Giving Wisely

Consider this: someone's generosity permeates every facet of our lives. Certainly our programs benefit from such acts of kindness.

Charitable gifts help us meet our current goals and reach farther in the future. By giving wisely, you can achieve that same outcome, too.

Your gift can take multiple forms and can help you address a variety of personal financial goals. Do you want to make a significant gift during your lifetime, or would a gift as part of your estate work better? Do you have a particular asset that you are thinking of donating? Do you want to increase your retirement income, or is your primary goal estate preservation? Are you carrying excess life insurance or a large balance in your retirement plan?

We are ready to work with you and your advisors to craft the gift plan that satisfies you. Here are some additional opportunities to learn:

• Travel through the Legacy Planner to help you decide what will work best.
• View your options to see the variety of assets and vehicles available to accomplish your goals.
• Use the following guide to help you weigh your options.

1. Give now, or give later?

   A significant lifetime gift will allow us to meet our immediate objectives. In turn, it will give you maximum tax benefits, especially attractive if you are in high earnings years. It can also be the simplest gift to arrange.

   You may, however, prefer to leave your assets and cash flow alone until your death, and instead make your gift through your estate. Even though we would not use this gift immediately, it will be critically important for long-term financial strength and will help ensure that we can meet the opportunities and challenges the future will present us.

   You use a will or revocable trust to make a gift from your estate. You may also use life insurance or the balance remaining in your retirement plan. These gifts help you keep your lifetime financial planning flexible, although they provide only limited income tax benefits. You will need professional assistance to set up most estate-plan gifts.

2. What assets to give?

   Cash. It is, of course, the easiest transaction to make. You are limited only by your cash flow and your inclination to draw from your cash reserves.

   Appreciated securities. Get the same tax deduction as if you had given cash, but use stocks or bonds that cost you less than they are currently worth. Your deduction is based on market value, but you incur no capital gains liability on the transfer to us. It's one of the best tax incentives left, and we can work with your broker to make a gift of securities simple.

   Real estate. Gifts of land, vacation homes or income-producing properties can bring great benefits to us. We have to review each gift proposal carefully, and sometimes it's not practical for us to accept. You can give real estate outright, transfer it in a part sale/part gift arrangement, use it to fund a life-income gift, or give your residence and reserve the right to continue to live there.

   A retirement account. The balance remaining in your retirement account after your death is subject to double taxation if it passes to your heirs: it's taxed both as income and as an estate asset. Result? Over 75% of the account value may go to taxes. It's a better plan to designate the remainder of your account to W & M, and then use other assets for gifts to your family. New regulations simplify the procedure to name W & M as beneficiary; we're ready to assist you.

   Appreciated property. You may be holding property like books, artwork or equipment that you no longer wish to maintain. Instead, these assets could bring real benefit to W & M. There are particular IRS requirements to meet before you can deduct a gift of appreciated assets. And, we will review each gift proposal carefully to make sure that can put the asset to good use.

   Business interests. A partnership, an interest in a business, shares of closely held stock, or a limited partnership share may all hold value for us. We'll review the proposed gift, and if we agree, will work with you and your advisors to make the transfer simple.

3. How can a gift pay me back?

   There is a family of gifts that transfers assets to and then returns income to you. You can use them to convert low-yielding securities to a higher income stream at a greatly reduced capital gains cost. You can receive fixed or variable income, take payments for your lifetime or for a term of years, and direct the income to other beneficiaries. In essence, you make a contribution yet retain benefits from what you gave away.

   Your charitable deduction is based on the full market value of the assets you gave, minus the present value of the income interest you retained. The higher the income payout, the lower the deduction.

   These flexible, creative gifts address a variety of your planning objectives. For our part, the return of income permits a more substantial gift to W & M than you might be able to afford in an outright format. Even though we cannot use these gifts until the death of the last income beneficiary, they give us long-term financial strength that will sustain in the future.

4. What are my choices in income gifts?

   A charitable gift annuity is the simplest; in return for your gift, we contract to pay you and/or another beneficiary fixed income for life. The income rates and the charitable deduction tend to be higher with a gift annuity than with other life-income gifts. There is also an attractive reduction in the taxation of annuity payments. This gift plan is most appropriate if you are risk-averse in your investing and if long-term fixed income is an appropriate strategy for you.

   A deferred gift annuity delays the inauguration of income payments to the beneficiaries. In return for this delay, the deferred annuity increases both the income rate and the charitable deduction above those of an annuity starting income payments immediately. If you are currently in high-earnings years, looking for tax deductions and new sources of retirement income, a deferred annuity with income set to start when you turn 65 may fit your needs well.

   A charitable remainder annuity trust is another option if you are seeking fixed income. Gift annuities are contracts between you and W & M, with payments made as an obligation of our organization. The annuity trust - an individually managed trust - provides you a bit more flexibility. However, its management costs often produce a lower income rate than a gift annuity could pay and require a larger initial gift. With that said, the annuity trust does have several advantages. It can pay income to multiple beneficiaries, while the gift annuity is limited to two individuals. It can pay income for a term of years (up to 20) while a gift annuity can only pay for life. Under certain circumstances an annuity trust can pay all tax-free income, especially if it was funded with tax-free securities.

   The charitable remainder unitrust is the most flexible life-income gift, and it also pays you variable income. The amount received by beneficiaries is based on a fixed percentage of the value of the principal, which is revalued annually. Income in excess of the unitrust amount is reinvested, so that the unitrust's income rate can be applied against an increasing principal over time. The unitrust can pay multiple beneficiaries and can pay income for lifetime or a term of years. Like the annuity trust, the unitrust is individually managed and requires a larger gift to make the management feasible.

   A special feature of the unitrust is the ability to grow principal over time, then reinvest for income, with no capital gains cost. This feature, explained in the text, allows you to build up a fund for later needs, such as tuition for children and grandchildren.

5. My goal is to keep my estate intact, not increase my income ...

   Consider a charitable lead trust. It works in reverse from the life-income gifts discussed in Questions 3 and 4, above: your gift is placed in a trust that pays income to us for a term, then returns the principal to you or your heirs.

   The lead trust is a very effective tool to remove a portion of your estate from tax liability:

   • If the assets are to pass to your heirs, any growth in the principal after the trust was inaugurated is exempt from estate tax.
   • Further, the amount subject to tax is reduced by the value of our income interest.

   If you have a growing family business or a rapidly appreciating portfolio, and children whom you'd like to benefit, a lead trust may be just what you're looking for.