[spring 2023] Leave a meaningful legacy
Whether you’ve been a donor for years, volunteered your time, or are new to the United Way family, making a planned gift to Heart of West Michigan United Way is a sure way to leave a lasting legacy that will be felt by generations to come
1917 LEGACY SOCIETY
Named after the founding year of our organization (originally founded as a community chest). The 1917 Legacy Society consists of supporters like you—changemakers who want to leave a lasting impact on their community for people whose lives have been challenged by the effects of poverty.
The simplest way to join our 1917 Society is to include a statement in your will (bequest) that directs a portion of your assets to Heart of West Michigan United Way or by having a conversation with our team on your intentions for legacy giving. You can choose an exact amount or a percentage of your estate, parcel of land, or stock—any gift will make a difference.
CHARITABLE BEQUEST
A bequest is a gift made through your will or trust. It’s one of the most popular and flexible ways to support our mission. You can designate United Way as a beneficiary of your estate and gift a specific dollar amount, property, or a percentage of your estate’s residual value.
CHARITABLE REMAINDER TRUST
Your gift of cash or other property funds a trust that you designate to United Way. The trust sells your property tax free and provides you income for life or a certain number of years. United Way receives the remaining assets when the trust’s term ends.
DONOR ADVISED FUNDS
Invest in the future of West Michigan today with a gift made from your Donor-Advised Fund. Recommend a gift from through partners like Community Foundation, Fidelity Charitable, Charles Schwab, and/or National Christian Federation. A DAF is easy-to-establish, low cost, and offers a flexible vehicle for charitable giving as an alternative to direct giving or creating a private foundation.
LIFE INSURANCE POLICIES
Champion our work far into the future by designating United Way as a beneficiary of your new or existing life insurance policy. Or, you can assign ownership of the policy to United Way and cover the cost of premiums to receive immediate tax benefits.
STOCK
Giving long-term (owned more than a year), appreciated securities may provide greater benefits to you and United Way. Initiating a stock gift can be as easy as a conversation with your broker after getting the necessary brokerage details from United Way for a quick and convenient broker-to-broker transfer.
Note: It’s important to transfer the securities to United Way’s account prior to being sold in order to avoid capital gains taxation.
RETIREMENT ASSETS
Naming United Way as a primary, partial, or contingent beneficiary of your retirement plan is a simple and flexible option. As a nonprofit, United Way can take a tax-free withdrawal and use your gift at its full value.
We understand that gifts like these can sometimes be complex. When designing a gift plan, we recommend that you obtain the professional counsel of an attorney who specializes in estate planning. We can work with your advisors to help you plan for tomorrow and receive maximum benefits today.
LEGACY LETTERS: SHARING YOUR STORY
Everyone has a story to tell, your loved ones will be glad you shared yours.
A legacy letter (sometimes called an ethical will) is a simple way to share your goals, experiences, and values for future generations. You make a real difference in your community. Communicating why you choose to support Heart of West Michigan United Way is the perfect way for you to ‘tell your story’, not only to your family today but those yet to come as well in future generations.
There’s are a lot of benefits to writing your story through a legacy letter including its permanence for your experiences and values to live on and its ability to open the door for difficult conversations with loved ones today. Though a legacy letter has no formal legal standing, it is a personal statement that allows you to share your important life’s events, values and blessings, and can help guide your continued impact in the community.
PROMPTS TO HELP START YOUR OWN LEGACY LETTER:
What major world events shaped your view of life?
What are your values and why are they important to you?
How does supporting United Way fit into your value system?
Who were the most influential people in your life? Share the advice that helped you grow and persevere through difficult times.
Share life lessons from good and bad moments in your life.
What advice would you share with future generations of your family?
PRO TIPS
• Use acid-free paper and consider handwriting the letter. This will allow a physical copy of your story to not fade over time and adds a personal touch.
• Focus on lessons and insights; what you’ve learned not just what you have achieved.
• Try to express both gratitude and regrets, offer guidance, be hopeful and avoid negative.
A CHARITABLE GIVING EXIT STRATEGY FOR REAL ESTATE INVESTORS AND BUSINESS OWNERS
Clients are often hesitant to consider making charitable gifts of illiquid assets because of a perceived complexity surrounding such gifts. Gifts of real estate and closely held business interests can seem daunting for both taxpayers and charities. For taxpayers who are looking for an income stream, a charitable income tax deduction, and an upfront bypass of capital gains taxes, a FLIP Charitable Remainder Unitrust (FLIP CRUT) offers a solution.
Charitable remainder unitrusts are referred to as a split-interest vehicles. This is because the trust first pays an income stream to the donor and then upon the termination of the trust the remainder interest passes to charity. Charitable remainder unitrusts are often described as a “win-win” strategy for both the taxpayer and charities. A special type of charitable remainder unitrust is the FLIP CRUT, also referred to as a “combination of methods” unitrust. Typically, the FLIP CRUT first operates as a net income only unitrust which pays income beneficiaries the lesser of the net income or the stated unitrust percentage set forth in the trust document. Given the current low interest rate environment we are facing, initially, the trust will most likely only pay the net income to the unitrust income beneficiaries. After a stated “triggering event” occurs, which can be defined in the trust document as the sale of certain real estate or other illiquid assets, the trust will convert to a standard unitrust on January 1st of the following calendar year. The valuation date for the trust is typically December 31st of each year. With a standard unitrust, the unitrust payout percentage is multiplied by the trust value to arrive at the annual unitrust amount. Charitable remainder unitrusts must make unitrust payouts or they will be disqualified. The “combination of methods” unitrust allows taxpayers to use illiquid assets to fund a charitable remainder unitrust without having to distribute fractional interests of the illiquid asset prior to the sale of the asset. The FLIP CRUT solves a liquidity issue for taxpayers and charities.
Unitrust income distributions are taxed first as ordinary income, then capital gain, then tax-free income, and finally return of corpus. This distribution method is often described as the “Four Tier” accounting structure. Although it appears complex, the basic concept is simple. The distribution to the recipient requires payment of the tax at the highest possible rate. Thus, all ordinary income earned by the trust must be distributed before any capital gain is paid out.
Since the goal for most charitable remainder unitrusts is to distribute capital gain, the trust investments may be carefully selected to attempt to minimize the production of ordinary income and maximize recognized capital gain. The Trustee of the CRUT may wish to discuss this investment strategy with the trust’s investment manager. Investing for growth and attempting to create gain involves inherent risk, which should be carefully weighed before considering such a strategy. However, the lower capital gains tax rates provide greater tax efficiency for the unitrust income beneficiaries.
A unitrust payout percentage must not be less than 5 percent or more than 50 percent of the net fair market value of the trust assets, pursuant to federal law. Additionally, there is a 10 percent Minimum Remainder Interest (MRI) rule, which states that the charitable deduction generated from the gift to the trust must be 10 percent or greater of the net fair market value of such property as of the date such property is contributed to the trust. This same 10 percent MRI rule applies for all additional contributions to the charitable remainder trust. A lower unitrust payout percentage will produce a larger charitable income tax deduction. The charitable income tax deduction may be utilized the year in which the gift is made plus an additional five years for the carryover of any excess. Contributions of appreciated assets to public charities held long term are deductible up to 30 percent of the taxpayer’s contribution base unless the taxpayer elects to limit the deduction to his or her basis.
A donor may own real estate that he or she has depreciated, e.g., rental property. As a result, there may be depreciation recapture issues. If a donor has taken accelerated depreciation, depreciation recapture requires the donor to realize ordinary income upon sale of the depreciated property in an amount equal to the excess of accelerated depreciation over straight-line depreciation. In the event depreciation recapture applies to a donor, any gift of the depreciated property will be subject to the income tax reduction rules. Basically, the initial fair market value charitable deduction will be reduced by the ordinary income component of the real estate.
The value of the illiquid asset contributed to the trust, whether it is real estate, a business interest, or even tangible personal property, will be determined by obtaining a “qualified appraisal.” The regulations for “qualified appraisals” are strict and must be satisfied. Otherwise, the donor’s charitable income tax deduction may be jeopardized.
McFarland, John T., et al. “A Charitable Giving Exit Strategy for Real Estate Investors and Business Owners.” Miller Johnson, 15 Feb. 2022, millerjohnson.com/publication/a-charitable-giving-exit-strategy-for-real-estate-investors-and-business-owners/.
