Business Issues

Contributions Matter

Through planned giving, individuals can make meaningful differences.

The year is coming to a close. Now is the time to consider charitable donations for today and tomorrow.

Individuals may think about what charities have made a difference in their lives. Or ask themselves what legacy they want to create. Now Alfred Nobel is not remembered as a cannon manufacturer but for funding the prestigious Nobel Prizes.

Individuals can use a bequest in a will, allowing them to keep their assets during their lifetimes or change beneficiaries since bequests are revocable gifts. It provides individuals with flexibility if they decide to give their heirs more, increase the number of beneficiaries, or simply change their minds. Bequests can be specific, residual, or contingent.

Flexibility Counts

Specific bequests are the most common and involve a specified amount of money, a designated asset, or a certain percentage of the estate. If a certain asset is named and it's disposed of before death, the bequest fails. If a designated amount of money or percentage of the estate is named, it will not fail even if there is not enough cash to fulfill the bequest.

Residual bequests involve the remainder of an estate and only occur after all debts, expenses, taxes, and other bequests are paid. Finally, contingent bequests take effect only when all other bequests fail.

A will can be used in combination with other estate planning vehicles such as life insurance, which is an effective way to provide a charity with future funding. Tax benefits to the donor depend on how the gift of life insurance is structured.

The gift often is arranged, so that either the donor owns the policy and names a charity as beneficiary. Or the charitable organization owns the policy on the donor and pays premiums instead of cash gifts from the donor.

If the donor retains ownership of the life insurance policy and names a charity as the beneficiary, the donor will not receive a current charitable income tax deduction. The death benefit proceeds will be included in the estate for estate tax purposes. This is due to the retention of ownership, which allows the donor to change the beneficiary.

If the policy is a cash value life insurance policy, the donors will still have access to the cash value during their lifetimes. Upon death, the proceeds are included in the gross estate. The proceeds payable to the charity, however, may qualify for a charitable estate tax deduction.

Lasting Impact

If the donor wants to receive an immediate charitable income tax deduction for life insurance premium amounts, then the charity must be the owner and beneficiary of the life insurance policy. Typically, the donor will donate cash to the charity, so the organization pays the life insurance premiums.

After the donor's passing, the charity receives the life insurance death benefit proceeds. It's critical to consider that the standard IRS annual limitation on charitable income tax deductions apply, as do some states.

If a donor has an existing life insurance policy, it may be donated to a charity. The donor may receive a charitable income tax deduction for contributing the life insurance  up to certain limits if there is both a legal assignment and a complete delivery of the policy to the charity. Also, the charitable organization must be irrevocably named as beneficiary. Usually a change of ownership and beneficiary form from the insurance company must be completed. The receiving charity must sign the change of ownership form as the new policy owner.

The amount of the deduction depends on the type of policy donated with the insurance company providing information to calculate the deduction. If more life insurance premiums are needed, the donor may make donations to the charity for the additional premium payments.

These additional donations may be income tax deductible up to certain limits. In some states, however, charities do not have an insurable interest in the donor's life, and the IRS has challenged income tax and gift tax deductions for the premium payments.

The rules on charitable deductions require review at the time the contribution is contemplated. The rules may change or be affected by amended regulations, current tax court decisions, case law, and state law.

Timing Matters

Although it's near the end of the year, there's still time to donate to the CCIM Foundation as other CCIMs have done. Whether cash, securities, or real property, CCIM designees' donations benefit the Foundation in its ongoing work to manage the Named Endowed Scholarship Program and to provide its contributors with access to research papers from academic and industry thought leaders. 

CCIMs may also consider future donations by designating the CCIM Foundation as one of the beneficiaries in their wills or by donating life insurance policies. To establish a legacy of giving, CCIMs may set up a Named Endowed Scholarship in their own names or in the names of family members. Contribute quickly and easily to the CCIM Foundation by visiting www.ccimef.org/give-now.asp


This article is sponsored by the CCIM Foundation

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Mary Stark-Hood, JD, CFP

Mary Stark-Hood, JD, CFP, is president of the Hood Group, Inc., and serves as a consultant to the CCIM Foundation. Contact her at maryshood@comcast.net

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