Planned Giving

You Can Leave a Legacy Without Winning the Lottery

People often think of planned giving as a complicated way for the wealthy to make large gifts to charities. In fact, planned giving is a simple technique that can enable anyone to increase the impact of their support for Habitat and receive tax benefits at the same time. On some level, all gifts are planned. Most of us take some time to carefully think about what we want to support, how much we can afford to contribute, and how our money will be used. That’s planning! By thinking about the possibility of helping Habitat with its mission to provide healthy affordable homes for God’s people in need now, you will be able to enjoy knowing that your planning will assure that this mission will continue to be met for years to come.

Outlined below are a few of the types of planned gifts that you might want to consider making to Habitat.

Deferred Gifts

Although Habitat for Humanity of Wake County needs current gifts to fund its annual goals, the continuity of the organization requires building endowment funds for the future. This long-range
view fits well with a form of charitable giving generally referred to as deferred or planned giving. This approach should be considered by those who want to leave a legacy through the organization, but do not feel prepared to make a major outright gift at the current time.

The most obvious form of deferred gift is to name Habitat in one’s will. We certainly hope that many who believe in the mission of the organization will choose to do so. However, although a bequest potentially reduces one’s estate tax at death, there is no lifetime income tax benefit. For this reason, many advisors are recommending other types of planned gifts that provide both income and estate tax advantages.

The most popular form of planned gift is the charitable remainder trust (CRT). Supported by favorable provisions in the tax law, using a CRT can allow one to diversify a highly-appreciated asset tax free, increase one’s cash flow, generate an immediate tax deduction, remove an asset from one’s taxable estate, and have the satisfaction of benefiting Habitat during one's lifetime. For example, Phil Anthropic owns a tract of raw land which he inherited from his grandfather many years ago, with a tax basis of $50,000. He is frustrated with the annual property tax burden of holding the property, but concerned about paying over $103,000 of capital gains taxes if he sold the land for its appraised value of $500,000.

Phil’s advisors suggest that he place the land in a charitable remainder unitrust retaining an annual payout from the trust of 6% for his and his wife’s lifetimes. The trustee could sell the property tax-free and reinvest the proceeds in a diversified portfolio of securities. If the assets in the trust grow at a rate greater than 6%, the distributions will increase each year, thus keeping up with inflation. At the second death, the trust would terminate and the remaining corpus would be distributed to Habitat. Based on Phil and his wife’s ages when the CRT is created the income tax deduction would be $ 125,000 in the year of the gift.

In Phil’s case, the land contributed to the CRT happened to be ideal for Habitat’s building purposes. Thus, after the trust was completed and the land transferred, the trustee offered the land to Habitat for its appraised value. Following arm’s length negotiations, Habitat purchased the land from the trust, and a truly “win-win” scenario was completed.

There are other types of planned gifts that might fit specific circumstances. For example, one can realize substantial estate and income tax benefits by gifting a personal residence or family farm to Habitat, subject to the donor’s legal right to retain the use of the property for life. It is also possible to enter into a gift annuity arrangement with Habitat where you transfer cash or securities to the organization in exchange for a promise to pay you a fixed annuity for one or more lifetimes. Many of the same tax advantages mentioned above for a CRT are also available with a remainder interest gift or a gift annuity.

Another popular type of planned gift involves life insurance policies.The outright transfer of policy ownership to Habitat results in a tax deduction for the current value of the policy, plus additional deductions if further premiums are paid. What a wonderful way to dispose of policies which are no longer needed for their original purpose.

One final type of planned gift is designed for estate planning purposes rather than income tax benefits. The charitable lead trust is the “flip” of a CRT, in that the trust makes distributions to Habitat of a percentage of its corpus for a fixed number of years, and then the remainder goes to the donor’s beneficiaries. Depending on investment results, the payout rate and the term of the trust, the corpus at termination may be greater than the funded value. However, because of the discounting based on the present value of the charitable interest, the gift deemed to be made at the creation of the trust is only a fraction of that value.

Habitat for Humanity of Wake County will be happy to assist you and your advisors in evaluating the potential benefits available to you when you help endow the future of Habitat with a planned gift.