CHARITABLE GIVING, INCOME AND TAXES PRESENTED BY DAVID B. MOORE DIRECTOR OF PLANNED GIVING, CHAPMAN UNIVERSITY CHARITABLE SPONSORS 1
AMERICAN TAXPAYERS RELIEF ACT (ATRA) OF 2012 Passed and signed into law on Jan. 1, 2013 Some Good News Permanency of tax code $5,250,000 exemption with portability (indexed to inflation) Annual $14,000 gift tax exclusion (indexed to inflation) 2013 Charitable IRA Rollover Some Bad News Raised income tax rates on highest incomes to 39.6% (plus additional 3.8% Medicare tax) Capital gains and dividend rates raised as high as 20% (plus additional 3.8% Medicare tax) TAXATION Federal Income Tax Brackets Rate Taxable Income Single Married Filing jointly 10% $8,925 or less $17,850 or less 15% Over $8,925 but not over $36,250 Over $17,850 but not over $72,500 25% Over $36,250 but not over $87,850 Over $72,500 but not over $146,400 28% Over $87,850 but not over $183,250 Over $146,400 but not over $223,050 33% Over $183,250 but not over $398,350 35% Over $398,350 but not over $400,000 Over $223,050 but not over $398,350 Over $398,350 but not over $450,000 39.6% Over $400,000 Over $450,000 2
TAXATION Estate and Gift Tax Exemption: $5,250,000 Rate: 40% Gift Tax Annual Exclusion: $14,000 Long Term Capital gains and Qualified Dividends 15% for most people 20% single-filers with taxable income over $400,000 ($450,000 for married filing jointly) New Stealth Taxes Medicare surcharge of 3.8% imposed on net investment income of single filers over $200,000 AGI ($250,000 for married filing jointly) Another Medicare surcharge of 0.9% imposed on wages and selfemployment income above same $200,000/$250,000 Effective 2012, Prop. 30 increased California top tax rate to 13.3% for single filers above $500,000 and married filing jointly above $1 million taxable income. TAXATION (NEW STEALTH TAXES) Combined Top Capital Gain & Dividend Rates Year Federal Base Medicare California Total Increase 2013 20% 3.8% 13.3% 37.1% +8.8% Combined Top Earned Income Rates Year Federal Base Medicare California Total Increase 2013 39.6% 0.9% 13.3% 53.8% +5.5% 3
AND EVEN MORE TAXATION Phase-out of itemized deductions (Pease Limitation) Reinstated in 2013 for filers above $250,000 AGI $300,000 for married filing jointly Itemized deductions like mortgage interest, charitable contributions, and state and local taxes reduced by 3% of the amount by which AGI exceeds $250,000/$300,000 thresholds, with an overall maximum reduction of 80% of itemized deductions BENEFITS OF CHARITABLE PLANNING Reduce income taxes Bypass capital gain Increase cash flow Reduce/avoid estate tax Preserve assets to heirs Support mission of favorite charities 4
CHARITABLE GIFT OF CASH Quick and easy! Most common way to give Receive a current income tax deduction Deduction limited to 50% of your adjusted gross income (AGI) Unused portion of deduction can be carried forward up to 5 additional years JIM AND SHARON Daughter graduated from Chapman University Want to show support and gratitude Had a great year in the stock market! 5
JIM AND SHARON S SOLUTION Gift of Long-Term Appreciated Stock Contributed long-term appreciated stock or other securities Received an immediate income tax deduction for the current value Deduction up to 30% of AGI Carry forward up to 5 additional years Avoided paying capital gains tax on the appreciated value NOTE: Same benefits apply for gifts of real estate. NIRA Longtime supporter of Chapman University Loves President Jim Doti and Dr. Lynne Doti Supports Rodgers Center for Holocaust Education Age 70½ or older Must annually take required minimum distributions (RMD) from her IRA 6
NIRA S SOLUTION Gift of Charitable IRA Rollover Had IRA administrator issue gift directly to charity from her IRA Can gift up to $100,000 from IRA to charity this year Fulfills required minimum distribution (RMD) Doesn t have to recognize income for tax purposes Charity receives full value The IRA Rollover is presently set to expire at the end of 2013 DIRECT FROM IRA WHAT IS PLANNED GIVING? Integration of Donor s Personal goals Financial Goals Estate Planning Goals Charitable Goals Creates an opportunity for giving when otherwise not possible 7
ESTATE DISTRIBUTION Where do you want your money to go? Friends and Family Charity IRS (Government) ERNIE AND JUDY Ernie graduated Chapman, 1952 Both attended seminary Ernie and Judy were married 2 sons, 4 grandchildren Retired after a lifetime in the ministry Wanted their estate plan to reflect the importance of the church (God) in their lives 8
ERNIE AND JUDY S SOLUTION Gift of bequest from will or living trust 1/3 of estate to their 1 st child 1/3 of estate to their 2 nd child 1/3 of estate to their 3 rd child: The Christian Church Christian Church Foundation is to divide these funds evenly between: Disciples on Campus (DOC) scholarships at Chapman University Each of their seminaries: Disciples Divinity House, University of Chicago (Ernie) Brite Divinity School, Texas Christian University (Judy) Disciples Peace Fellowship "We love thinking about this and our relationship with each of these communities that have inspired us through the years. RANDE AND ADRIENNE Active volunteers with the Parent Ambassadors Council Son graduate in 2008 Rande and Adrienne both work in the insurance industry Wanted to make a major gift but didn t have capacity 9
RANDE AND ADRIENNE S SOLUTION Gift of Life Insurance Can establish a new policy Charity owns the policy Your annual premium payment is tax deductible Can gift existing unneeded policy Charitable deduction for the lesser of the amount you paid for the policy or its cash surrender value MARGARET 91 years young Loves the arts, especially music Wants to give, but lives on a fixed income Savings and CDs have low returns Stock market is volatile 10
MARGARET S SOLUTION Gift of Charitable Gift Annuity (CGA) Simple agreement No lawyers or fees Rate based upon age at time of gift Immediate income tax deduction Secure lifetime income stream Portion of income is tax exempt Legacy that remainder will benefit the Hall-Musco Conservatory of Music CHARITABLE GIFT ANNUITY (CGA) 11
GIFT STRATEGIES USING CGA Immediate Annuity Current tax deduction Immediate payment to income beneficiary Deferred Annuity Current tax deduction Annuity payments deferred to future date Testamentary Annuity Created at death of a donor via trust Provide annuity payment to beneficiary Great alternative to lump sum distribution to heirs PAT AND TOM Both graduated from Chapman Pat taught school for 30+ years Tom worked in aerospace Owned several rental homes in Orange County Tired of being landlords Wanted to be able to travel 12
PAT AND TOM S SOLUTION Gift of Charitable Remainder Trust (CRT) Trust sells assets tax-free Immediate income tax deduction Trust pays a lifetime (or term) of variable (or fixed) income to Pat and Tom Unitrust is variable amount Annuity trust is fixed amount Principal is retained to benefit charity Legacy of endowing a scholarship in their name OR REAL ESTATE TO BE LIQUIDATED CHARITABLE REMAINDER TRUST 13
DOY AND DEE Doy is a longtime trustee at Chapman University Their daughter was terminally ill Wanted to provide some security for her family Didn t want to give them a lump sum of money Like Pat and Tom, used a charitable remainder trust to meet their goals Lifetime income to daughter and husband Legacy of endowed chair BETTY Retired from Chapman University Member of Town & Gown Has her estate plans in place and doesn t want to make changes 14
BETTY S SOLUTION Bequest-like gift Name charity as beneficiary of investments such as: Bank account (Payable on Death) Life insurance policies Stock and real estate (Transfer on Death) Commercial annuity (Payable on Death) Name charity as beneficiary of IRD assets* (Income in Respect of Decedent) such as: IRA 401(k) or 403(b) accounts Savings bonds * IRD assets left to heirs are fully taxable. IRD assets left to a qualified charity are tax exempt, so 100% of the value supports the mission. MORE GIVING OPTIONS Retained Life Estate Gift your home to charity Continue to live in your home for your lifetime Receive an immediate income tax deduction Deduction up to 30% of AGI with 5 year carry forward Some charities might even issue you a gift annuity Legacy of advancing the mission of the charity Bargain Sale Sell your property to a charity for a significantly reduced price Receive a charitable deduction for the difference between the bargain sale price and the appraised value Deduction up to 30% of AGI with 5 year carry forward 15
MORE GIVING OPTIONS Donor Advised Fund Can be funded with cash, stock or property Receive tax deduction when funded Public charity manages the fund Community foundations and national charities Charitable arm of investment firms Most common are Fidelity Investments, Charles Schwab and Vanguard Group Donor or family advises distribution of fund A MEANINGFUL LEGACY Establish an endowment (permanent fund) Charity receives gift and invests the funds Principal gift remains intact Based on investment returns, 5% annually goes to charity for designated purpose of the endowment Additional investment returns used to grow the principal Endowments can be created with: Lifetime Giving: cash, stocks, bonds, real estate Bequests Charitable trusts Life insurance 16
QUESTIONS AND ASSISTANCE David B. Moore Chapman University Director, Planned Giving (714) 516-4590 dmoore@chapman.edu Charitable Sponsors American Heart and Stroke Association Chapman University Laguna Canyon Foundation Mission Hospital Foundation PBS SoCal St. Joseph Hospital Foundation St. Jude Memorial Foundation The Ocean Institute 17