A Different Way to Give
There are several common types of Planned Gifts discussed below.
- Creating a bequest under your last will and testament
- Designating First Baptist as a partial or whole beneficiary of your IRA or other retirement plan
- Designating First Baptist as a beneficiary under a life insurance policy
- Future gifts of securities using a transfer on death beneficiary designation
Gifts to First Baptist made under your will or through a beneficiary designation generally should qualify for the federal estate tax charitable deduction.
Bequests Under Your Will
A will provides a solid foundation for all estate planning. A will also provides an opportunity to proclaim your Christian faith and to demonstrate to future generations the value of stewardship.
If you do not currently have a will, you should consider what will happen if you die without a will. The State’s intestacy laws provide for distribution of your assets at your death where you do not have a will. The allocation of your estate’s assets to your heirs under intestacy laws may not be as you would prefer. With a will, you may, in addition to leaving your assets as you prefer, decide who will administer your estate (i.e., name your executor), provide trust provisions for family members who are minors or need the protection of a trust, and leave bequests to friends or other non-family beneficiaries, such as First Baptist. Your will is a revocable document, which means you can change it at any time as long as you are legally competent. Your will should reflect the current circumstances of your life.
The following are some life changes which may require your will to be reviewed and possibly updated. Some changes include:
Family status such as marriage, birth of a child or grandchild, divorce
The nature or value of your estate
Laws that affect estate planning
Your place of residence from one state to another
If your will needs to be updated in light of these or other changes, you may write a new will, revoking any prior wills, or amend the will by writing a codicil. A codicil is merely an addition to a will which is witnessed and executed in the same manner as the original will. An attorney experienced in estate planning should be consulted about either a new will or a codicil. A sample codicil is included in this guide on pages 13 and 14 and may be helpful to your attorney, if you wish to add a codicil rather than signing a new will.
Several choices must be made when planning a testamentary charitable gift through your will or codicil. These choices involve:
• Amount of gift - specific or residual
• Type of gift - direct or contingent
• Beneficial use of gift - restricted or unrestricted
Each of these choices is outlined in the following pages with suggested language that may be helpful to you and your attorney as you determine the charitable gift you wish to make to further the mission of First Baptist. The examples given are intended to illustrate the various types of charitable gifts you can make. You should consult an estate planning attorney to consider the application of this language to your individual circumstances as part of an overall estate plan.
Amount of Gift - Specific or Residual
Specific bequests are most common. You leave a specific amount, such as:
“I bequeath to First Baptist Church of Gainesville, 751 Green Street, NW, Gainesville, Georgia 30501, the amount of $10,000...” or a specific asset or perhaps a specific percentage of your estate, such as 5%.
The other option is to give all or a specified percentage of the residue of your estate to First Baptist. A residual bequest is the remaining portion of your estate after all other expenses, taxes, and bequests have been made. Such as:
“.... [all of] [fifty percent (50%) of, etc.] the rest, residue and remainder of my estate, both real and personal, I give, devise and bequeath to First Baptist Church of Gainesville, 751 Green Street, NW, Gainesville, Georgia 30501...”
Type of Gift - Direct or Contingent
A direct charitable bequest will go directly to First Baptist. It is not dependent on another event to take place.
A contingent bequest is an alternate bequest. A contingent beneficiary is only entitled to the contingent bequest if one or more prior conditions are satisfied. First Baptist may be named as the alternate or contingent beneficiary, such as:
“If John Doe predeceases me or disclaims any interest in the bequest left to him under this will, I give the amount (or property) bequeathed to John Doe, or the interest John Doe disclaimed, to First Baptist Church of Gainesville, 751 Green Street, NW, Gainesville, Georgia 30501.”
Beneficiary’s Use - Restricted, Unrestricted or Endowment Fund
An unrestricted bequest can be used wherever the need is greatest. An example of a broad, unrestricted bequest would include language such as:
“...to be used by First Baptist Church of Gainesville, 751 Green Street, NW, Gainesville, Georgia 30501,
as its Trustees see fit.”
A restricted bequest provides a sum of money for a specific or designated project, purpose or program of First Baptist. The form of bequest usually should be made in the broadest terms possible consistent with your interests. This allows the church to respond to changing needs as they arise and eliminates a possible problem when a gift is given to a program that no longer exists.
If you want to leave a flexible, but restricted bequest, an example would be:
“...to be used for the reduction of church debt (or other specified use), or if such use, in the judgment of the Trustees, becomes or is unwise or impractical, then for such purpose as the Trustees shall determine.”
An endowment fund, sometimes referred to as a memorial fund, can be named to honor you or a loved one. This type of fund invests the gift and provides income in perpetuity. A bequest made to First Baptist to establish an endowment fund will support the work of First Baptist far into the future. An endowment fund can permit restricted or unrestricted use of the income. An example of a charitable bequest to establish an endowment fund would be:
“...to First Baptist Church of Gainesville, 751 Green Street, NW, Gainesville, Georgia 30501, the sum of $100,000 (or other specified amount) to establish an endowment fund in memory of my parents to be known and designated as the John and Jane Doe Memorial Fund. The income may be used for...”
If you want to provide in your will for an endowment or memorial fund at First Baptist, it would be helpful if you or you legal adviser contact First Baptist to discuss the parameters of such fund so that First Baptist can understand and fulfill your desires for the fund.
Naming First Baptist as Beneficiary
of an Individual Retirement Account (IRA) or Other Retirement Plan
In general, donors should bequeath to charity property that would create income tax liability for other beneficiaries – whether or not their estates are also subject to state or federal death taxes. Assets like IRAs and qualified retirement plan accounts are “income in respect of a decedent” (IRD), that is, items of income earned by a decedent before death but paid to his or her estate, heirs or beneficiaries after death.
Such income is includible both in the taxpayer’s gross estate for federal estate tax purposes, and in the estate’s, heir’s or beneficiary’s income for federal and state income tax purposes. A bequest from an IRA or qualified retirement account to First Baptist generally should qualify for the federal estate tax charitable deduction and the bequest would not be taxed to the estate or any heir or beneficiary for income tax purposes. Charities like First Baptist usually do not pay income taxes and therefore keep every dollar from IRD bequests.
ALL OR A PORTION OF ASSETS IN QUALIFIED RETIREMENT PLAN OR IRA
In order to leave all or a portion of the assets in your qualified retirement plan or IRA to First Baptist, you will need to revise your beneficiary form. You should contact the custodian of your IRA or trustee/custodian of a qualified retirement plan to get the necessary beneficiary form. If you are married, your spouse’s written consent will be required to name First Baptist a beneficiary of any portion of your account under a qualified retirement plan (not applicable to IRAs).
You could name First Baptist as beneficiary of a fraction or percentage of your IRA without the need to split the IRA into multiple accounts for your family and First Baptist. Provided that First Baptist receives distribution of its portion of your IRA by September 30 of the year following the year of your death, individual IRA beneficiaries may stretch distributions over their life expectancies. You will want to be sure to advise the executor you name in your will or other persons who will look after your estate to be aware of this deadline in order not to adversely impact the ability of individual IRA beneficiaries to stretch out their distributions. If you are concerned that this deadline might be missed, then you may want to split your IRA into multiple accounts, naming First Baptist as sole beneficiary of one of the accounts.
SPECIFIC DOLLAR DISTRIBUTION
Some IRA custodians or trustees may, under their internal policies, permit only percentage or fractional beneficiary designations and not be willing to accept a specific dollar distribution. If you would prefer to leave a specific dollar distribution to First Baptist, you might be able to accomplish this by stating the dollar amount of the distribution to First Baptist as a fraction of the entire account, the numerator of which is $25,000 (or whatever cash amount is desired) and the denominator of which is the date of death value of the entire account.
Naming First Baptist as a beneficiary of part or all of your IRA or other retirement account should not affect the amount of your required annual distributions during life. There is one important exception to this rule. If your spouse is named as beneficiary of your account and your spouse is more than 10 years younger than you, a favorable joint-life table may be used to calculate required minimum distributions – but not if a charity is also a beneficiary. This rule does not affect your required minimum distributions if your spouse is not more than 10 years younger than you. If your spouse is more than 10 years younger than you, to be able to use the favorable joint-life table for a portion of your IRA, you could split your IRA into separate IRAs, naming First Baptist as a beneficiary for only one of the IRAs.
If you need to provide for your family from your IRA or qualified retirement account first, you could consider naming First Baptist as a contingent beneficiary of all or a portion of your IRA or qualified retirement plan account. Most beneficiary designation forms provide for the naming of contingent beneficiaries. You might also name First Baptist as a contingent beneficiary of your IRA and provide that if an individual beneficiary disclaims all or a portion of his/her share of the IRA, it would be paid to First Baptist. Beneficiaries who understand the severity of the taxes on IRA distributions may decide to let all or a portion of their share of your IRA pass to a worthwhile cause, especially if it’s one they also support or know that you supported.
It is important to seek competent tax, legal and financial advice when using IRAs or qualified retirement plans in your charitable planning. The rules for these assets are quite complex and you will want to coordinate your charitable gifts with other tax and estate planning involving these assets.
Naming First Baptist as Beneficiary of a Life Insurance Policy or Transferring an Existing Policy to First Baptist
You may leave all or a portion of the proceeds payable under a life insurance policy on your life to First Baptist. Contact your insurance company or agent for the change of beneficiary forms needed to do this. It is especially important with this type of asset that you obtain expert legal and tax advice.
WHOLE OR UNIVERSAL LIFE POLICIES
If you are planning to purchase life insurance to protect your family in the event of your unexpected death, and particularly if you are young, you may be purchasing term insurance, due to its lower cost as compared to whole or universal life policies. An easy way to provide for First Baptist would be to increase the face amount of the policy you purchase by an amount you would be willing to leave First Baptist. Then just name First Baptist as a beneficiary for that amount of the proceeds and your other beneficiaries for the rest of the proceeds. The incremental cost to you for the additional face amount would likely not be much, especially if you are buying term insurance.
IRRECOVABLE LIFE INSURANCE TRUST
Due to the recent increase in the federal estate tax exemption to $5.25 million per estate, some people may own life insurance policies they purchased to provide for estate taxes which may not be needed for that purpose. If these policies are owned by an irrevocable life insurance trust, First Baptist likely could not be added as a beneficiary, because the beneficiaries are determined by the terms of the trust, which cannot be changed. If you personally own such a policy, however, you may want to consider adding First Baptist as a beneficiary or possibly even transferring the ownership of the policy to First Baptist.
If you own a policy insuring your life, the simplest strategy for using the policy to benefit First Baptist is to simply name First Baptist as a policy beneficiary. Naming a charity as beneficiary of a life insurance policy allows an individual to leave a significant charitable legacy without losing control of the policy and its cash value during his or her lifetime. The insured can borrow against the policy, take cash withdrawals, and even surrender the policy outright. The insured as policy owner has the right to change the beneficiary and assign the policy at any time.
From a tax perspective, although the insurance death benefit from a policy owned by the insured is includable in the insured’s gross estate, the estate should receive an offsetting estate tax charitable deduction for any portion of the policy proceeds left to First Baptist. On the other hand, the insured does not receive an income tax charitable deduction for premiums paid on the policy while he or she remains alive.
OUTRIGHT GIFT OF LIFE INSURANCE POLICY
If it is important for you to get a current income tax deduction or you would prefer to make your gift to First Baptist before you die, you could consider making an outright gift of a life insurance policy to First Baptist. The major downside to this approach is that you, as the insured, lose control of the policy and its cash value. Donating a life insurance policy to charity can be complicated and may not be feasible in certain circumstances.
Policy valuation, state insurable interest laws, and policies encumbered with loans present special issues, including tax issues, both for you and First Baptist. If you would like to transfer ownership of a life insurance policy to First Baptist, please first have your insurance, legal and tax advisers contact First Baptist to discuss this and whether it will be feasible.
Naming First Baptist as Transfer on Death Beneficiary of a Securities Account; A Note About Paid On Death (POD) Bank Accounts
You may leave all or a portion of a securities account to First Baptist by signing a transfer on death (TOD) beneficiary designation. You should contact the custodian of your securities account or your broker to get the necessary beneficiary form to do this.
You should have a discussion with your tax and other financial advisers before naming First Baptist as beneficiary of a securities account, as there are important tax considerations involved, and, depending on your situation, other assets might be more appropriate to leave to First Baptist.
Because First Baptist is a Georgia non-profit corporation, it cannot legally be named as a paid on death (POD) beneficiary of a financial account at a bank, such as a money market account, checking account or certificate of deposit, under Georgia law. This restriction does not apply to securities accounts, however.
Other Estate Planning Strategies
You and your attorney, tax and financial advisers may be aware of other estate planning strategies you can use which include First Baptist as a beneficiary. For example, with the aid of an experienced attorney, accountant, and investment adviser, you might create a charitable remainder trust which would provide benefits to your family members during their life and provide a remainder benefit to First Baptist. If you and your advisers are interested in including First Baptist in your estate planning, please feel free to contact us at any time.
An Important Note
The included discussions are general explanations of ways you can give to First Baptist, are not intended to be comprehensive, and may not cover certain issues that might be important to you in your specific circumstances. They are not provided or intended as legal, tax or financial advice to you. The examples included in the above discussions and the sample codicil which is appended are for illustrative purposes only. First Baptist does not render legal, tax or other professional advisory services. When considering charitable giving, you should obtain the services of competent tax, legal, and other financial advisors.
For more information about this opportunity, please contact Kent Murphey in the church office at 770.534.7354.