As you consider financial and estate planning, please consider the Kaniksu Land Trust (KLT). These techniques can provide you tax savings while providing KLT revenue to fund our land conservation programs. Below are some of the most commonly used planned giving techniques. These should be discussed with your financial planner, accountant and/or an estate planning attorney, especially in light of the potential changes to federal statutes.
Planned giving is generally divided into two categories: revocable and irrevocable. Revocable gifts can be rescinded or amended. Irrevocable gifts cannot.
Revocable gifts are generally made as part of your Last Will and Testament, wherein you specify that the Kaniksu Land Trust will receive gifts of cash, equities and/or other assets. If your estate is subject to the federal/state estate tax, a charitable bequest can save significant tax dollars. KLT can be named as a beneficiary in your will in a number of ways:
o Outright bequest: You can specify a gift of cash, securities, and/or other assets.
o Residual bequest: A residual bequest provides that, after all other gifts are made to other named beneficiaries (children, etc.) the amount remaining in the estate is gifted to KLT.
o Contingent bequest: A contingent bequest means that KLT will receive certain assets only if a named individual does not survive you. This provision recognizes the need to provide first for the security of others.
o Testamentary trust: A trust is created upon your death, and provides income for another person or persons for life. The principal ultimately passes to KLT. Alternatively, you can designate that the income go to KLT for a certain number of years and the principal ultimately pass to family members or others. Testamentary trusts are revocable during your lifetime, but once the trust is created upon your death it is irrevocable. Making a gift in your will is easy. You only need to specify that you bequeath certain assets to KLT. If you already have a will, you can have your attorney prepare a codicil establishing the gift without having to rewrite your entire will. Your attorney can work with you on the language to include, or contact KLT for more information. It is also possible to make gifts of real estate or conservation easements in your will. Please contact KLT if this is something you are considering, as there are special considerations that need discussion.
1. Charitable Remainder Unitrusts
A charitable remainder unitrust allows you to make a gift to KLT while continuing to receive income from the gifted assets. Your gift is administered separately as a trust. At the time the trust is created, you give instructions to the trustee to pay you or another designated beneficiary income for life. You decide, within certain limitations, the rate of return you will receive on the trust’s assets. After the life income payments to you and/or the other designated beneficiary terminate, KLT receives the balance of the assets in the trust. With the unitrust, you receive a fixed percentage of the fair market value of the trust’s assets. Thus, the income paid out will vary from year to year, based upon the performance of the trust’s investments. The fixed percentage paid out must be at least 5 percent. Thus, if you contribute stock that pays a low dividend, the unitrust can sell it and reinvest in assets with a higher income yield – and that higher income can be passed along to you. Upon the creation of a unitrust, you receive a federal income tax charitable contribution deduction based upon the age of the beneficiary, the rate of return specified in the trust, and other factors.
2. Charitable Remainder Annuity Trusts
Annuity trusts are similar to unitrusts except that the life income beneficiary receives a set amount rather than a percentage of the assets in the trust. You may stipulate, for example, that you receive $6,000 (or some other fixed sum) each year as a result of setting up a $100,000 annuity trust. This is preferable for those who need a fixed annual income. Annuity trusts provide a federal income tax charitable contribution deduction. Also, you generally incur no capital gain on the transfer of appreciated assets to fund the trust.
3. Charitable Lead Trusts
The creation of a charitable lead trust allows you to pass assets on to younger family members with little or no gift or estate tax. Under this arrangement, you transfer assets to a trustee who then makes annual payments to KLT for a specified number of years, after which time the assets remaining in the trust go to your children, grandchildren or others. For individuals in high estate and gift tax brackets, this trust provides the opportunity to transfer assets to younger generations, completely or significantly free of transfer taxes.
4. Gifts of Life Insurance
Life insurance provides another means for donating to KLT. This can be done by purchasing a new policy or by contributing a policy you currently own, but no longer need. KLT can be designated as the beneficiary of the policy. However, no current federal income tax charitable deduction is available to you since you would still be the owner of the policy. (This is a revocable gift as you can amend the gift prior to it being granted.) To receive a current federal income tax deduction, you would need to designate KLT as both the owner and the beneficiary of the life insurance policy. When such a gift is made, the deduction will be approximately equal to the cash value of the policy at the time of the gift. Many donors decide to continue to pay the premiums on the policy after the gift is made, in which case the additional premium payments will be tax deductible. This gift is irrevocable.
5. Retained Life Estate Gifts
Retained life estate gifts are similar to Charitable Remainder Unitrusts, except they deal with real estate. With a retained life estate, you deed a personal residence to KLT. You retain the right to occupy the home for life and continue to pay real estate taxes, maintenance fees and insurance on the property. In addition, you can later decide to rent your home or make improvements to it. KLT takes possession of the house after your lifetime or that of your spouse or another person you choose to retain rights to live in the home.
FOR ADDITIONAL INFORMATION
This summarizes some of the more common planned giving options. There are many others. Always consult with your accountant, attorney, and tax advisor on how these general rules apply to your situation. The Kaniksu Land Trust appreciates your interest and support. Our staff would be pleased to meet with you or provide you with additional information.