YOUR PLANNED GIVING GUIDE
MAKE A PLAN TO MAKE A DIFFERENCE
There’s no question that Arkansans are generous people. We pitch in when our neighbors need us. We gladly open our hearts and our pockets to support charitable causes that improve our communities. Arkansas Community Foundation is here to help people like you — people who love giving — give more effectively. We can help you customize a charitable giving plan that makes good business
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sense for your family and helps you do good in your community.
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What Will You Give? You’ve Got Options Often when we think of charitable giving, we picture donating food and supplies or writing a check. But there are so many other ways you can put your assets to work for the causes you care about. Charitable gifts are usually categorized into three groups:
Outright Gifts An outright gift is a gift you make (and take an income tax deduction for) right away. In addition to cash, you can contribute: • Real estate, including undeveloped and developed land • Publicly traded securities • Closely held stock • Insurance • Other forms of personal property such as crops or timber
Testamentary Gifts Donations planned through a Last Will and Testament can include a specific property, a certain cash amount or a percentage of an estate. You can also donate a retirement account or insurance policy after your lifetime by naming the Community Foundation as a beneficiary.
Life Income Gifts Life income gifts are gifts that give back! You can make a donation now and receive an ongoing income during your lifetime, plus attractive tax advantages at the time of the gift and beyond. Life income gifts include: • Charitable Gift Annuities • Charitable Remainder Trusts • Charitable Lead Trusts
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WHAT’S YOUR GOAL?
To decide which gift option is best for you, start by clarifying your goals. What factors influence your current financial situation, and what do you hope your gift will accomplish?
Goal: Make a significant gift without donating cash. Perhaps your cash flow is limited but you’ve got an insurance policy or piece of real estate that could be used to create a sizeable benefit for a cause your support. Perhaps you’re facing capital gains taxes resulting from the sale of an appreciated asset. Arkansas Community Foundation can help.
Turn Timber into Tutors or Rice into Reading Programs Reap tax benefits and sow seeds of
The Gift Situation
How to give
Publicly Traded Stock You want to avoid capital gains taxes resulting from the sale of appreciated stock.
Donate the stock itself to the Community Foundation.
Life Insurance You want to make a large gift with limited cash flow. You own a paid up and unneeded insurance policy.
Name the Community Foundation as a beneficiary of the policy or donate the policy outright.
Retirement Assets
Bargain Sale of Appreciated Real Assets
You want to avoid the two-fold taxation (income taxes on disbursements to you, and estate taxes on assets left to your heirs) on Individual Retirement Accounts or other retirement plans.
You want to avoid capital gains taxes resulting from the sale of an appreciated asset.
Name the Community Foundation as the beneficiary of the balance of your IRA or other qualified plan after your lifetime.
Sell the asset to the Community Foundation for less than the fair market value.
positive change by donating farmland or crops If you’re a farmer, rancher or land owner, your property and agricultural assets can be a powerful force for good in your community. When you donate crops or land to the Community Foundation, we can convert these assets into a charitable endowment or
Advantage to you
The cash proceeds from the stock benefit the charity of your choice, with no capital gains exposure.
If you defer the gift by naming the Community Foundation as a beneficiary, you’re able to make a larger gift. If you donate the policy outright, you can qualify for deductions on future gifts to cover premiums on the policy.
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You can make a donation from a highly taxed asset (your retirement plan) and leave more for your heirs by eliminating income and estate taxes.
You can reduce capital gains tax exposure.
fund to benefit the causes you care about. You’ll receive tax benefits at the time of the gift and enjoy the satisfaction of making a long-term impact on the charitable needs in your community. 5
GOAL: Receive an income during your lifetime. There are a number of gift options that can provide a financial benefit to your favorite charities and pay a supplemental income to you or your heirs. These life income gifts are a win-win!
The Gift
Charitable Gift Annuity
Charitable Remainder Trust
Charitable Lead Trust
Situation
You want to create a stream of income during your lifetime and support a charity after your lifetime.
You want to create a hedge against long-term inflation while also supplementing your income.
You want to support a charity in the short term while also reducing estate and gift taxes in the long term.
How to give
Make a donation to secure a charitable gift annuity issued by the Community Foundation. From the initial donation, the Community Foundation will make quarterly payments to you; at the end of your lifetime, the remaining balance of the gift will go to charity.
Create a charitable trust that pays you (or someone you designate) a fixed percentage of the trust’s assets (as revalued annually) for a set number of years. Thereafter, the trust’s remaining assets go to the Community Foundation, to be used in support of a cause you designate.
Create a charitable trust that pays a variable amount to the Community Foundation for a set number of years. Thereafter, the remaining balance is disbursed to you or a beneficiary you choose.
Advantage to you
You can make a meaningful charitable gift and receive supplemental income during your lifetime.
You can receive an immediate income tax deduction and a variable income from the trust during your lifetime.
A charitable remainder trust reduces your taxable estate and often reduces gift taxes when assets are passed to family.
GOAL: Protect your heirs from tax burdens after your lifetime. Many assets are subject to significant tax burdens when transferred to heirs after your lifetime. By donating these assets to the Community Foundation, you can create a charitable legacy and reduce your heirs’ exposure to estate taxes.
The Gift
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Will or Revocable Trust
Retirement Assets
Charitable Lead Trust
Situation
You want to create a stream of income during your lifetime and support a charity after your lifetime.
You want to avoid the two-fold taxation (income taxes on disbursements to you, and estate taxes on assets left to your heirs) on Individual Retirement Accounts or other retirement plans.
You want to support a charity in the short term while also reducing estate and gift taxes in the long term.
How to give
Name the Community Foundation as a beneficiary in your will or trust. You can designate a specific asset or property, a cash amount or a percentage of your estate.
Name the Community Foundation as the beneficiary of the balance of your IRA or other qualified plan after your lifetime.
Create a charitable trust that pays a variable amount to the Community Foundation for a set number of years. Thereafter, the remaining balance is disbursed to you or a beneficiary you choose.
Advantage to you
Your donation is exempt from federal estate tax, and you retain control of the asset during your lifetime.
You can make a donation from a highly taxed asset (your retirement plan) and leave more for your heirs by eliminating income and estate taxes.
A charitable remainder trust reduces your taxable estate and often reduces gift taxes when assets are passed to family. 7
GOAL: Make a gift from your business. If you’re a business owner, you may wish to give back to the communities that have supported your company and provided your customer and employee base. A business gift to the Community Foundation is a great way to provide funding a variety of causes with a single donation. We’ll handle the administrative details to make the process simple and effective for you.
The Gift
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Closely Held Stock
Charitable Lead Trust
Situation
You want to make a donation while minimizing taxes on the transfer of a business you own.
You want to support a charity in the short term while also reducing estate and gift taxes in the long term.
How to give
Donate closely held stock in the business you own.
Create a charitable trust that pays a variable amount to the Community Foundation for a set number of years. Thereafter, the remaining balance is disbursed to you or a beneficiary you choose.
Advantage to you
You receive an income tax deduction for the fair market value of the stock, while avoiding capital gains tax exposure. Since the business can repurchase the stock, the ownership interest can remain intact.
A charitable remainder trust reduces your taxable estate and often reduces gift taxes when assets are passed to family.
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WHAT ABOUT PRIVATE FOUNDATIONS? The Community Foundation can be an alternative to, or work in tandem with, a private foundation. There are many factors to weigh when considering whether you want to create your own private foundation or establish a fund at Arkansas Community Foundation. Tax treatment, administration, autonomy and anonymity all come into play. Here are a few options to consider:
You have an alternative to a private foundation For many donors, the Community Foundation provides an appealing alternative to establishing a separate private foundation. While creating a private foundation gives you autonomy in managing assets, running a foundation also comes with significant legal, financial and administrative burdens. On the other hand, establishing a fund at the Community Foundation enables you to receive Nancy Williamson the most favorable tax treatment for your contribution. We manage the financial, legal and The Bridge Fund compliance issues, and you simply enjoy the satisfaction of making grants from the fund to benefit the causes you choose.
We can work together with your private foundation If you already have a private foundation, we can be a partner to help you make the kind of impact you want to achieve. For example, a private foundation might choose to use a portion of its assets to establish a fund at the Community Foundation for several reasons: • We have broad-based relationships with hundreds of nonprofit organizations across the state. If you find that you’re not receiving enough desirable proposals from potential grantees, we can help manage a call for proposals to seek the highest quality projects for funding. • A Community Foundation fund gives you an outlet to make grants to causes outside of your private foundation’s stated funding priorities. • As you consider the future of your foundation beyond your generation, you may find that it’s to your family’s advantage to turn over management of the assets to the Community Foundation. • If you plan to terminate a private foundation, you can gain tax benefits from transferring your foundation’s assets to the Community Foundation rather than terminating outright. • A Community Foundation fund enables you to make grants anonymously.
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Community Foundation Funds Receive Favorable Tax Treatment Income Tax Deductions Allowed (subject to % limitations) Private Foundation
Community Foundation
Fair Market Value
Fair Market Value
Cost Basis
Fair Market Value
• Cash Gifts
30%
50%
• Capital Gain Property
20%
30%
Yes
Yes
Publicly Traded Stock Other Property Percentage Limitations (adjusted gross income)
• Carryover Available Nancy Williamson The Bridge Fund
The table above assumes that your income allows for full deductions.
Operating Rules of the Internal Revenue Code Private Foundation
Community Foundation
Excise tax on investment income
Yes
No
Minimum payout requirements
Yes
No
Restrictions on “self dealing”
Yes
No*
Private Foundation
Community Foundation
You obtain
Handled by Community Foundation
Annual tax returns
You file
Handled by Community Foundation
Account statements
You prepare
Handled by Community Foundation
You obtain
Handled by Community Foundation
No
Yes
3% for $1 to $10 million foundations; 4.8% for foundations under $1 million
Arkansas Community Foundation’s average annual fee is 1%
Incorporation and tax exempt filing
Restrictions on holding interest in business enterprises
Yes
No*
Prohibition against grants to support lobbying
Yes
No
Yes
No*
Accounting services
Application of expenditure for grants to organizations that are not public charities
Nancy Williamson responsibility procedures The Bridge Fund
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Administration, Accounting and Tax Preparation
Restrictions on scholarship and research grants
Yes
No
Privacy of assets, gifts and grants
Advisory role for donor in grantmaking
Yes
Yes
Average annual costs
Legal control in grantmaking
Yes
No
Possibility of compensation for staff, directors or trustees
Yes
No *May not apply to all donor-advised funds
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For more information, contact
1400 W. Markham, Suite 206 • Little Rock, Arkansas 72201 • arcf@arcf.org • 501-372-1116 or 888-220-2723