The Language of Legacy Giving for Churches

We’ve been camping out on the topic of legacy giving lately. Legacy giving can have a high impact for both you and your church members. Once you understand the potential behind legacy giving, it can change your ministry!

Reality for many church leaders is that the fundamentals of legacy giving is sort of an unknown. Most pastors simply aren’t trained in the details of legacy financial planning, so this is where I love to come alongside you with hands-on help.

Let’s get really practical about legacy gifts, shall we? This post is meant to help you gain a basic understanding of legacy giving options so you feel comfortable having conversations with people considering these types of gifts for your church.

You do not need to become an expert on these, but it is wise to understand some of the basic language associated with gift planning so you can engage in conversations as opportunities are presented. We will always want to get the experts involved when it is time to get into the details with a donor. But by knowing the options, you may be able to offer an idea to the donor that they did not know exists. So your basic knowledge and understanding of the possibilities is important.

Let’s get started! A bequest gift is the most common gift received, and probably the one you’re most familiar with.

But let’s run through a list of the many different gift instruments available in the US (along with a non-technical definition of each):

Bequest

A bequest gift is a written commitment in someone’s will or living trust to gift a percentage of or some specific property from the estate to charity at their time of death.

For example, if a family has two children, they might consider the church as an additional beneficiary, a “third child” that they include in their will.

Charitable Gift Annuity

A contract between a donor and a charity is established. The donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity. When the donor dies, the charity keeps the original gift. Charitable gift annuities work well for gifts between $5,000 and $100,000, when the donor wants to be assured of regular, fixed income payments for his or her lifetime.

They often work best for donors aged 75 and older, when the security of a fixed annuity payment may be more important than the possibility of future appreciation.

Retirement Funds (IRA, 401k)

In this case, donors can name a charity as beneficiary to receive part or all of the remains of a retirement plan upon the death of the donor. You may remember that the IRS allowed qualified charitable distributions from an IRA for individuals who were aged 70 ½ or older, if the gift was paid directly from the IRA to the charity. The IRA owner could exclude from their gross income up to $100,000 of a qualified charitable distribution made within the year, and the distribution could serve to satisfy any required minimum distribution for the owner.

Originally established in 2006, and extended annually for several years, (most recently by the American Taxpayer Relief Act (ATRA) of 2012), the provision was not renewed for 2014. The last day for making a qualified charitable contribution was December 31, 2013.

Charitable Remainder Trust

Donors can set up a trust in which the donor transfers funds to a trustee who, in turn, makes payments from the trust to the donor or beneficiaries. All remaining funds then go to the named charity at the death of the last beneficiary.

Charitable remainder trusts are often advisable for donors who wish to make a planned gift with a value of $100,000 or more, but want to retain lifetime control over investment of the assets so they can invest for growth and/or income. In a charitable remainder uni-trust, you may make additional contributions to the trust over time as assets and personal objectives permit.

Charitable remainder trusts also work particularly well in situations where the beneficiaries are relatively young, so that the principal and annuity payments may appreciate over their remaining lifetimes.

Charitable Lead Trust

This is a trust to which a donor transfers funds for the trust to make agreed upon payments to charity for a specific time. After the payment period expires, the remaining trust funds go to the donor’s family. A charitable lead trust is an irrevocable trust account, funded with cash, stock, bonds, land, or other marketable assets. The trust makes periodic payments to designated charities. At the end of the trust, the remaining assets are distributed to the designated heirs.

CLTs are established either for a specified term of years or for the lives of one or more individuals. While the trust is in existence, the trustee (the designated trust manager is often a lawyer or financial institution) invests the trust assets and distributes specified annual payments to one or more charities.

Note: There are two basic types of charitable lead trusts: those where the assets revert to the donor when the trust ends (grantor lead trust) and those where the assets pass to persons other than the donor when the trust ends (non-grantor lead trust). Most charitable lead trusts are used to transfer assets to heirs.

Life Estate Contract

In this case, an agreement is established for donors to transfer the deed of property to the charitable organization, while reserving the right to live on or use the property during their lifetime.

Pooled Income Fund

Here, a charity can set up an account that operates like a mutual fund. Donors can then set up accounts within the fund and receive their share of the income it produces. Then what remains in the fund at their time of death goes to charity.

I hope these brief overviews helped you. What legacy giving questions do you have? Send me a quick note. I would be honored to help you!