Endowment Funds

     ECUW has established an endowment fund with the Eaton County Community Foundation, which is a component fund of the Capital Region Community Foundation.  If you choose to contribute to this endowment fund, here are some of the many benefits:

• Your gift gives in perpetuity.  Dollars deposited into an endowment fund remain in that fund and ECUW, at some time in the future, may draw a percentage of gift income only. 
• Your contribution will exist forever, helping the residents of Eaton County in the most effective way, through the United Way system, where local volunteers guide the organization, determine the needs of the community, and allocate funding accordingly.
• Your contribution to the endowment fund may be claimed on your Michigan income taxes as well as federal taxes as follows:

2003 Individual Contributions

     Assuming married filing jointly and no reduction in itemized deductions:

Compliments of Andrews Hooper & Pavlik P.L.C.

     The Michigan nonrefundable credit is the smaller of 50% of the total amount contributed for the year or $200.  Federal tax savings = (contribution – Michigan tax savings) x marginal tax rate.

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2003 Corporate Contributions

     Assuming a federal marginal tax rate of 34% and that the Michigan Single Business Tax credit is not limited to 5% of the SBT liability.

Compliments of Andrews Hooper & Pavlik P.L.C.

     The Michigan Single Business Tax credit is the smaller of 50% of the total amount of contributed for the year, $5,000, or 5% of the SBT liability.

• Current legislation provides a tax credit which may reduce your State of Michigan income tax liability by one-half of the amount of the donation made to the ECUW endowment fund, subject to limits based on filing status.
• For single individuals or married taxpayers filing separately, the maximum credit is $100 for gifts of $200 or more.  For married couples filing jointly, the maximum credit is $200 for gifts of $400 or more.
• For corporations and others which pay the Michigan Single Business Tax, the maximum credit is $5,000 or 5% of the tax liability before claiming any credits, whichever is less.
• For resident estates or trusts, $5,000 or 10% of tax liability before claiming any credits, whichever is less. 
• The credit is in addition to those available for donations to Michigan colleges and universities, public libraries and public broadcasting stations.

The Board of Trustees of the Eaton County Community Foundation is charged with the fiduciary responsibility for protecting funds while ensuring growth.  Following the best practices in the field, funds are pooled for investment, thereby achieving a diverse mix with reduced risk.  Results are evaluated quarterly.

     Annual reporting through an independent audit, the filing of tax returns, public disclosure of all grant activities, licensing by the State of Michigan, and careful selection of the Board of Trustees assures continued use and management of funds in the public interest.

     NOTE:  Permanent Endowment Funds do not spend principal, only gift income.

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Planned Giving

     John D. Rockefeller, Jr., on philanthropy:

     Never think you need to apologize for asking someone to give to a worthy cause, any more than as though you were giving him an opportunity to participate in a high-grade investment.  The duty of giving is as much his as is the duty of asking yours.

     Wouldn’t Mr. Rockefeller be pleased to know that today, investors can both give to a worthy cause and participate in a high-grade investment, at the same time!

Charitable Trusts

     There are a number of options in the federal tax code for individuals wishing to save on their taxes – if you know where to find them!  When planning your estate, consult a qualified financial planner, and explore the possibility of establishing your very own Charitable Trust.

     For example, Mr. & Mrs. Jones, ages 70 and 69, have $100,000 in mutual fund shares, paying dividends of 3%.  The mutual funds were purchased several years ago at a cost of approximately $25,000.  The couple are in need, at this point in their lives, of more income and would naturally consider selling these mutual funds.  Their financial planner, however, pointed out to them the capital gains taxes they would have to pay.

     Mr. & Mrs. Jones established a charitable unitrust with a 7% payment rate, and:

• increased their income from $3,000 to $7,000 a year, 
• realized a charitable deduction of $36,447,
•  which yielded a net tax savings of $12,028. 
• Importantly, they avoided a capital gains tax of $21,000. 

     Mr. & Mrs. Jones were pleased they were also able to give in perpetuity by passing on a $100,000 gift to charity as part of their estate.  (Note:  Charitable deductions may vary dependent upon donor age and payment rate.)

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What Are the Benefits?

     Planned giving allows donors to potentially improve their financial standing by donating assets to a charity.  A planned gift is a charitable gift that’s integrated with a donor’s overall financial plan.  Publicly-traded securities, cash, and real estate interests are common tools used to establish a charitable trust.  Highly-appreciated assets that produce little or no income are the best kind and most common type of assets used for funding a charitable remainder trust.

How is it Possible to Give Money Away and Yet Improve Your Finances?

     If you have an appreciated asset, like a piece of property or a stock portfolio, there’s an inherent tax liability on that asset that will ultimately have to be paid as capital gains or estate taxes.  Planned giving instruments allow a donor to make a gift to charity that:

• pays a stream of income for life,
• provides a charitable income tax deduction,
• may increase the yield they currently receive, and
• reduces or eliminates capital gains taxes or estate taxes.

Is it Expensive?

     There are several planned giving options; some require the establishment of a charitable remainder trust, which may necessitate a planned gift of $50,000 or more.  Other options have a lower entry threshold.

     Remember, your gift would not be out-of-pocket cash, but rather substantial accumulated assets that bear heavy, implicit tax burdens.  If you have these kinds of assets, you should seriously consider the option of planned giving as part of your estate planning.

What About Your Children?

     When you establish a charitable trust, the charity receives the trust assets, and not your children.  Of course, this is of great concern to your heirs.  However, you can pass the value of the trust to your family by using an irrevocable life insurance trust.  Combining the irrevocable life insurance trust with your charitable remainder trust may be the option best suited to you, as this is a way to replace funds eventually transferred to charity.  Example:

• Mr. & Mrs. Smith’s assets have grown to around $3 million, most in stock.
• The dividend rate from the stock was not satisfactory.
• Mr. & Mrs. Smith were reluctant to sell the stock because of federal and possible state capital gains taxes.
• They established a combination of a charitable remainder trust and a life insurance trust to raise their income and preserve their assets for their children.
• They placed $2 million appreciated stock in the charitable remainder trust.
• The stock was sold without capital gains taxes.  The proceeds were reinvested in a diversified portfolio with a high yield.  Mr. & Mrs. Smith’s disposable income increased substantially. 
• Mr. & Mrs. Smith established a life insurance trust naming their children as beneficiaries.  A $2 million life policy replaced the assets placed in the charitable remainder trust.
• Each year, Mr. & Mrs. Smith deposit enough money (using the extra income from the charitable remainder trust) to pay the premium on the policy. 
• Their children will inherit $2 million income- and estate-tax free from the life insurance trust.
• Mr. & Mrs. Smith’s charity, Eaton County United Way, would receive the charitable reminder trust’s $2 million.

Contact your financial advisor for further details.

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Charitable Lead Trust

     A charitable lead trust is  the opposite of a charitable remainder trust.  During the term of a charitable lead trust, income from the trust is distributed to your charity and when the trust terminates, the principal is distributed to the remainder beneficiaries such as children or grandchildren.  When a charitable lead trust is created, only the present value of the remainder interest (the amount remaining for the remainder beneficiaries) is subject to gift or estate taxes.  Therefore, by establishing a charitable lead trust, a person can have the satisfaction of giving to a favorite charity and, at the same time, facilitate the transfer of property to their heirs at lower federal gift or estate tax rates.  Contact your financial advisor for further details.

Corporate Contributions

     You can use a charitable trust to remove retained earnings from your corporation without adverse tax consequences.  Instead of selling your stock and incurring capital gains taxes, you create a charitable trust to remove earnings from your business.  After receiving a value of your business from an appraiser, you transfer that amount of the corporation’s stock, including the retained earnings, to the trust.  The corporation can then purchase or redeem the stock from the charitable remainder trust.  The result is your business no longer has any retained earnings, and you have those earnings free of corporate or personal capital gains taxes.  Your charitable remainder trust will generate income for you and any income beneficiaries you name.

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Wills, Memorials, IRAs and 401(k)s

Wills

     The most satisfying option for people of all ages is to simply remember charity when writing a will.  What can better celebrate your life than to help others?

If you make a bequest to Eaton County United Way, you may be assured:

• You will be making a difference in the lives of many in our community who depend upon a helping hand at some point in their lives.
• The United Way as an organization has been working in Eaton County since 1972 and will undoubtedly be a growing partner in your community in perpetuity.
• As times and the needs of people change, the volunteers at United Way will put your charitable dollars to work where they are most effective and most needed, no matter when they are received.

Memorials

     When you’ve lost a loved one, consider the option of offering friends and family the opportunity to leave a remembrance by contributing to a worthy cause.  You create a living tribute to your loved one, and your family and friends enjoy choosing a needy cause. 

     Call the Eaton County United Way offices for a list of charities that have proven to be efficient and effective in providing needed services to the people of Eaton County.

IRAs and 401(k)s

     People today are looking more at their IRAs and 401(k)s and leaving one of them or a part of them to a charity after they and their spouse are gone, since they’re so heavily taxed when you leave it to your heirs.  Giving to charity leaves 100% of it for use and avoids all that taxation.  With stocks growing the way they have been, people are looking to avoid all the capital gains either through trusts or contracts giving away the stock or a portion of it.

Check with your financial advisor for options available to you.

In Conclusion

     Whether you wish to sell appreciated assets, diversify your holdings, increase income, receive additional tax benefits, better control the management and distribution of your assets, contribute funds to your favorite charity or all of the above, planned giving offers excellent financial and charitable opportunities for you and your family.

Additional information is also available at: http://www.wpg.cc/stl/CDA/homepage/1,1006,249,00.html, which is a site maintained by United Way of America and contains many free brochures on various topics.

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