Qualified Plans) the charity(ies) pay no income tax when they receive distribu on of the assets. If you name your spouse or other individuals as beneficiary, the income tax will have to be paid, unless they in turn name one or more chari es to receive the assets at their death. If they do not name any chari es, then their estate or non charitable beneficiaries will have to pay the income tax. I have a life insurance policy I no longer need. Can I use it to benefit a favorite ministry? A gi of your life insurance is an excellent way to make a gi to a Covenant ministry. There are two ways to do this. Make a gi of life insurance today By giving your life insurance policy to a Covenant ministry today you ll receive a charitable income tax deduc on. You can then make deduc ble contribu ons to this ministry each year which they may use to pay the premiums. The ministry then benefits from the proceeds of your policy. Designate a ministry as beneficiary of your policy You can also designate your favorite Covenant ministry as the beneficiary of your life insurance policy. You will con nue to own and can make use of the policy during your life me. The policy will be included in your taxable estate when you pass away, but your estate will benefit from an estate tax charitable deduc on for the value of the gi. For more informa on, contact Covenant Trust at or covenan rust.com/info. What s the measurement of success in the partnership between your ministry and Covenant Trust Company? The growth of future charitable dollars designated for your ministry The growth of ministry dollars that you entrust to us for management Your ability to advance your ministry and achieve your ministry s goals Peace of mind for both your ministry and your supporters about their legacy for the future We re in this Kingdom work together. Covenant Trust Company is a unique resource for your ministry that puts financial management tools right at your finger ps. And isn t it nice to know that everything we do has its founda on in stewardship; managing the resources God has given in a way that will honor Him and help do His work. Information contained in this brochure is for purposes of information and education only, and is not intended as either tax or legal advice. Consult your personal tax and/ or legal advisor for specific information. Investment Management Trustee Services IRAs and Re rement Inves ng Endowments Legacy and Gi Planning

4 Covenant Charitable Gift Annuities A Charitable Gift Annuity can assist you in making a charitable gift that benefits one or more Covenant ministries of your choice, and also provides several benefits to you for your lifetime. What exactly is a Charitable Gift Annuity? It is an agreement between you and The Evangelical Covenant Church (ECC). You transfer assets of cash or marketable appreciated securities to the ECC. You then receive fixed payouts for the rest of your life and/or the lifetime of another person, if you so desire. How much are the payouts? The payout rate is determined by the age of the income beneficiaries at the time the annuity is written. The annual payout amount is fixed at the time the annuity is written and does not change. The older you are when your gift annuity begins, the higher the payout rate. Gift Annuity Rate Sampler (04/15/13) Age(s) Payout Rate 1 life, % 1 life, % 1 life, % 1 life, % 2 lives, % 2 lives, % 2 lives, % 2 lives, % Charitable gift annuities benefit: the donor/annuitant one or more Covenant ministries of your choice What are the advantages to the donor? There are several: Lifetime payouts for you and another person, if desired In most cases, payouts are partially tax-free for the period of actuarial life expectancy of the donor(s) Favorable treatment of capital gains, if funded with appreciated securities A charitable deduction on your federal income tax in the year of the gift Amount used to fund gift annuity does not count as part of your estate for estate tax purposes, and avoids probate The opportunity to make a significant gift to one or more Covenant ministries

5 When do the ministries the donor chooses get the money, and how much do they receive? All gift annuity funds are held in segregated accounts until after the death of the last surviving annuitant. Then the remaining funds are distributed to those Covenant ministries named by the donor. There are two kinds of charitable gift annuities immediate and deferred. A donor may choose to begin receiving payouts right away, or at a future time (such as age 65). Donors may choose to receive payouts monthly, quarterly, semi-annually or annually. Payouts are made at the end of the period, i.e. the last day of the month, quarter, etc.; and may be made by check, direct deposit to a bank account, or transfer to an existing revocable trust where Covenant Trust Company serves as trustee. Information to assist in income tax preparation is provided both at the time the annuity is written, and annually thereafter on IRS Form 1099-R. Is there a minimum amount required for a charitable gift annuity? Yes, a $10,000 minimum normally applies. However there may be special circumstances when exceptions are made. There is no maximum amount for charitable gift annuities, and many are for amounts in excess of $100,000. Can the donor change his/her mind once gift annuity payments have started? No. Because there are income tax benefits, a charitable gift annuity is an irrevocable agreement. You should be aware that a charitable gift annuity is completely different than annuities (or variable annuities) sold by insurance companies. If you are considering any type of annuity or other charitable life income agreement, you should consult with your personal legal and/or tax advisors before making the gift. Because the charitable gift annuity is an irrevocable gift, we strongly recommend that any donor have a minimum of $150,000 in liquid assets beyond what would be used to fund a charitable gift annuity. This helps ensure that the donor has adequate resources remaining to provide for any unexpected needs. The residue of charitable gift annuities written through The Evangelical Covenant Church must be designated 100% for Covenant ministries of the donor s choice. The charitable gift annuity is aptly named it provides a benefit both to the donor during lifetime and to the Covenant ministries chosen by the donor to receive the residue. Gift annuity services for The Evangelical Covenant Church are offered through Covenant Estate Planning Services while Covenant Trust Company provides management for the actual gift annuity funds. Some states have special regulations which apply to charities offering charitable gift annuities; the ECC complies with these regulatory requirements. Covenant charitable gift annuities have been offered for more than 60 years. There are currently over 395 active annuity contracts which total more than $14 million in managed assets for Covenant ministries. We will be happy to prepare a personalized example for you to specifically demonstrate the possible benefits of a charitable gift annuity as part of your overall estate plan. You may work through your local Financial Services Representative, or contact our office directly. There is no cost or obligation for the example or any information about charitable gift annuities. Information contained in this brochure is for purposes of information and education only, and is not intended as either tax or legal advice. Consult your personal tax and/ or legal advisor for specific information. Investment Management Trustee Services IRAs and Retirement Investing Endowments Legacy and Gift Planning

6 Charitable Remainder Unitrust What is a Charitable Remainder Unitrust? A Charitable Remainder Unitrust (CRUT) is an irrevocable deferred gi to one or more charitable organiza ons. Assets cash, securi es or real estate are transferred to a trustee, and the donor receives income for life. A er the death of the last income beneficiary, the property remaining in the trust is distributed to one or more charitable ministries of the donor s choice. Where Covenant Trust Company serves as trustee, Covenant ministries must be designated to receive at least 50% of the charitable por on. When should I consider a CRUT? You should consider a charitable remainder unitrust: if you want to make a significant deferred gi that results in an income tax deduc on, regular payouts to you, and then ul mately benefits one or more Covenant ministries if you have highly appreciated securi es or real estate that you want to use to make a charitable deferred gi if you want a stream of income that may be greater than what the funding assets are currently earning only if you have in excess of $150,000 in addi onal assets beyond those used to fund the CRUT How much does a unitrust pay? A fixed percentage (referred to here as the stated percentage ) is determined at the me the unitrust documents are prepared. Each year you receive that percentage mul plied by the fair market value of the trust assets on December 31 of the previous year. Can the CRUT provide payouts for my spouse or someone else? Yes. Both you and another person can receive payouts from the unitrust for your life me. Most unitrusts are for one or two lives. Can I use real estate to fund a unitrust? Yes, although there are several things to consider first. The real estate cannot be mortgaged, and you must be able to provide clear tle. You must provide complete environmental informa on. The property must have sufficient value to be sold; however the sale may not be arranged prior to placing the property in the unitrust. You are required to provide a current appraisal of the property. Are there income tax benefits to a CRUT? Because property transferred to the trust will be used for charitable purposes in the future, gi, estate and income tax deduc ons are allowed in the year of the gi. You receive a charitable contribu on deduc on on your federal income tax for the charitable por on of the unitrust.

7 Any unused por on of the charitable contribu on can be carried forward up to five addi onal years. Charitable remainder trusts can result in tax free diversifica on and growth of investments. If you fund with cash, it is deduc ble up to 50% of your adjusted gross income (AGI). If you use securi es or real estate to fund the CRUT, you can deduct up to 30% of your AGI. If you use appreciated securi es or real estate to fund your CRUT, you also eliminate capital gains tax. Assets that have appreciated in value but don t earn much income can be used to fund a unitrust. Then the trustee can sell them and reinvest in higher yielding assets. Because the trust results in a deferred charitable gi, the capital gain realized on the sale is not subject to tax when the assets are sold. This means the en re proceeds from the sale of the funding assets is available to provide income. Any income beyond what is required to make payments to the income beneficiaries is allowed to accumulate inside the unitrust tax free. It s important to remember that the trustee must be the one to sell the assets once they are funded into the unitrust. How are payouts from the unitrust taxed? Most unitrust payouts are taxed as ordinary income. However, there can also be some capital gains or tax exempt amounts, depending on how the trust was funded and how the trust assets are invested. The trustee (Covenant Trust Company) provides you with tax informa on every year that tells you exactly how to report the payout you received from the unitrust. Is there more than one type of CRUT? Yes. The straight unitrust pays the stated percentage even if the trust earned less and it means paying out principal. The net income unitrust pays out what the unitrust earns, as long as it does not exceed the stated percentage. Net income with make up allows any deficiencies in income from years when the trust may not have earned the stated percentage to be made up in future years when the trust earns more than the stated percentage. You can also have a unitrust that lasts for a specific period of years (maximum 20) rather than for life. Can you show me how a CRUT works? Here s an example. Let s assume that you are 65 years of age and your wife is 62. You want to use $100,000 of appreciated securi es to fund a Charitable Remainder Unitrust with a payout rate of 6% for life. Your cost basis (what you paid) for the stocks is $50,000, and you are in the 25% federal income tax bracket. Your securi es currently earn a 3% dividend. Once you transfer the securi es to your unitrust, the trustee sells them. You do not have to pay the capital gains tax on the $50,000 of apprecia on, a tax saving of roughly $7,500. You would receive a charitable deduc on of about $26,800 on your federal income tax. Your payout for the first calendar year of the trust would be $6,000 (6% of $100,000.) Assuming the trust actually earned 7%, your payout for the second year would be $6,060 (6% of $101,000.) A er the death of both you and your wife, your chosen Covenant ministries would receive approximately $130,000, based on these assump ons. Where can I learn more? We are happy to provide a personalized example showing exactly how a Charitable Remainder Unitrust might apply to your situa on. Contact your local Financial Services Representa ve through our website at or call our office toll free at Information contained in this brochure is for purposes of information and education only, and is not intended as either tax or legal advice. Consult your personal tax and/ or legal advisor for specific information. Investment Management Trustee Services IRAs and Re rement Inves ng Endowments Legacy and Gi Planning

8 Covenant Endowment Trust The Covenant Endowment Trust was established to accept gi s of cash or appreciated assets into individual Endowment Accounts earmarked for the Covenant ministry of your choice. A gi to the Covenant Endowment Trust will benefit the designated ministry for years to come. Who can set up an Endowment Account? Anyone an individual, family, or any Covenant ministry. Can I/we name the Endowment Account? Yes. You can name an Endowment Account for your family, your church, or a special individual. Is there a minimum contribu on? You can start your Endowment Account with as li le as $5,000. Then you or other friends and members of your family or church can add to the account as you wish, in amounts of at least $1,000. How does the Endowment Account work? The account assets are invested for growth with the objec ve of providing increased future income. A quarterly distribu on (currently at a 5% annualized rate) is made to the designated Covenant ministry. The distribu ons are normally made from income. If income falls below 5%, principal is added to make the distribu on. Any income in excess of 5% is added to the invested account principal to provide a larger base for future earnings. Do I have to fund the account now? No. You can set up the account now, and fund it with a bequest from your will, or designate it as the beneficiary of an insurance policy, IRA, pension plan, trust or annuity. What is the advantage of the Covenant Endowment Trust? The wri en agreement which sets forth your wishes for the use of your gi remains on file, providing both con nuity and assurance that your gi will always be used for its intended purpose. As Trustee, Covenant Trust Company provides professional management and investment services which may not be available or affordable to the local ministry.

9 Are gi s to the Covenant Endowment Trust tax deduc ble? Yes. Gi s to the Covenant Endowment Trust are irrevocable, so they qualify for a charitable contribu on deduc on on federal income tax. How long will the Endowment Account last? You can designate your account to be established in perpetuity (forever) or for a term of years, a er which the principal is distributed to your chosen Covenant ministry. I want to help send kids to camp, but our church doesn't have many who want to go. Can I help other kids go to camp? We'd like to help provide steady income for one of our favorite mission projects. How can we do that? I know our church would like to provide con nuing educa on opportuni es for our pastor, but we just don't have the money. How can I start a fund that will grow? We'd like to make a gi to help our church youth with college or seminary expenses at North Park. But with our church s boards and officers changing every couple of years, how can we be sure our gi will be used the way we intend? If you have ques ons like these, the Covenant Endowment Trust may be the answer you have been looking for. A Covenant Endowment Trust Account can do any of the things listed above, both now and for the future. Exactly how does it work? Call or e mail info@covenanttrust.com to request further informa on; OR visit our website at CovenantTrust.com Information contained in this brochure is for purposes of information and education only, and is not intended as either tax or legal advice. Consult your personal tax and/ or legal advisor for specific information. Investment Management Trustee Services IRAs and Re rement Inves ng Endowments Legacy and Gi Planning