New tools for planned giving

Mary Teresa Bitti

As vice president and managing director of Wachovia Bank’s Centre for Planned Giving, Mark Land enjoys a bird’s-eye view of development in the art of planned giving.

And the most significant trend he sees in the planned giving marketplace is not necessarily the new tools on the scene, but the increasing comfort both donors and nonprofits display in using real estate and gift annuities to meet their needs.

“What I’ve seen is not so much a high incidence of esoteric strategies but an evolution,” says Land, whose clients range from small to large nonprofits.  “Frankly, people are more comfortable in the donor community participating in charitable remainder trusts and gift annuities in a fairly vanilla variety,” he says.

More specifically, says Land, there has been an increase in real estate going into charitable remainder trusts and into gift annuities.

“Increasingly, the nonprofits we’ve worked with have fairly sophisticated gift-acceptance policies and have taken the time to think through their willingness and ability to accept real estate.”

This coincides with another emerging trend — the acceptance of planned-giving officers as trusted advisers.

“A lot of the planned-giving officers are seen as a great resource for the donor for their overall estate as well as philanthropic planning,” says Land.

These professionals have become adept at showing people how they can have a significant impact, as well as gain the tax benefit of a charitable remainder trust or gift annuity around a particular asset, he says.

What does that mean? In a nutshell, more people are thinking about personal property as a way of making a gift to a nonprofit, where they can exchange that gift for payment during their lifetime and receive an income tax deduction for the gift.

A gift annuity is a contractual obligation between the nonprofit and the donor. In choosing a gift annuity, the donor can leave the details to the nonprofit, which writes up the gift annuity contract.

Annual payments to the donor are set and, in some cases, can be used for the benefit of the organization for some period of time, depending on the asset.

Charitable remainder trusts allow donors to contribute assets into the trust and receive a payment for their lifetime based on the contributed value of the assets.

At death, the remaining asset goes to the nonprofit. The donor gets an income-tax deduction at the time the trust is created.

More nonprofits are enjoying success in showing donors how they can take low-yield assets, such as stocks or land that have a low cost-basis but have appreciated in value, and benefit themselves and the nonprofit, says Land.

If those assets were sold under normal circumstances, the donor would have to pay capital gains.

But when placed inside the trust, ownership shifts from the donor to the trust, which then can sell the asset to create liquidity, reinvesting the proceeds into a diversified portfolio of stocks and bonds.

“The donor gets an income stream from the portfolio for the remainder of their lifetime, and when they die, what’s left can go to the nonprofits they choose,” says Land.

Charitable remainder trusts also can be created with wealth-replacement insurance policies.

Land helped create one such “wealth replacement trust” for a widow who had $500,000 in one stock and wanted to pass along wealth to her children.

She was getting a dividend of 40 cents a share, and by putting the stock into a charitable remainder trust and diversifying the portfolio, she could earn a payout of 5 percent to 6 percent from the trust.

With the increase in income, Land created a wealth-replacement trust and took part of the money to purchase a life insurance policy held in the trust.

The policy was funded by the trust and, on her death, will be paid out to her children without a tax hit. What was left in the charitable remainder trust went to the nonprofit.

“At the same time, she earned a charitable deduction in her lifetime, a better income stream and she was able to achieve her philanthropic goals and take care of her children,” says Land.

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