Plan your giving with Stonewall
Financial Planning is about much more than deciding how your assets should be divided up at end-of-life. Financial planning is also about life and life’s changes.
If you’re not sure financial planning is right for you, you may be underestimating the value of your current and future assets, overestimating the complexity of trust funds and other arrangements or minimizing the impact of income and inheritance taxes.
Without enforceable, written planning in place, the personal financial affairs of LGBTQ individuals are subject to legal “default” rules that were not designed with our needs in mind. These rules favor relationships based on marital and biological ties.
You cannot “opt out” of financial and estate planning. If you ignore these matters and become disabled or die without a legally enforceable plan, state law “writes” a plan for you.
Stonewall Community Foundation is here to work with you and your financial advisor to meet your needs. Contact us to learn how.
The Most Tax-Efficient Way to Give >
To encourage contributions to nonprofit organizations, the Internal Revenue Service (IRS) allows you to deduct all or a portion of the value of your charitable donations from your taxable income. This is generally true if you itemize your tax deductions and if the charities you support meet the requirements of Sections 501(c)3 of the tax code (like Stonewall).The precise amount by which a specific donation can reduce your taxes depends on several factors, including the type of asset, how long you have held the asset, and, in some cases your income level.
When you donate cash
, for instance, you can usually deduct the full amount. But donations of securities are treated differently.
Donating Appreciated Securities >
The tax code provides a double benefit when you donate appreciated securities, such as stocks and mutual fund shares held for more than a year. In such cases, you can deduct the full market value of your gift (within your income limits) without realizing a capital gain. If, instead, you had sold the same securities and donated the cash proceeds of the sale to charity, you would have incurred long-term capital gain tax. Please complete these forms if you are interested in donating stock to Stonewall:
Deferred Giving and Taxes >
You can also avoid taxes by donating assets to a charitable remainder trust or naming a charity—like Stonewall—as a beneficiary of your will, life insurance policy, or tax-deferred retirement plan. For instance, taxes can claim much of your traditional IRA after you die. But, as a beneficiary of your IRA, a charity would keep all of the assets that would otherwise be going for taxes.
Direct Giving >
Giving directly to charities, either by cash gifts or by donations of appreciated securities, makes sense if you already know which organizations you want to support and you want the charities to receive the gifts with the least possible delay.But direct giving has its drawbacks. It requires you, as the donor, to conduct research, evaluate each charity, and keep records of your gift receipts for tax purposes. It gives you little or no opportunity to create a giving strategy or to see your contribution appreciate in value. Also, some charities are not operationally equipped to accept donated securities or even credit cards.
A planned gift:
- Provides a reliable stream of income for yourself and other beneficiaries, usually for your lifetime
- Avoids or reduces capital gain taxes on long-term appreciated assets, such as securities and real estate
- Increases income on an after-tax basis
- Reduces or eliminates federal estate taxes and probate costs
- Provides diversification and professional management of your investments
Charitable Remainder Trusts (CRT) >
Cash, securities and/or real estate are put into an irrevocable trust. This trust pays you an annual income and the remainder of the trust benefits Stonewall upon your death or termination of the trust. You qualify for tax advantages at the time of your gift and the trust is exempt from taxes when you die. Typically, a minimum contribution of $100,000 is required to generate an income stream and tax deduction large enough to justify creating a CRT. A CRT is not for everyone, but can be a useful and tax-advantaged way to diversify a portfolio of securities paying low dividends—particularly if selling them would create significant capital gains tax to the donor.
Charitable Lead Trust >
A charitable lead trust enables you to provide Stonewall with the income from a trust over a period of years. When the trust term expires, the remaining assets revert to you or your beneficiaries. Significant savings of gift or estate taxes (“transfer taxes”) may be realized when the lead trust principal passes to your beneficiaries. It is like a non-interest loan.
Life Insurance >
You can make a donation of a fully paid-up life insurance policy and receive a tax deduction based on the policy value or premiums paid (whichever is less). You can also take out a new policy and name Stonewall as the beneficiary. In this instance you may deduct the premiums.
Retirement Plans >
Naming Stonewall Community Foundation as the beneficiary retirement plan can be smart, tax-advantaged step. With the exception of the Roth IRA, retirement accounts are heavily tax burdened – the tax on deposits is deferred until the assets are withdrawn. Tax deferral continues for the life of the owner, but as soon as a retirement account passes to anyone else other than a spouse, the recipient must pay both the income tax and estate tax together. The net effect can be staggering – sometimes almost exhausting the account! That makes the gift of retirement account proceeds (401(k), 403(b), IRA or Keogh) extremely attractive. And it is simple as well.
How You Can Do Well by Doing Good.
All methods of charitable giving are not equal under the tax law! Some methods are more “tax-efficient” than others.
Look what happens when we combine two of the giving options from the section above and create a Charitable Remainder Trust (CRT) with the assets of a 401(k) plan…
Carol has an estate of $1.3 million. The estate is made up of cash and securities of $450,000, an apartment worth $350,000, life insurance of $200,000 and a qualified retirement plan worth $300,000. Carol would like to do something for charity but wants to make certain that her partner, Ann, will have cash flow after she is gone.
What if Carol dies and leaves everything to Ann? The results could look something like this:*
*The fine print! This example is for illustration purposes only and does not reflect all of the financial situations facing any particular donor. We recommend that all of our donors seek the legal advice of their own advisors before entering into any gift arrangement with the Foundation—or any other charity.
- Estate taxes are projected at about $131,400
- Carol’s retirement plan, after federal estate taxes, is paid to Ann through Carol’s estate outright. Ordinary income tax of about $53,000 is due—assuming a tax rate of 27%. (Note, by making Ann the designated beneficiary, Ann could receive the retirement plan over her projected life expectancy, deferring the immediate income tax impact.)
- After estate taxes and expenses, Ann would receive about $1.1 million of the initial $1.3 million estate.
- Charity would receive nothing.Look how significantly the results would change if Carol left everything to Ann outright expect the retirement plan, which instead she directed to a Charitable Remainder Trust (CRT) through Stonewall Community Foundation. The CRT is instructed to pay Ann 5% of the Trusts value each year.
- Estate taxes are estimated at about $60,000—about half of the amount if no charitable gift was involved.
- After taxes are expended, Ann can expect to receive more than $925,000 outright.
- Ann now receives 5% of the CRT, holding the retirement plan for her life. If Ann survives 20 years and the CRT grows by 8% over that time, then Ann can expect to receive, before ordinary income tax, more than $403,000.
- If the Trust grows an average of 8% per year, then, upon Ann’s death, Stonewall will receive the trust remainder, projected at around $526,000.