Gifts of appreciated securities, such as stocks and mutual funds, may offer significant tax advantages to the donor.
Federal income tax charitable deduction
Individuals who donate marketable securities, held for over one year, are entitled to a federal income tax charitable deduction equal to the full fair market value (FMV) of the gift. Although this deduction is subject to an annual limit of 30 percent of your adjusted gross income, you may carry over the remaining unused deduction for up to five years. (The FMV is determined by the averaging of the stock's high and low trading prices on the date of the gift.) If securities have been held for a year or less (short-term), the gift deduction is limited to the securities' cost basis.
Capital gains tax avoidance
For Donors interested in making a charitable contribution, an alternative exists to paying significant capital gains taxes on the sale of assets such as stocks and mutual funds. Individuals making a donation to Providence Hospitals may receive an income tax deduction for the full value of the securities and will avoid capital gains taxes.
Gift and estate taxes
A gift of appreciated securities to Providence Hospitals is not subject to gift or estate taxes.
Gifts of closely held stock
An owner of closely held stock may give the stock to Providence Hospitals and receive important financial benefits. Making a gift of stock will not affect your current income or cash flow.
Giving appreciated securities (owned for more than one year) will avoid the capital gains tax that will incur had the stock been sold. By definition, closely held corporations are corporations whose stock is owned by family members and/or by business associates. The stock is not publicly traded, and in most cases there are restrictions on the transfer of the stock to third parties.
Donors considering a gift of closely held stock must not enter into a prior written agreement with either the closely held corporation or a potential third-party purchaser. The transfer should be an arms-length, independent transaction.
In an outright gift of closely held stock, the donor typically transfers stock to Providence Hospitals. To determine value, the donor has the stock appraised and obtains a charitable income tax deduction equal to the appraised value of the stock. The appraisal must be conducted by an appraiser who is knowledgeable in establishing the value of closely held stock. The Development Department of Providence Hospitals may then allow the corporation to redeem the stock, receiving a check for the redemption price.
Donors who wish to make gifts of closely held stock should consult with their attorneys or tax advisors. The Development Department will review all proposed gifts of closely held stock to ensure that acceptance is appropriate.
Providence Hospitals' Development Department can accept gifts of almost any type of real estate (personal residence, vacation home, farm land, commercial property and undeveloped land). Gifts of real estate often offer many of the same benefits as gifts of appreciated securities.
Federal income tax charitable deduction
An individual who donates unoccupied real estate, held for longer than one year, is entitled to an immediate federal income tax charitable deduction equal to the full fair market value (FMV) of the gift. Although this deduction is subject to a limit of 30 percent of your adjusted gross income, you may carry over the remaining unused deduction for up to five years.
Capital gains tax avoidance
A donation to Providence Hospitals may allow for an income tax deduction for the full market value of the gift, and no capital gains will be realized.
Gift and estate taxes
A gift of appreciated property to Providence Hospitals is not subject to gift or estate taxes.
Providence Hospitals' Development Department reviews all potential gifts of real estate to ensure that acceptance is appropriate and does not impose liability on Providence Hospitals.
Estate Gifts
These gifts are associated with the distribution of an individual's property after death.
Bequests
Donors who would like to retain full use of their property during their lifetimes may choose to make a gift by will. All bequests to Providence Hospitals qualify for an unlimited estate tax deduction.
General Bequest
Providence Hospitals can be included as a beneficiary in your will or estate plan, with either a specific amount or a percentage. Most traditionally, this is a gift of a stated sum of money.
Specific Bequest
This is a gift of a specific item to a specific beneficiary.
Residuary Bequest
This is a gift of all the "rest, residue and remainder" of your estate after all other bequests, debts and taxes have been paid. By making a bequest of the residue of your estate, you can ensure that your charitable contribution to Providence Hospitals takes effect only after you provide for your loved ones.
Contingent Bequest
With a contingent request, Providence Hospitals receives a bequest in the event that other bequests are not possible (due to death of an heir or some other reason). If you already have a will in place and would like to add a bequest to the hospitals, you may do so through a supplement to your will. The Development Department will be happy to assist in providing you with the appropriate wording.
Testamentary Trusts
In your will, you may designate a portion of your estate to go to a trust. A testamentary trust enables you to provide life income to a beneficiary with the remainder to go to Providence Hospitals upon the death of the beneficiary or at the end of the trust term.
Suggested Bequest or Trust Language
Bequests reflected in trust or will documents should be made to "Providence Hospitals." Our tax exemption letter is available upon request.
Bequest language may also indicate that the donation is to be designated for the benefit of a particular program at Providence Hospitals (i.e., "for the benefit of The Red Dress Campaign" or "for the benefit of the Providence Heart Institute" or "nursing scholarships").
Bequest designation language may also be done outside the will through a letter to the Development Department, which we maintain in our files. We recommend this latter approach as it gives Providence the opportunity to ensure that we fully understand the donor's wishes while the donor is still living.
Life Insurance Policies
Providence Hospitals can be named as the beneficiary on an existing or new life insurance policy. Contributing a life insurance policy may also be a way to make a larger gift at a lower cost. Just complete the insurance company's assignment form, naming the hospitals as both owner and beneficiary of the policy. You will receive a tax deduction for the lower of the replacement cost or the cost basis of the policy.
No current income tax deduction is available to individuals who name Providence Hospitals as the beneficiary of a life insurance policy, but the proceeds payable at death will not be subject to estate tax.
Retirement Plan Assets
Retirement accounts are often exposed to income taxes and estate taxes at a combined marginal rate that could rise to 65 percent or even higher on large, taxable estates. Yet many of these taxes can be avoided or reduced through a carefully planned charitable gift.
Due to the harsh tax treatment assessed against these retirement plan assets, donors may want to consider the significant benefits of using these assets to achieve their charitable objectives. These benefits may include avoidance of income tax on the remaining assets as well as an estate tax charitable deduction for the value of the gift.
Donors may choose to make a charitable bequest of assets in IRAs, 401(k) plans, 403(b) plans, qualified pension or profit-sharing plans, as well as other retirement savings accounts. The donor should notify the retirement plan administrator that he or she wishes to name Providence Hospitals as a beneficiary. If you are married, you must also obtain a written waiver from your spouse prior to naming any charitable beneficiary for your retirement plan.
Life Income Gifts
Donors may make a gift to Providence Hospitals and still receive continuing financial benefits from the assets given.
Benefits may include:
- a stream of income for the lifetime of the donor and/or the donor's spouse (or another beneficiary)
- a charitable income tax deduction
- an opportunity to establish an endowed fund in the donor's name or the name of a loved one
- possible avoidance of capital gains taxes on gifts of appreciated property
- a higher yield than from current investments
- a reduction in federal estate taxes.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a gift arrangement that allows you to make a gift to Providence Hospitals, provide an income stream for yourself and/or another beneficiary, and realize significant tax savings as well. In creating a charitable remainder trust, the donor irrevocably transfers money or property to a trust. The trustee then distributes a specified annual income to you and/or another designated beneficiary for life, or a term of years, and when the income benefits end, the remaining property will be distributed to Providence Hospitals. A charitable remainder trust provides a donor with lifetime income and a charitable income tax deduction. The donor, in conjunction with the charity, selects the payout rate, usually between 5 percent and 7 percent. The higher the payout rate, the lower the charitable income tax deduction. This gives the donor, and possibly the donor's spouse, an income every year for life. If the donor funds the trust with appreciated property, the donor will avoid capital gains taxes. The donor may choose the trustee to manage the trust. The trustee may invest in almost any investment, including tax free bonds. Donors may choose from two types of charitable remainder trusts-- the annuity trust and the unitrust.
Annuity trusts
The annuity trust pays a fixed, guaranteed dollar amount regardless of the trust's investment performance. The income rate is determined at the time the trust is funded. The annuity trust is best for donors who seek a regular, fixed income and prefer to have the satisfaction of knowing the amount of the payment in advance.
Unitrusts
When you create a charitable remainder trust, you irrevocably transfer money, securities or other assets to a trust that will then pay you an income for life or for a period of years. If you wish, the trust also can pay an income to another beneficiary of your choice. At the death of the surviving beneficiary, the remaining principal in the trust goes to Providence Hospitals.
Summary of Benefits for CRT's:
- Increase income payout from low yielding assets.
- Obtain a charitable income tax deduction.
- Provide income to one or two beneficiaries for life.
- Establish an endowed fund at Providence Hospitals through the trust.
- Avoid capital gains taxes on the transfer of appreciated property.
Donors concerned that a gift to charity would reduce the inheritance that their heirs might receive may want to consider creating a wealth replacement trust in addition to the CRT. A wealth replacement trust is a life insurance trust that may be used in conjunction with a CRT to replace the asset value given to charity and achieve estate tax benefits at the same time.
Life Estate Agreements
It is possible to make a gift of your personal residence to Providence Hospitals, but retain the right to use the property for the duration of your life and possibly your spouse's. Donors are entitled to an income tax deduction derived from their ages, as well as the value and the useful life of the property. Continued maintenance and the payment of taxes and insurance-related costs remain the responsibilities of the donor.
All proceeds benefit Providence Hospitals.
