A GIFT OF APPRECIATED STOCK, BONDS OR OTHER SECURITIES
Gifts of appreciated stock are deductible at the fair-market value, even though the unrealized gain is taxable neither to the donor or the charity. From a tax standpoint, it’s nearly always more beneficial to contribute appreciated stocks (as well as any other kind of appreciated assets) rather than cash.
A couple is planning a gift of $10,000. They are considering two possibilities: (1) a gift of cash or (2) a gift of highly appreciated stock.
Several years ago the couple purchased 100 shares of stock for $10 per share ($1,000). It is now valued at approximately $100 per share. If the couple gives the stock to MLHS they can claim its full-market value ($10,000) as a charitable deduction. Assuming a combined federal-state tax rate of 35%, the couple stands to realize a tax savings of $3,500 on their gift. They also avoid the capital gains tax liability they would have had if they had sold the stock themselves.
A GIFT OF TANGIBLE PERSONAL PROPERTY
Your contribution to MLHS may take the form of tangible property. Gifts related to the purpose or function of the school or used in its ministry – for example, an automobile, scientific equipment, a computer system – generate tax deductions equal to the full fair-market value. Property whose use is unrelated to the school’s educational purpose results in a charitable deduction limited to its cost basis.
Mr. Karlsrud wishes to contribute a computer unit to Mayer Lutheran High School. Its fair-market value is appraised at $1,000. He purchased it in 2011 for $2000. MLHS issues him a gift-in-kind receipt enabling him to claim the full market value as a charitable gift deduction. He receives a letter from the school regarding his computers use for educational purposes.
Mrs. Warner wishes to make a gift of jewelry. She inherited it 15 years ago at an estate value of $5,000; today it’s appraised value is $16,000. She gives the jewelry to MLHS but because her gift is unrelated to the schools purposes, she receives credit for the basis value, or $5,000. The school may sell the jewelry for its current value ($16,000) and add the proceeds to the Campaign fund.
A GIFT OF REAL ESTATE
Gifts of highly appreciated real estate are often an excellent means to make a charitable gift. The gift value is determined by an appraisal if the value of the property exceeds $5,000. The donor receives a charitable deduction for the full fair market value of the property (regardless of their cost or basis in it). The charity may then sell the property for its full market value and may use the entire proceeds in support of its mission.
The Bensons own 60 acres of farmland adjacent to the city. Recently, they have been approached about selling 40 acres of their property for $400,000. They purchased those 40 acres nearly 40 years ago for $5,000 and would face a large capital gains liability were they to sell the land outright.
But Mr. and Mrs. Benson have often thought about making a significant gift to MLHS and it now appears that this may be an appropriate gift asset to benefit both MLHS and themselves.
By giving the property to MLHS (who may then sell it to the interested buyer), the Bensons will receive a charitable deduction for the full fair market value ($400,000) of the property. While their income tax deduction is limited to 30% of their adjusted gross income, they will have the year of the gift plus five additional years of carry-forward to use up the allowable deduction. They may also choose to sell another portion of land outright which will have a substantial capital gains liability. However, the charitable deduction from the MLHS gift may also be used to offset the capital gains obligation on that sale.
A GIFT OF LIFE INSURANCE
Gifts of life insurance policies may yield deductions for income tax purposes equal to the policy’s replacement value or the owner’s basis, whichever is less. If premiums still remain to be paid and the donor chooses to continue them, those payments are deductible. Mayer Lutheran High School has the option of retaining these policies until the death of the donor or withdrawing their cash-surrender value.
Mr. Frank purchased a $25,000 whole-life policy when he was 25. He now plans to use it as a gift to MLHS. He will receive a charitable deduction for the appraised value (which is roughly equal to the cash value) this year.
There may be enough value in the policy so that the dividends will keep up premiums. Or, if he wishes, he may continue to pay the premiums and receive a charitable deduction for these payments. The school may also accept a paid-up policy for less than its face value; in other words, whatever amount the dividends will cover or they may choose to terminate the policy and receive the cash value.
PLANNING A FUTURE GIFT
Future (planned) gifts may take many forms, depending on the circumstances of the donors. The most common is the bequest – gifts made through your will or trust (such as a revocable trust). Others include life insurance, the charitable gift annuity, the charitable remainder trusts and the retained life estate.
Your will or revocable trust may include deferred charitable gifts of cash, securities, real estate or personal property to MLHS for its use, as directed by the Board. Bequests can be intended for general purposes or designated for use in areas of your special interest – for example, endowment, scholarships or capital projects.
Bequests may be made in three forms:
Specific, in which you specify a percentage of the estate or specific property to be used for the benefit of MLHS.
Residuary, in which you bequeath all or a portion of the remainder of your estate, to be used for the benefit of MLHS.
Contingent, in which you give a specified percentage or property to MLHS in the event your spouse and/or children do not survive you.
A new life insurance policy may be established with the MLHS as the owner and beneficiary of the policy. Premium payments made by the donor are tax-deductible.
A CHARITABLE GIFT ANNUITY
In return for a gift of cash, marketable securities or real estate, you (and/ or another beneficiary) receive a fixed income for life, as well as immediate tax benefits, through the charitable gift annuity option available in most states. Mayer Lutheran High School ultimately owns the assets.
A CHARITABLE REMAINDER UNITRUST
Cash, marketable securities or real estate may be placed into a charitable remainder unitrust. The donor receives an immediate charitable income tax deduction based on the rate of return and the length of time projected for the trust.
At the time the trust is created, a fixed percentage of return (at least 5 percent) is determined. Each year the trust’s beneficiary receives that percentage of the trust’s current market value (which is revalued annually) or the net income earned by the trust’s assets. When the trust matures -at the death of the last non-charitable beneficiary, or at the end of a period not to exceed 20 years – MLHS receives the property.
A CHARITABLE REMAINDER ANNUITY TRUST
A charitable remainder annuity trust is much like the unitrust, with the exception that income is based on a percentage of the initial principal. The payout amount remains constant for the duration of the trust.
A charitable remainder annuity trust is particularly attractive for producing tax-exempt income.
A RETAINED LIFE ESTATE
You may choose to contribute your home, vacation home or farmland and retain a “lifetime interest” in the property. Ownership is transferred to Mayer Lutheran High School after your death, but you retain full use and control of the property during your lifetime. You’re allowed a charitable deduction based on the property’s current market value and your life expectancy. After your death, the school is free to sell the property.