Charitable Bequests Why Charitable Bequests are Popular Bequests, which are gifts made through a will, have been an extremely popular way of providing long-term support for the charitable organizations that are so important in our lives. There are many reasons donors choose to make charitable bequests: the opportunity to make a statement about personal values, the satisfaction of supporting an important cause to benefit future generations, and the wise financial choices that allow for generous bequests. Tax planning is also an important factor in this decision. With some foresight, you can make a charitable bequest in a way that will permit you to realize other objectives for your estate. Planning a Charitable Bequest This booklet was prepared in the belief that every charitable bequest should accomplish several important objectives: First: Every charitable bequest should be a source of great personal satisfaction to the donor. Second: Every charitable bequest should be an integral part of the donorÕs basic estate plan and should complement all the other objectives of the donor. Third: Every charitable bequest should provide optimal tax and financial rewards for the donorÕs estate, the donorÕs family and other beneficiaries. Flexibility of Planning Charitable bequests can take many different forms, so it is important to plan your bequest in a way that will best accomplish all of your estate objectives. Your charitable bequest can be outright or deferred. It can be absolute or contingent upon certain events. It can be for the general support of the charitable beneficiary or restricted to a purpose you feel is especially important. And because a charitable bequest can be made through your will, or through a codicil to your will, it is simple to include one or more charitable organizations in your estate plan. When you make a charitable bequest, you retain full use of your property during life, so there is no immediate out-of-pocket cost, reduction in net worth, or disruption of cash flow. WhatÕs more, you can change any bequest provision, which means you remain in control of the process. Your Bequest: Outright or Deferred Typically, when we think of a charitable bequest, we see it as a direction to distribute a specific asset, or to pay a certain sum of money, to the designated charitable beneficiary. This is an ÒoutrightÓ bequest and is clearly the most popular method of benefiting your charitable beneficiary. But a charitable bequest also can be ÒdeferredÓ with individual beneficiaries receiving immediate benefits and our institution receiving benefits at some later time. For example, in your will you can direct that a sum of money or a particular property be held in a Òcharitable remainder trust.Ó The trustee can be directed to pay an annual income to family members or other beneficiaries for their lives and to distribute the property to our institution after the death of the income beneficiaries. In short, through a charitable remainder trust set up in a will, you can provide immediate benefits for family members, gain significant estate tax benefits, and also provide a generous gift to charity. Planning an Outright Charitable Bequest Many bequests to charitable institutions or organizations are for a specific sum of money. The donorÕs will simply indicates the amount of the bequest. Alternatively, your charitable bequest can be a specified percentage of the net value of your estate. Under this form of bequest, the charity will share in the increases or decreases in the value of your estate. And because the value of an estate can change quickly and dramatically, this form of bequest is often the best way to accomplish the individualÕs specific objectives. It may be that a Òresidual bequestÓ to a charitable beneficiary will best accomplish your objectives. The ÒresidueÓ of an estate is the amount remaining after all costs, debts and taxes have been paid and all monetary and specific bequests have been satisfied. This form of charitable bequest can be especially appropriate if you want other bequests to have priority. For example, if you definitely want specific properties or dollar amounts to go to individual beneficiaries and you want to provide a benefit for us only after these priority bequests are paid, a residual charitable bequest may very well be your best option. Of course, you can name several residual beneficiaries and direct exactly how your residual estate is to be divided among these beneficiaries. The Choice is Yours The point we want to emphasize in this booklet is that, in planning your outright charitable bequest, you really have several basic options. Your personal objectives should determine the exact form of your charitable bequest. Consult your attorney for advice on your situation. And, of course, we will be pleased to provide whatever assistance you and/or your attorney may request in planning your charitable bequest. Financial and Tax Benefits of Bequests Charitable gifts and bequests are motivated primarily by the donorÕs desire to provide financial support for the charity. However, tax rewards can also be important. In certain cases, tax benefits can permit donors to give more to their charitable beneficiaries than they may have thought possible. Every dollar that is given to a qualified charitable organization through a bequest or other testamentary gift is fully deductible for federal estate tax purposes when certain legal requirements are met. Indeed, an estate tax deduction is allowed for a deferred bequest to our institution even though the bequest provides income benefits to individual beneficiaries. Of course, not every estate is subject to the federal estate tax. The exemption amount available to every estate is $3.5 million. If your estate is potentially subject to the federal estate tax, you will want to take steps to minimize the impact this tax can have on your beneficiaries. Happily, there are many time proven methods of minimizing estate taxes, including both outright and deferred charitable bequests. LetÕs see how a deferred bequest to our institution can minimize estate taxes and add to the financial security of your family and other individual beneficiaries ITÕS EASY TO MAKE A BEQUEST THROUGH A CODICIL If you now have a will, you can include or update a bequest to our institution through a simple codicil, without the need for executing a new will. A codicil is simply an amendment or addition to your will and is commonly used to add bequests to those already included in your will. Keep in mind, however, that a codicil must meet all the requirements of the laws of your state for the execution of a valid will. Generally, it must be signed by you in the presence of witnesses who must attest to the execution of the document. Certainly, you should rely on your attorney to draft your will and any desired codicils. Make certain you identify our institution by its formal legal name. A Deferred Charitable Bequest A deferred charitable bequest can add a great deal of flexibility to your estate planning. With this special form of bequest, you can benefit one or more family members or other individual beneficiaries and provide ÒdeferredÓ benefits for our institution. Your deferred charitable bequest can take several different forms, but you can design it to provide an annual income to one or more individual beneficiaries for life (or for a period of years), with the property passing to us or other designated charitable beneficiaries upon the end of the income benefits. The deferred bequest is an excellent tool to provide for dependent relatives and still fulfill your philanthropic desires. Example: Mrs. Avery, a 70-year-old widow, wants to make a charitable bequest to memorialize her late husbandÕs interest in our organization. She has an older sister, however, who needs financial help. By setting up a special trust in her will, she can direct that at her death a certain income will go to the sister for her life, with the remainder interest to come to us as Òa deferred bequestÓ after her sisterÕs death. Mrs. Avery is able to ensure support of her sister and to memorialize her husbandÕs charitable intent. WhatÕs more, Mrs. AveryÕs estate may receive an estate tax charitable deduction for the present value of our remainder interest (depending on the type of trust). This is a good example of what you can accomplish with a deferred bequest. A BEQUEST CAN PERPETUATE YOUR ANNUAL GIFT LetÕs say you usually make an annual gift of $1,000. A $25,000 bequest to us in your will could be endowed so that it distributes $1,000 in its first year (given a 4.0% endowment payout), and the endowment continues to generate income year after year. That way, even a small bequest can have a significant impact on our programs. Ask us how you can help shape our future with a well-planned bequest. Planning Your Personally Satisfying Bequest There are, indeed, many exciting and practical techniques for making a generous gift or bequest to a charitable institution or organization that you want to support. We sincerely hope that you will want to include us in your estate plan. Please let us know if you plan to make a testamentary bequest to support our work and activities. We can help you plan your bequest to achieve maximum tax benefits and personal satisfaction. And, equally important, it will help us plan for the future if we know we can depend on your generous support. If you would like to discuss any of the gift techniques mentioned in this booklet, please call us. We will welcome the opportunity to discuss with you how your bequest can play a meaningful role in our future and perpetuate your life values. We also will be happy to discuss all of the memorial bequest opportunities available to you. Figures in our examples are based on average interest rates, and may be different at the time of a gift. The federal estate tax is scheduled to be repealed in 2010. However, Congress may act to reinstate the federal estate tax sometime during 2010. Tax information provided herein is not intended as tax or legal advice and cannot be relied on to avoid statutory penalties. Always check with your tax and financial advisors before implementing any gift. Sutter Tracy Community Hospital Foundation 1420 N. Tracy Blvd. Tracy, California 95376 Bob Green Executive Director (209) 832-6052 greenrd@sutterhealth.org Michele Speich Fund Development Coordinator (209) 833-2367 speichm@sutterhealth.org