It’s often major donations – those of perhaps $1 million and up – that make a big splash in the news, but you don’t have to be wealthy to make a planned gift to aid in a local charitable cause and to enjoy the corresponding tax benefits. There are a wide range of options to leave a lasting legacy that benefits both a charity and yourself and your loved ones, which may be as simple as a lump sum donation or as complex as setting up a revenue-generating charitable fund.
Local estate and trust planning professionals told the Business Journal that planned giving is trending at a stable level, and noted that some people may perhaps be unaware of their options and potential benefits to their estates both during and after life.
“Planned giving is easy because you don’t have to be wealthy to do it,” Marcelle Epley, president and CEO of the Long Beach Community Foundation (LBCF) told the Business Journal. The LBCF is a nonprofit organization that oversees a group of funds established by individuals, organizations and businesses in the form of an endowed pool of assets. Its goal is to help donors achieve their financial and charitable goals.
Kevin Tiber, senior vice president and chief operating officer of Farmers & Merchants (F&M) Trust Company, said it’s important to consider whether your top priority in planned giving is charitable intent or tax benefits before you plan your estate. This helps determine which type of gift, for example a bequest or a charitable remainder fund, to set up. Tiber is pictured at F&M Bank’s historic Downtown Long Beach location at 302 Pine Ave., where F&M Trust Company is also based. (Photograph by the Business Journal’s Larry Duncan)
“You might have often heard that you can give away more after you’re gone than you can while you’re living. That’s just what planned giving is,” Epley said. “Whether it’s naming your favorite charity in your will or your trust for a modest amount, or the gift of real estate, there is always an easy option for everybody,” she continued. “It can involve assets you might never have thought of. Most of us have insurance policies . . . real estate or stocks. Some people have business holdings, a checking or sales account. These are all assets that can be leveraged in planned gifts.”
A common option for someone with charitable intent but who perhaps is unable to make a major donation is a donor advised fund, according to Donita Joseph, who heads up accounting firm Windes’ estate trust and nonprofit tax group and also serves on LBCF’s board.
“What I recommend to people that either have a smaller amount [to donate] . . . or they just don’t want the hassle of all the administrative burden, is to set up a donor advised fund,” Joseph said. Often, donor advised funds are managed by community foundations, including LBCF, she noted. “You put a lot of your assets in there, you get a charitable deduction, [and] you get to decide who you want to receive the distributions from the fund, much like with a private foundation,” she explained.
“You can get your family involved in a donor advised fund as well, and there’s no administrative burden because the community foundation takes care of that. And there’s no tax return to be filed,” Joseph said. “And you also don’t have to distribute out, under the current law, 5 percent a year like you do with a private foundation. I think it’s a good route to go.”
Annette Kashiwabara, executive director of the Assistance League of Long Beach, has a long history working with nonprofits in the local community and has learned firsthand how planned giving can benefit those organizations. When her uncle, former Harbor Commissioner Dr. John Kashiwabara, was planning his estate, she suggested creating an endowment with the LBCF.
“When my uncle was putting together his trust, he wanted a number of nonprofits in the community to receive gifts so that his gifts would last into perpetuity,” Kashiwabara explained. “So since there were so many of them, I recommended that he consider the Long Beach Community Foundation.” Although she is now on the foundation’s board, she was not at the time, she added.
Kashiwabara and her family established an endowment with the community foundation after selling off her uncle’s assets following his passing. The endowment has benefited local institutions such as Long Beach City College, California State University, Long Beach, Long Beach Memorial Medical Center and others.
“An endowment is money that is managed and invested, earns interest, and the interest generated from that investment funds nonprofits,” Epley explained. One of LBCF’s founding boardmembers, local Frances “Frankie” Grover, left an endowment with the foundation after she died, and directed that funds be distributed to her favorite local theater groups. “Those Long Beach organizations will have a steady endowment income stream forever,” Epley noted.
According to Epley, some of the local groups which have benefited from planned gifts made through the LBCF include: Long Beach YMCA, Musical Theatre West, Long Beach Day Nursery, Long Beach Boys & Girls Club, California Conference For Equality And Justice, Long Beach Century Club, Long Beach Boy Scouts, Long Beach Opera, International City Theatre, Long Beach Public Library Foundation, Long Beach Symphony Association and the Long Beach Playhouse.
One of the personal benefits of planned giving is that it enables donors to create a revenue stream for themselves or their families, according to Epley. “There are certain types of planned gifts that, in return for a donation of real estate, stocks or other assets, donors can receive a series of regular payments,” she explained.
According to Joseph, one method to accomplish this is through a charitable remainder trust. “In a charitable remainder trust, you put the asset in [the trust], and then over a period of years, or a [set] term, you’re getting distributions out of there, and then the remainder goes to charity,” she said. The individual’s income stream is a percentage of the entire asset, she noted.
Charitable remainder trusts are a good option to pursue following the sale of an asset with significant capital gain, such as a business, Joseph said. “What you do is you donate that asset to the charitable remainder trust before the sale. Then when the sale takes place, the capital gain is within the charitable trust, so there is no immediate tax to be paid on it because the charitable trust is exempt from tax,” she explained. “They pay the capital gains tax as they [receive] distributions out of the trust, so it’s deferred over many years.”
A charitable lead trust essentially accomplishes the opposite. “With a charitable lead trust, you put the asset in the charitable lead trust, and the charity gets distributions for a term of years. And then at the end, the assets go back to your family,” Joseph explained. “A lot of really high net worth individuals will set these up because it’s a good way to basically zero out your estate tax.”
If someone wants to ensure that both their family and their charity of choice are taken care of after they die, another option is a charitable gift annuity, according to Kevin Tiber, senior vice president and chief operating officer for Farmers & Merchants Trust Company, an affiliate of Farmers & Merchants Bank. Via this planned giving vehicle, a donor makes a gift to a charity, which pays out an annual income to a designated beneficiary from that asset. After the donor or beneficiary dies, the charity keeps the remainder of the gift.
“You may have a child and you don’t want them to have an outright gift for various reasons. You can set up a charitable annuity for life,” Tiber said. “They never get control of the money but they will always receive a payment for life that will give them security but not to the extent that it’s going to be transformational on the child.”
One of the better-known types of planned gifts is a bequest, in which a donation is left for an organization after the donor passes. Some times, nonprofit organizations have worked with the donor in life, and expect the gifts. In rarer cases, bequests come as a surprise.
One of the most memorable bequests Tiber ever encountered was by Helen Banas, a frugal Depression-era woman who lived in a small condo in South Orange County at the time of her death. “We were her trustee in the later part of her life. She had a charitable intent,” Tiber recalled. “Her mother had Alzheimer’s, and she and her mother were able to get some services from the Alzheimer’s Association of Orange County. They ended up being the sole beneficiary of her estate.”
Banas’s estate happened to be $27 million.
“That was a great day,” Tiber recalled. “We hand delivered that letter to the executive director of Alzheimer’s Orange County and he nearly passed out.”
Donna Reckseen, who served as president and CEO of the Memorial Medical Center Foundation for 25 years, said that trusts and bequests are very important to nonprofit organizations. “The reason Long Beach Memorial Medical Center was so successful was because in 1960, when they formed the foundation, they formed it on a charitable planned giving program,” she said. “Almost every major gift we got was a planned gift.”
Reckseen said “there is always a story behind a major gift,” and that they often come about because of the relationship cultivated between a donor and an organization. “People give to people. That’s the bottom line for philanthropy,” she said.
Reckseen, too, has a memory of a surprise bequest. “Surprise gifts are fairly rare. I opened one envelope and we got $1 million from this man who used to sell clothes on Pine Avenue and took the bus everywhere,” she recalled. “Nobody knew he had any money at all.”
There are two main reasons for planned giving, according to Tiber: charitable intent and tax benefits. Planned gifts should be structured according to whichever of these is a higher priority, he explained.
“If it’s from the heart – if it’s a charitable intent – you want to start those discussions with the charity to figure out how you can best help and how it fits into your planned giving, and you find a middle ground there that’s going to have the most tax savings while providing the biggest benefit [to the charity],” Tiber explained.
If your main intent is financial, “you’re going to want to look at the [best] way to maximize your tax savings, and that’s typically driven by the estate planning counsel,” Tiber said.
“There are a variety of income levels that can benefit, and they should really consult with their financial or estate planner for specifics,” Epley said of planned giving.
“Everybody has something they can leave behind to the next generation, something they can leave behind to charity,” Epley said. “It can be big or small, but it all counts.”