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One of the easiest and most common ways for donors to make a gift to the Foundation is through a bequest in their Will. The tax laws encourage Bequests; consequently, a bequest is an excellent way to support the Foundation's programs.
Bequests work particularly well for those who are unable to make an immediate outright gift, but would like to aid the Foundation in the future.
One of the easiest and most common ways for donors to make a gift to the Foundation
- Specific bequests take the form of an outright gift of securities, a specific fund of money, or other property. In a donor's Will, they describe an item of property and give that particular item to an individual or to an organization such as the Foundation. Specific bequests are honored after debts and expenses of a donor's estate are paid and before other bequests are distributed.
- General bequests do not provide for the source of payment of the Bequest. For instance, donors may wish to transfer $25,000.00 to their child. With a specific Bequest, donors might designate $25,000.00 from their Money Market account at XYZ National Bank. With a General Bequest, donors would simply state "I give the sum of $25,000.00 to my son, Alan." The donor's executor may honor the Bequest from any available source in the donor's estate.
- With a Residuary Bequest, donors give away what remains of their estate after all expenses, debts and taxes have been paid and all Specific and General bequests have been satisfied.
There are two variations of bequests donors should become familiar with:
- A Contingent bequest takes effect only in the event that all other Bequests, for whatever reason, fail. It's a rider that attaches itself to a Specific, General or Residuary Bequest and comes into play only when certain conditions are met. It is an excellent way to include the Foundation in a donor's Will.
- Charitable bequests are similar to Contingent bequests in that they, too, overlap the basic types of bequests. The Foundation, for instance, can be the beneficiary of a Specific, a General, or a Residuary bequest. Donors may make Charitable Bequests either outright or in trust (using one of the excellent gift options mentioned earlier).
When a donor makes a Bequest to the Foundation, their taxable estate is reduced by a 100 percent estate tax deduction for the amount of a cash Bequest, or the fair market value of property. This deduction results in tax savings whenever the taxable estate - after other deductions - exceeds the amount offset by individual estate tax credits. Because the estate tax rate schedule is progressive (the rate of taxation increases with the size of the estate), the larger the taxable estate, the greater the potential tax savings per dollar given.
Example: Mrs. Young, a widow, has an estate of $800,000.00. She has her attorney prepare a new Will under which she establishes a Charitable Remainder Annuity Trust to be funded with $380,000.00. The Annuity Trust provides for an annuity payment of six percent of $380,000.00, or $22,800.00 to her daughter for the daughter's life. The balance of Mrs. Young's estate will be paid outright to the daughter. By using the outright transfer and the Charitable Remainder Annuity Trust, Mrs. Young ensures that - after funeral expenses, debts and costs of administration - the bulk of her estate will be put to work for her daughter.
Mrs. Young dies in 1998, and the terms of her Will are carried out, that is:
1. $380,000.00 is transferred to a Charitable Remainder Annuity Trust with annual payments of $22,800.00 to be paid to her daughter, age 62, for her life; at her daughter's death, the remaining assets will pass to the Foundation.
2. $420,000.00 is transferred outright to the daughter.
Because Mrs. Young established the Charitable Remainder Annuity Trust with a portion of her estate, her estate did not owe any federal estate taxes. Had she transferred all of her estate to her daughter outright, her estate would have paid $65,750.00 in federal estate taxes.
Mrs. Young also could have given the Foundation $175,000.00 outright under her Will and transferred the balance of her estate, $625,000.00 to her daughter outright; again, she would have avoided all federal estate taxes.