Gifts may be made to the hospital in the following ways:
Gifts of Cash
The simplest way of giving, and the most beneficial to Brookhaven Memorial Hospital Medical Center, is to make an outright gift of cash. By virtue of the charitable contribution deduction, the net cost to the donor making the gift will be lower than the face value of the gift.
Gifts of cash are deductible up to 50% of a donor's AGI (adjusted gross income). Any excess may be carried over for five years.
Appreciated Property
Properties that have appreciated are attractive alternatives to cash gifts. With careful planning, charitable gifts of certain types of assets will provide even greater tax benefits than a cash gift of equal value.
The most favorable tax benefits are generated by contributions of appreciated, long-term, capital gain securities and real estate. In addition to generating a charitable contribution deduction for the full, fair-market value of the gift, the donor avoids any tax liability on the capital gain portion of the property given and any sales commission due upon the sale of the asset. An asset must be held for more than one year in order to qualify for long-term tax treatment.
The full, fair market value of gifts of long-term, capital gain securities or real estate is deductible up to 30% of a donor's AGI. Amounts in excess of the 30% ceiling may be carried over for five years.
Closely Held Stock
Gifts of stock in a closely held business may also be contributed to the Hospital but stock that is not publicly traded requires special handling and a qualified appraisal. A charitable contribution deduction is allowed for the fair-market value and the donor avoids the potential capital gains tax on any increase in the stock's valuation.
Subsequent to making the gift, the corporation can purchase the stock from the hospital for cash. This permits the donor to retain complete control over the company and provides the hospital with immediate funds.
As long as the hospital is not obligated to sell the stock to the corporation, the transaction should not produce any tax consequences.
Bargain Sales
Donors wishing to recover a portion of the property used to make a gift to the Campaign can enter into a bargain-sale transaction. In effect, a bargain-sale is the sale of a property at less than fair-market-value. The sale price may be any that is agreed upon by the donor and the Center. Donors may be willing to sell their property for an amount equal to their cost basis. They then recover their investment and receive a deduction for the appreciation element. However, the tax code states that the recovered portion cannot be treated wholly as a cost basis, but rather as part cost basis and part capital gains.
Tangible Personal Property
Coin and stamp collections, rare books, paintings and antiques...tangible personal property...may be used as vehicles for charitable giving. As with securities and real estate, if held for more than a year, the donor is entitled to deductions that take into consideration value appreciation. However, a caveat is in order. The tax deductible portion of such property is governed by what has been deemed the standard of related use. Strictly interpreted, this means that the contributed property must be related to the exempt purposes of the recipient organization. If this standard is met, the donor may take a full, fair-market value deduction for the property--subject to the 30% ceiling and five year carryover.
Life Insurance
Life insurance is an asset that donors can use to make substantial gifts at a relatively modest cost. In addition to its gift virtues, through careful tax planning, life insurance can be used to replace other assets contributed to the Hospital. Two methods of doing this are:
Brookhaven Memorial Hospital Medical Center as Beneficiary: a donor can name the Hospital as the primary beneficiary of a life insurance policy. The donor remains the policy's owner and has access to its cash value. Although the policy will be included in the owner's gross estate, no federal estate tax liability will be incurred because of the charitable deduction for the gift of the policy's proceeds to the hospital. Because the donor retains ownership of the policy, no income tax charitable deduction is allowed for designating the hospital as the beneficiary or for subsequent premium payments.
Brookhaven Memorial Hospital Medical Center as Owner: donors who desire more immediate tax benefits may choose to consider the irrevocable assignment of an insurance policy to the hospital. An immediate federal income tax charitable deduction is allowed for the lesser of the policy's fair market value or the net premiums paid. An income tax deduction for contributions on subsequent premiums is also permitted.
A Remainder Interest in a Residence or Income-Producing Property
Gifts with a remainder interest in a personal residence or an income-producing property offer donors an immediate income tax charitable contribution deduction for the present value of the remainder interest and the opportunity to avoid any potential capital gain tax on the built-in appreciation on the property. Perhaps more important from a donor's viewpoint, is that he or she can continue to occupy the residence or work the property without disruption. The opportunity exists, through purchasing annuities, to convert tax dollars into life enhancing spendable income.
In determining the value of a charitable gift of the remainder interest in a personal residence, depreciation must be considered a factor.
Income-Producing Plans and Trust Arrangements
The tax reform act of 1969 popularized the use of charitable remainder trusts and pooled income funds as estate planning tools.
Charitable remainder trusts are similar to other trusts but, as implied, the amount distributed at their termination is paid to a charitable beneficiary.
Under a charitable remainder trust arrangement, a donor irrevocably transfers property to the trust and indicates:
- The amount of income to be distributed
- To whom it is to be paid
- The duration of payments (a period of years or the beneficiary's lifetime)
- The charitable organization that is to receive the remaining value
|
|
Pooled income funds work in a similar way. In this case, the hospital pools the irrevocable gifts of many donors who designate beneficiaries to receive a lifetime income. Upon the death of a primary and in some cases a secondary beneficiary, the hospital would receive that portion of the fund's principle which generated the income distribution to the now deceased beneficiary(ies).
Plans can be established by outright property transfers during a donor's lifetime or by transfers at death through the provisions of a will. To satisfy federal tax code deductibility requirements, these income-producing plans must conform to the requirements of a charitable remainder unitrust, a charitable remainder annuity trust or a pooled income fund. Each arrangement provides independent features that donors can use to achieve financial and estate planning objectives.
The plans share a common feature in offering an opportunity to escape from the on-going dilemma of being "locked into" a position and threatened with significant capital gain taxes on the sale of an appreciated property. By funding any of the plans with appreciated securities or real estate donors can augment the tax deductibility benefits by avoiding the potential liability of capital gain taxes. Should the donor opt to do so, the donated property can often be reacquired with funds that previously would have been used to pay taxes that are available through reducing that liability and avoiding the taxes on capital gain.
The three variations of the charitable remainder trust: the unitrust, the income-only unitrust and the annuity trust can be structured to ensure that the objectives of the donor are realized. Representatives of the Center can provide examples of how each one might be developed, but interested donors are urged to consult with their legal and financial advisors prior to finalizing any plans.
Charitable Lead Trust
A charitable lead trust differs from a remainder trust in that it provides for a gift of income interest from property to a charitable organization for a term of years...or any duration...after which the property reverts either to the donor or passes to a beneficiary, other than a charity, designated by the donor.
The income for the charity must be in the form of an annuity or a fixed percentage of the value of the trust property determined annually.
A donor is not entitled to a federal income tax deduction on the creation of a charitable lead trust unless the donor remains taxable on the income from the trust. In some cases, the opportunity of obtaining a federal income tax deduction in the year the trust is established may far outweigh the disadvantage of the tax liability on the trust's income in subsequent years.
Different options that fund charitable lead trusts with tax-exempt securities or name other family members as remaindermen offer additional opportunities to mitigate negative tax consequences or transfer property to eventual family beneficiaries at low transfer rates.
Donors considering the establishment of a lead trust to make a gift for the support of Brookhaven Memorial Hospital Medical Center are encouraged to discuss this subject with their tax and legal advisors.
Charitable Gift Annuities
Charitable gift annuities are a combination of a gift and an investment whereby, in exchange for a transfer of cash or marketable securities, the hospital will contractually guarantee to pay a specified annuity to the donor or another beneficiary of their designation.
Immediate Gift Annuity
A body representative of most charitable organizations...The Committee on Gift Annuities...recommends rates of return for gift annuities. The payment rate depends on the age(s) of the beneficiary(ies) and is designed actuarially to result in a gift of at least 50% of the value of the initial transfer (subsequent transfers may be made) upon the death of the beneficiary(ies).
Donors may take an immediate charitable contribution tax deduction for that portion of the property transfer deemed to be a gift. This is the amount over which the transferred property exceeds the value of the annuity received. Because a portion of each annuity payment is treated as a return of the original investment, it incurs no income tax liability over the life of the annuitant.
Funding the gift annuity with long-term appreciated securities can reduce and spread out capital gain taxes because the transaction is considered a bargain sale. Thus, a portion of the appreciate escapes capital gain taxes entirely and any reportable capital gain is spread over the donor-annuitant's actuarial life expectancy at the time of the gift.
Deferred Payment Gift Annuity
This recent innovation appeals to younger donors, with a high current income, who are seeking immediate tax deductions and are interested in augmenting their potential retirement income on a tax-favored basis.
The deferred payment gift annuity involves the current transfer of cash or marketable securities to the hospital in exchange for which the hospital agrees to pay the donor an annuity beginning on some future date--usually upon retirement. The gift can consist of a single transfer, a series of transfers or periodic transfers in high income years.
An immediate charitable contribution deduction is available to the donor for the gift portion of each transfer to the plan. A portion of each payment to the annuitant over their lifetime will be a tax free return of principal. If appreciated long-term, capital gain securities are transferred, any realized capital gain is reportable--when payments commence--ratably over the annuitant's life expectancy.
New York State insurance regulations require that only cash or marketable securities may be used to purchase a charitable gift annuity.
For more information please call the Development Office at 631-654-7759.
|
