PLANNED GIVING: Life Income Plans

Life Income
Plans

OUTRIGHT GIFTS

OTHER PLANNED GIFT
ARRANGEMENTS

WILLS and ESTATE PLANS

ENDOWED FUNDS

RECOGNITION

How Life Income Plans Work

You fund the trust with a significant, irrevocable gift to the Diocese or, for endowments, to the Foundation for the Diocese of Helena, Inc., to benefit the Church's programs. (The gift must be irrevocable to qualify for the federal charitable deduction.) The Church invests the gift, and you or your designee receive income for as long as you choose: for a definite term of not more than 20 years, or for the rest of your life. At the end of that time, the remaining principal benefits the Church in a way that you specify.

You may establish a trust using assets such as real estate, stock, or cash. Funding it with appreciated long-term property enables you to protect your profit or reinvest for a higher yield, while avoiding capital gains taxes. You thereby maximize the value and the benefit of the property, both as income and as a gift.

There are two basic types of life income trusts: annuity trusts and unitrusts. The annuity trust pays a fixed dollar amount, while the unitrust pays a fixed percentage. With the annuity trust, your income will be the same each year, regardless of the value of the trust. With the unitrust, your income will go up or down as the value of the trust itself fluctuates.

Annuity Trusts

A charitable remainder annuity trust pays a fixed amount (at least five percent of the fair market value of the trust assets when the trust is established) to you or your beneficiaries at least once a year. The payout is determined when you set up the trust, based on such factors as your age, the number of beneficiaries, your desired income, and the length of the trust term. If the trust earns more income than the agreed amount, the additional earnings are reinvested. If the earnings are less, withdrawals from the trust's principal make up the difference. Once the annuity trust is created, you may not make additional contributions to it.

You will receive an income tax deduction for the value of the charitable remainder interest in the trust at the time you set it up (calculated from tables based on your age), and you avoid capital gains taxes on the transfer of appreciated long-term assets such as real estate or securities. Because the assets are effectively removed from your estate, you also avoid estate taxes.

Advantages:

• Opportunity to make a substantial gift to the Church while receiving life income
• Fixed payout offers the security of guaranteed income
• Can unlock appreciated assets for diversification or increased yield
• Professional asset management
• Can receive an attractive equivalent rate of return
• Immediate tax deduction
• Avoid capital gains taxes
• Estate tax and probate savings

Unitrusts

A charitable remainder unitrust differs from an annuity trust by paying a fixed percentage--at least five percent--of the fair market value of the trust's assets each year, rather than a fixed sum. That means the income will fluctuate from year to year as the trust's value fluctuates, but because the long-term market pattern is usually one of growth, you can generally expect payments to increase over time. In this way a unitrust can be an effective hedge against inflation.

Choosing a lower percentage rate may actually increase your income over time, because it allows the principal to grow more quickly. As the principal increases, so will the amount of your payment. The difference can be significant. And the more the principal grows, of course, the larger the ultimate gift to the Church will be, and the more completely it fulfills your philanthropic goals. You may also make additional contributions to a unitrust.

Your charitable deduction depends on the fair market value of the initial assets you transfer, the payout percentage you choose, the number and ages of beneficiaries, and other such factors. As with an annuity trust, you effectively remove the funding assets from your estate, and you likewise avoid capital gains taxes.

Advantages:

• Opportunity to make a substantial gift to the Church while receiving life income
• Variable percentage payout may protect against inflation as your trust's assets grow
• Larger gift to the Church than might otherwise be possible
• Professional asset management
• Receive an attractive "real" rate of return on your assets
• Can unlock appreciated assets for diversification or increased yield
• Immediate tax deduction
• Avoid capital gains taxes
• Estate tax and probate savings

Pooled Income Funds

Another kind of trust is called a pooled income fund. It allows separate donors to pool their gifts for investment purposes. Two or more donors must irrevocably transfer property into the trust, contributing the remainder interest in the property to the Church. The Diocese then acts as trustee, investing the combined fund and distributing the annual proceeds to the donors in direct proportion to the assets each one contributed. The actual dollar amount is not specified: it depends on the amount earned by the fund. You may designate yourself as beneficiary, or anyone else living at the time the fund is created. Your charitable deduction would be the present value of the remainder interest in the property, as determined by IRS tables, on the day you transfer it. You may add to the fund at any time.

Advantages:

• Opportunity to make a substantial future gift to the Church
• Competitive rate of return
• Professional asset management
• Income for yourself or other beneficiary
• Can unlock appreciated assets for diversification or increased yield
• Immediate tax deduction
• Avoid capital gains taxes
• Estate tax and probate savings

Charitable Gift Annuities

One of the most common and popular ways to make a planned gift is with a charitable gift annuity. It is a simple contract between you and the Church. In exchange for an irrevocable gift, the Diocese agrees to pay one or two annuitants a fixed dollar amount each year for life. The amount is based on life expectancy: the older you are at the time of the gift, the greater the amount can be. The payments are guaranteed by the general resources of the Diocese.

Charitable gift annuities can be funded with cash, real estate, or appreciated securities. You receive a tax deduction based on your age, the payout rate, and the federal discount rate. If you use an appreciated asset, a portion of each payout will be capital gain, which is therefore spread out over your lifetime. Likewise, a part of each payment would be a tax-free return of principal, increasing the after-tax value of each payment. And because you have effectively removed the assets from your estate, you avoid estate taxes.

A similar type of annuity is the Deferred Charitable Gift Annuity. The arrangement is essentially the same; the difference is that the Church waits to begin your fixed payout until some specified point in the future (at least one year). In either case, at your death the proceeds of the gift annuity become available for the Parish or the Diocese to use in whatever way you wished.

A deferred charitable gift annuity can be an excellent way to supplement your retirement income. The Church receives the gift today and invests it for years; you receive a current tax deduction, but you don't receive the payments until you retire, when you may be in a lower income tax bracket.

Advantages:

• Fixed payout offers the security of guaranteed income
• Attractive rate of return
• Can unlock appreciated assets for diversification or increased yield
• Professional asset management
• Opportunity to make a substantial gift to the Church
• Favorable income tax position now and at retirement
• Immediate charitable tax deduction
• Estate tax and probate savings

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