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Creative charitable giving.


There are many ways to support your favorite charity besides outright cash donations. Consider these ideas to reduce your taxes and help people with arthritis.

Check your personal records. If you're like many people, you have life insurance policies you no longer need that are gathering dust in a file somewhere. By putting these policies to work for a charitable organization like the Arthritis Foundation, you may be able to make a substantial contribution that might otherwise have been impossible.

You may be surprised to find that you have several paid-up policies that you no longer need for their original purposes. For instance, the beneficiary on a policy may now be deceased. Or perhaps you purchased a policy specifically for the purpose of caring for minor children, who are now grown and independent. Many people guarantee mortgages with life insurance, but that policy is no longer needed when the mortgage is paid off.

There are a number of ways you can put these life insurance policies to work as charitable gifts. These "gifts of life" will increase in value many times over because they will help millions of people who have arthritis.

For example, you may designate the Arthritis Foundation owner and irrevocable beneficiary of a policy, meaning that you do not retain the right to change the beneficiary. This type of gift will entitle you to an income tax deduction for an amount close to the policy's cash value and the value of any premiums you continue to pay.

Another way to support the Arthritis Foundation with your life insurance policy is to name the organization as beneficiary for all or part of the proceeds, or as contingent beneficiary to receive the proceeds in the event that your primary beneficiaries do not survive you. Or, you may assign dividends from your policies to the Foundation and deduct these as charitable gifts on your income tax return.

Many people make use of the cash value of their life insurance policies to establish an annuity at retirement -- a fixed monthly income for the rest of their lives. By naming the Arthritis Foundation residual beneficiary to receive whatever proceeds remain at your death, you are entitled to a charitable deduction on your income tax return. Gifts given in this way are exempt from federal estate taxes and may substantially reduce state inheritance taxes.

Life insurance policies are a popular form of charitable giving because they provide an immediate tax savings while requiring no cash outlay. Because the Arthritis Foundation is a non-profit, charitable organization, it relies heavily on gifts such as these to support arthritis research and programs for people with arthritis.

More Tax-wise Ways to Give

There are several other giving options that can have immediate tax benefits for you and future benefits for a charitable organization. For example, certain trust arrangements can provide you (and your spouse or other individual) with an income for life, a charitable income tax deduction, avoidance of tax on capital gains, and removal of assets from your estate, thus providing estate tax savings. These trusts are known as charitable remainder trusts.

A charitable remainder trust must be in the form of either an annuity trust or a unitrust. Each offers independent features that can be used effectively to achieve financial and estate planning objectives.

The annuity trust provides for the payment of a fixed dollar amount annually, or at more frequent intervals, to a designated beneficiary or beneficiaries. The amount must equal at least five percent of the initial fair market value of the trust.

In contrast, the unitrust provides for the payment of an amount equal to at least five percent of the value of the trust as it is valued each year. Like the annuity trust, payments are made annually or at more frequent intervals to a designated beneficiary or beneficiaries. Both the annuity trust and the unitrust provide that at the death of the last income beneficiary, the trust principal is distributed to a charitable organization such as the Arthritis Foundation.

The key difference between the annuity trust and the unitrust is that the income payments from an annuity trust are fixed and do not change, even though the value of the trust may change. Payments from a unitrust, however, fluctuate according to changes in the value of the unitrust.

Funding a charitable remainder trust with appreciated stock or other property that has increased in value but is producing little income allows you to avoid tax on the capital gains, while at the same time allowing the assets to be re-invested to provide a higher yield.

One possible disadvantage of the charitable remainder trust is that at the death of the income beneficiaries, the property is removed from the trust and distributed to the charity. This, of course, means that this property is not available to other heirs of the estate.

However, through the use of life insurance purchased through tax savings and the increased income provided by the trust, these assets can be replaced. The policies are owned by the children or other heirs and thus are not subject to estate tax.

These are just some of the ways you can give to your favorite charity.

Lynn Archer is the vice president of planned giving for the Arthritis Foundation's National Office.
COPYRIGHT 1989 Arthritis Foundation, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Archer, Lynn Eugene
Publication:Arthritis Today
Date:Sep 1, 1989
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