A good advisor can walk clients through the decision about the timing of charitable gifts and the various types of planned gifts, which involve advance planning for a charitable gift to take effect upon the happening of a certain event (such as a donor’s death or the passage of a certain period of time). ETF staff works with donors and their advisors to help determine what type of giving strategy is appropriate for the particular gift being considered. Some planned giving vehicles through which East Tennessee Foundation has received gifts include:
Bequests by Will
Not only does a bequest to charity remove the asset from the donor's taxable estate, but it is also the ultimate statement of values. It reminds loved ones, heirs, and the community of where the donor found passion and merit. It is also a demonstration of how you prioritize charitable giving as an example to others. Bequests to East Tennessee Foundation can add to an existing fund or establish a new fund, which can be anonymous or named. Funds can be created to make grants in a wide area of need that interests the donor or to benefit designated charities or churches, which will receive a grant each year in perpetuity. Click here for sample bequest language.
IRA's, Other Retirement Plans, and Savings Bonds
Because the donor generally does not pay income tax on the growth of, and in many cases, the amounts contributed to, these assets, they are taxed as they are withdrawn or redeemed. These assets are generally the least desirable to provide to family and loved ones, because the beneficiaries (except spouses) are taxed heavily on them. However, they are a great tool for charitable bequests: East Tennessee Foundation does not pay income tax, so a gift of tax- deferred retirement assets or savings bonds come to East Tennessee Foundation tax-free.
Remainder Interest in a Home or Farm
This gift can be ideal for a donor whose home represents a major portion of his or her net worth. A retained life estate deed can allow a donor to remain at home and also provide a substantial gift to charitable causes. Once our due diligence process is complete, the donor gifts the home to East Tennessee Supporting Foundation, but retains the right to live there for life. This gift creates an up-front charitable deduction for the remainder value of the property, removes the property from the donor's taxable estate, and relieves heirs of the burden of managing and/or selling the property. As with the charitable remainder trust, donors can often use a portion of the tax savings to purchase life insurance to replace the value of the home or farm for the heirs.
Charitable Lead Trusts
A charitable lead trust is a gift plan defined by federal tax law that allows a donor to liquidate an asset or transfer assets to family members at reduced tax cost by making annual payments of the income from the asset to East Tennessee Foundation for a limited period of time. Depending on the exact structure of the trust, this vehicle can allow a donor to use an income tax deduction and spread the income recognition from a highly appreciated asset over the trust term or remove an asset’s value from a donor’s taxable estate, or both.
How it works: The donor transfers assets, usually cash or securities, to a trustee of his or her choice, such as a bank trust department or East Tennessee Foundation. During the trust's term, the trustee invests the trust's assets. Each year during the trust term, the trustee pays either a fixed percentage of the trust's current value, revalued annually (lead unitrust), or a fixed dollar amount (lead annuity trust) to East Tennessee Foundation. The payments to ETF can be used for the purposes the donor designates. The trust's term may be for a specific number of years (10 to 20 years is common), one or more lifetimes, or a combination of the two. When the trust's term ends, its charitable payments cease and the trust's principal is distributed to the beneficiaries named by the donor.
Charitable Remainder Trusts
A charitable remainder trust is a powerful tool for those who desire the security of a lifetime income and who want to make a significant future charitable gift and receive a current income tax deduction. This type of gift, which is defined by federal tax law, produces income that may continue for the lifetimes of the beneficiaries, a fixed term of not more than 20 years, or a combination of the two.
How it works: The donor, donor’s attorney and the donor’s trustee of choice, such as a bank trust department or trust company, work with ETF staff to prepare a trust agreement. The donor irrevocably transfers assets, usually cash, securities, or real estate, to the trustee to fund the trust and the donor receives an income tax deduction equal to the trust's remainder value to ETF, subject to IRS limitations. During the trust's term, the trustee invests the trust's assets. Each year the trustee pays the income beneficiaries (designated by the donor) either a fixed percentage of the trust's current value, revalued annually (remainder unitrust), or a fixed dollar amount (remainder annuity trust). Payments of income may be made annually, semiannually, or quarterly. When the trust term ends, the trust's principal passes to East Tennessee Foundation, to be used for the purpose the donor designates.
Donors receive an income tax deduction equal to a policy’s cash value for transferring a whole or universal life policy to East Tennessee Foundation. However, ETF can also be named as a beneficiary on life insurance policies, with ETF’s portion of the proceeds being used to establish a fund to be used in accordance with the fund agreement between ETF and the donor.