The McAuley Society

Retirement: One of the most common and easy ways to make an impact through a charitable gift.

Retirement assets are subject to both estate taxes from the decedent’s estate and then an income tax from the heirs who inherit the retirement assets. These two types of taxes can exceed 60%, leaving heirs with a fraction of the total retirement assets.

Retirement assets left for Maria College are not subject to either estate or income taxes. Accordingly, 100% of your gift is available to fund your legacy at Maria.

Bank: Can be designated as a “payable on death (POD) donation. There are no penalties to you while you are living, and all funds that remain on POD will go directly to Maria College to impact future students.

Investments: as a “transferable on death (TOD) donation. There are no penalties to you while you are living, and all funds that remain on POD will go directly to Maria College to impact future students. You can easily work with your investment advisor to set-up this type of donation

Donor Advised Funds: For those donors who have created a Donor-Advised Fund (DAF) and supported us from grants from the DAF, we ask that you consider naming Maria College as the beneficiary of your DAF. Your DAF administrator will provide you with the beneficiary designation form. Once signed, the DAF continues to operate as normal until the fund terminates, at which time the balance in the fund passes to Maria College

One of the most common ways to make an impact is by placing Maria College in your Will or Bequest.

With this type of impact, you have flexibility to still provide for your family, but also make an impact on future Maria College students. Also, a will or bequest has the added benefits of tax and capital gains tax benefits.

There are many ways you may set up a will or bequest:

Unrestricted: One is through an unrestricted gift to help Maria College maintain campus, academic enhancements, and more.

Restricted: Or you may give a restricted gift to go to a specific purpose such as a scholarship, specific department or academic program, or area on campus.

Residuary: allow for all or a portion of property after all debts, expenses, taxes and all other bequests have been paid. Please see in our sample bequest language for reference.

Contingent: you can plan for the situation of a beneficiary predeceasing you. By naming Maria College as an alternate or contingent beneficiary, you assure that your bequest will pass to the College rather than to unintended beneficiaries or the government.

See sample bequest language here.

You are eligible to receive a charitable income tax deduction for the fair market value of your gift, allowing Maria College to sell the stock without any capital gains taxes. This allows for the full amount of the gift to go solely to supporting Maria’s students.

Example: Mary returns to Maria College to celebrate her 50th Class Gathering and would like to acknowledge this achievement with a gift. She purchased stock in 2009 for $1,000 and now the worth is $5,000. If Mary gifts the stock to Maria College directly then Mary would receive a tax deduction, which saves her $1,500 in federal and state income taxes. If she “gifts” stock instead of “selling” the stock, she can avoid paying up to $800 in capital gains taxes. That would be a net total of approximately $2,700 in tax savings just by “gifting” stock directly to Maria College. Now Mary knows that by choosing to celebrate her 50th anniversary in this way she is helping generations of Maria students achieve their professional dreams.

Charitable Gift Annuity:

It allows you to impact Maria College students while obtaining income for the rest of your life and a large current tax deduction. A cash donation or gift of publicly traded stock of $10,000 or more agrees that Maria College will make fixed payments to you and/or another beneficiary for life. Rates are based on age and the minimum age is 60 and a portion of the annuity payment is tax-free. The gift can be unrestricted or for a specific purpose.

The following table shows the rates set by the American Council on Gift Annuities:

For example, Joe is a 70-year-old alumni of Maria College and he decides to contribute a charitable gift- an annuity of $20,000. He then would receive $1,260 annually for his lifetime, of which $752.22 is tax-free for the first 15.9 years. Thereafter the entire annuity payment is subject to income tax. In addition, Joe receives a charitable income tax deduction of $8,033. If he can’t fully use the deduction in the current year, it is available to be used over the next five years.

Deferred Gift Annuity: are for donors under the age of 60 or older donors who don’t need an immediate income but are interested in providing increased income at a later date, such as retirement. Then a donor may establish their gift as a Deferred Gift Annuity (DGA). This allows the donor to enter the gift today, still receive a charitable income tax deduction this year, but defer the start of the annuity to a future date that the donor selects. With a deferral comes a larger charitable income tax deduction, and the annual payment is higher than a current gift annuity.

Charitable Remainder Annuity Trust (CRAT): distributions are fixed and determined when the CRAT is established. Meaning no additional assets can be added to the CRAT after its inception

Charitable Remainder Unitrust (CRUT): distributions are a fixed percentage of the fair market value of the assets in the trust on a fixed date each year. Additional assets can be contributed to a CRUT at any time by the donor.

Benefits for both types of Charitable Trusts are:

• You receive a sizable charitable income tax deduction in the year you transfer assets to the trust.
• The income from the CRT, together with your tax savings usually produces increased spendable income.
• Where the trust is funded with appreciated assets, the trust can sell the assets tax-free.
• The trust remainder may be designated for a specific priority at Maria College, or it may be applied by the College to an area of greatest need when they receive the proceeds of the trust.
• Most importantly, the donor is often able to make a larger gift than they thought would otherwise be possible and have their gift impact the distinctive education that generations of Maria College students will receive.

Remains as one of the permanent laws despite other charitable tax law changes. This is still a way for donors to support their favorite charities and have the gift (s) count against their required minimum distribution, and not have the amount included in their income. This way of giving is valuable for donors who do not itemize their tax deductions, as well as high-income earners who lost the full value of their itemized deductions.

Here is how you can make a Charitable IRA Rollover gift:

• You must be 70.5 years or older on the day you make your gift.
• The funds must be transferred directly from your IRA to the qualified charity, in this case, Maria College.
• The gift must be outright, since Life Income gifts do not qualify.
• The gift can satisfy an existing pledge or be created as a new gift.
• You can give multiple gifts to charities, such as Maria College, if the total amount does not exceed $105,000. If your spouse also chooses to donate, they can give up to $105,000 themselves if they have their own IRA.
• Another thing to know about Charitable IRA rollovers is that while transfers can be made directly from your IRA, donors may also be able to make qualified transfers from their pension or retirement plans such as a 401k or 403b to an existing or newly created IRA, and make their charitable gift from their IRA account under the above ways you can make an IRA gift.

Life insurance policies are primarily purchased to provide funds to satisfy a mortgage, pay for college tuitions or wedding receptions should a donor die well in advance of a normal life expectancy. For those donors who have lived a full life with these original reasons for obtaining the life insurance coverage behind them, the policy becomes a valuable asset to use as part of your philanthropy plan to make a significant impact at Maria College without drawing on your current assets.

OPTIONS FOR GIFTS OF A LIFE INSURANCE POLICY

Designate Maria College as a full, partial (1-99 percent) or contingent beneficiary of your life insurance policy. This option provides the most control of the policy since you continue to be the owner of the policy and can change or modify the beneficiary designations right up until the time of your death should needs or circumstances change. Because you have retained life-time control of the policy, there is no charitable income tax deduction at the time you make the beneficiary designation. However, amounts left for Maria College under the policy are free from any estate taxes.

Make an outright gift of your life insurance policy to Maria College now. Since the policy was gifted to Maria College, you may qualify for an immediate charitable income tax deduction based upon the premiums you have paid and the value of the policy at the time of transfer. If you wish to have us retain the policy until your death, you will receive additional charitable tax deductions by making annual gifts to us so that we can pay the premiums as they become due. Since the policy was given to Maria College during your lifetime, the life insurance proceeds are not subject to the imposition of an estate tax.

Real Estate Gift Options:

Outright Gift: You may gift your real property to Maria College by executing a deed transferring full ownership to Maria College. Provided your real property is not subject to mortgage, you are able to: avoid paying any capital gains tax on the sale of the real estate, receive a significant charitable income tax deduction based on the fair market value of the real estate as determined by a qualified appraiser. Eliminate the real estate having to be administered by your Executor who may live in another state. Create a legacy at Maria College

Bequest: You may gift your real property to Maria College by including a bequest in your will. If you choose to do so, you will: eliminate any estate taxes with respect to real estate. Eliminate the burden of your Executor having to get the real estate ready for sale and paying a real estate broker commission on the sale. Retain the flexibility during your lifetime of changing the bequest due to change in financial or family circumstances. Create a lasting legacy at Maria College.

Reserved Life Estate: You may gift your home or farm to Maria College now and reserve the right to live in the home for the rest of your life. If you choose to do this, you: receive a significant charitable income tax deduction for the value of the remainder interest that you donate to Maria College. If the full deduction cannot be used in the present year, it is available to be used for the next five years. Preserve your lifetime use and control of your home or farm for you and/or your loved one. Eliminate the value of the home from your taxable estate. Remove the home or farm from your estate administration. Create a lasting legacy at Maria College

Funding a Charitable Remainder Unitrust (CRUT): You may desire to establish a Charitable Remainder Unitrust (CRUT) and fund it with real estate. The real estate is sold tax-free by the trustee of the CRUT and the proceeds are invested by the Trustee to create income for you or someone else you choose.

The donor can also contribute a partial interest in the real estate to the CRUT. Often this is done when the donor wants to create a charitable gift, but also wants to share in a portion of the proceeds from the sale of the real estate as well as the future income from the CRUT. Upon the sale of the real property, there are no capital gains taxes paid on the fractional interest placed in the CRUT.

Your family still receive the inheritance they deserve but also make an impact at Maria College
Donors frequently hear from their advisors that their Retirement Plan is the most tax-hostile asset in their estate and that the Retirement Plan should be the first asset donors use to create their charitable legacy. However given that a Retirement Plan is frequently the largest asset in a donor’s estate, Donors struggle with whether their children are receiving an appropriate inheritance, even though they know their children will have to pay income taxes on an inherited Retirement Plan.

There is a way to create your legacy at Maria College, while at the same time increasing your children’s net inheritance. Here is an example of how it works:

The Donor has an IRA with a $600,000 balance. The Donor knows that if nothing is done, the Donor’s children will have to pay $180,000 (30% bracket) in income taxes leaving them with a net inheritance of $420,000. Instead, the Donor names Maria College the beneficiary of the IRA upon the death of the donor and the Donor’s spouse.

The Donor then creates an irrevocable life insurance trust to buy a $600,000 life insurance policy to replace the IRA assets which now go to Maria College. The life insurance proceeds are paid upon the death of the second parent, which is the exact same time the children would have received the balance in the parent’s IRA. Since the proceeds are paid upon the second spouse’s death, the premiums are less than a single-life policy. In our example of the donors being age 71, the annual premium is $12,600 and is funded with the Required Minimum Distributions (RMD) from the IRA.

HERE’S WHAT THE DONOR HAS ACCOMPLISHED:

Maria College receives $600,000 tax-free from the IRA given its not-for-profit status.
The children instead of receiving $600,000 as beneficiaries of the retirement plan and netting $420,000 after taxes, receive $600,000 tax-free as beneficiaries of the life insurance policy.

The Donor leaves a philanthropic and family legacy of $1.2 million dollars, nearly three times the $420,000 legacy the Donor would have left had philanthropy not been part of the goal.

Are you looking for a way to provide income for your family and still use the same asset to create your legacy at Maria College School? There’s a way and it can involve the most tax-hostile asset in your estate—your Retirement Plan!

This popular strategy involves naming a Charitable Remainder Trust (CRT) as the beneficiary of your Retirement Plan. Upon your death, your retirement plan assets are transferred to the CRT. You can choose to have the CRT pay income to a loved one(s) for life or for years, not to exceed 20. At the end of the term of the CRT, the trustee distributes the balance to Maria College School.

THE BENEFITS:

• The full value of your retirement plan is available to provide income to your surviving spouse or other loved ones for their lives or for some time you determine, up to twenty years.
• A significant estate tax deduction is created from the charitable gift.
• You treat your children fairly and they see philanthropy in action.
• Your children learn how to be more responsible with money as their inheritance is transferred over time.

Example: Chrys has a retirement account with assets of $2,000,000 and has two children. Chrys wants to leave a significant gift to Maria College School as part of their estate but doesn’t want to feel they disinherited their children. At the same time, Chrys is concerned that if they receive their inheritance in one lump sum, they may not have the discipline to conserve it. Chrys’s daughter’s marriage is unstable, and their son doesn’t manage money well.

Working with their financial planner, Chrys creates a Charitable Remainder Trust (CRT) and names the CRT the beneficiary of their retirement account. Chrys directs the CRT be set up for 20 years and the trustee annually distributes 5% collectively to their children ($50,000 each). Upon the expiration of the 20 years, the trustee is directed to remit the balance of the assets in the CRT to Maria College School to fund an Endowed Scholarship in Chrys’s parents’ name.

Chrys has achieved their goals: Chrys’s two children each receive $1,000,000 over the twenty-year period. Assuming annual investment returns of 5% over the life of the trust, Maria College receives $2,000,000 at the end of the twenty-year trust period.