GIVING a guide for professional advisors and their clients
Together, we make a difference in our community
Table of Contents Welcome.........................................................................................................................................................2 Charitable Conversations.............................................................................................3 About Us.........................................................................................................................8 Meet Your Community Foundation............................................................................................................ 9 Our Community’s Endowment...................................................................................................................10 Community Impact.........................................................................................................................................11 Serving Donors.................................................................................................................................................12 Gifts of All Shapes and Sizes........................................................................................................................13 Types of Gifts Q&A....................................................................................................................................14
Community’s Endowment...........................................................................................17 About Unrestricted Funds and Field of Interest Funds......................................................................17 Unrestricted and Field of Interest Funds Q&A.......................................................................................18
Donor Advised Funds..................................................................................................21 About Donor Advised Funds.......................................................................................................................21 Donor Advised Funds Q&A..........................................................................................................................22
Designated Nonprofit Funds......................................................................................29 About Designated Nonprofit Funds.........................................................................................................29 Designated Nonprofit Funds Q&A.............................................................................................................30
Scholarship Funds.......................................................................................................33 About Scholarship Funds..............................................................................................................................33 Scholarship Funds Q&A.................................................................................................................................34
Planned Giving............................................................................................................39 About Planned Giving....................................................................................................................................39 Bridge Builder Society....................................................................................................................................40 Adopt a Child Named Charity.....................................................................................................................41 Distributing Charitable Gifts........................................................................................................................42 Planned Giving Q&A.......................................................................................................................................43 Life Insurance.............................................................................................................................................46 Charitable Remainder Trust...................................................................................................................47 Charitable Lead Trust...............................................................................................................................48 Retirement Assets.....................................................................................................................................49 Charitable Gift Annuity...........................................................................................................................50
Additional Resources..................................................................................................52
Welcome The Community Foundation of the Holland/Zeeland Area is a public charity that as of 2015 manages over $55 million in charitable assets spread across 475 different funds that have been established by individuals, families, businesses, and nonprofit organizations in the Holland/Zeeland area. We offer a wide range of giving options tailored to the specific personal, financial, and charitable needs and objectives of our donors. We exist to help individuals and companies achieve their charitable goals and to build and manage our community’s permanent endowment. We pride ourselves on being faithful stewards of donors’ resources and making positive changes in the Holland/Zeeland area. The Community Foundation of the Holland/Zeeland Area (CFHZ) offers expertise on charitable giving and the local community. As an attorney, certified public accountant, or financial advisor, you almost certainly have clients who have supported charitable organizations in our community during their lifetimes and who may wish to make gifts to charity through planned giving. We work with advisors like you to support and enhance the services you and your firm provide to your clients. You stay in control of your client relationships; we are here to help you serve your clients’ charitable giving needs. We know that preliminary conversations typically occur with your clients before they decide to talk to us, and we want to make those charitable conversations easy for you. The detailed information in this Giving Guide will inform and equip you as you guide your clients through the charitable decision making process, and we hope this guide will simplify and clarify various giving options. Throughout the guide you will find a variety of materials that you can offer to your clients as you explain what CFHZ does and discuss specific ways they can give through CFHZ. In conjunction with the handouts, we have provided a series of supporting Q&A documents to help answer questions your clients may have. You will also find that our complementing Annual Report is a great source of stories about others who have given through CFHZ. In addition to these printed materials, you can find all of these resources electronically on our website, www.cfhz.org. If you or your clients have questions, would like additional information about charitable giving techniques or CFHZ, or if you are looking for additional resources in connection with charitable planning for your clients, please let us know. We look forward to meeting with you and individual clients to provide further clarification, ideas, or perspective. Thank you for partnering with CFHZ to serve your clients’ charitable interests and sustain the high quality of life Holland/Zeeland has to offer. This information has been compiled as a resource regarding the giving opportunities available through the Community Foundation of the Holland/Zeeland Area. It is intended for persons who may be in a position to advise their clients on appropriate channels and/or methods for charitable giving. The information provided, however, is not intended to address technical and legal questions concerning individual estate planning needs and wishes; potential donors should seek the advice of legal counsel and/or financial advisors.
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Charitable Conversations... Why should I try to engage my clients in charitable conversations? Advisors are often reluctant to begin a charitable giving conversation with their clients. The reasons are varied. Advisors may not be aware of a client’s interest in philanthropy and assume the client is not charitably inclined. • The reality is that a majority of clients are already charitably inclined and would not be offended—and would even welcome a dialogue on charitable giving. • 95% of people give to charity during their lifetime, according to the Center on Philanthropy at Indiana University. Often charitable giving is simply overlooked, and all it takes is a little nudge or reminder. • 10% of people give to charity as part of their estate planning (Association of Fundraising Professionals research). • Compared to the 95% who give during their lifetimes, this strongly suggests clients are not thinking about including charities in their estate plans and only need a little encouragement to do so. In some cases, advisors are concerned about appearing to impose their values or influence how clients spend or give away their money or property. • Most individuals expect their professional advisors to present a wide range of planning options, especially those planning ideas the client might not have otherwise or previously considered. • Experienced advisors know that if the conversation is properly initiated, clients will not be offended or feel the advisor is imposing his or her values on the client. • In fact, starting a charitable giving conversation adds value to advisors’ client relationships. It shows their interest in people and the community. Finally, clients and their advisors often share a love of their community. You do not have to be a millionaire to make a difference with charitable gifts. By not broaching the subject of charitable giving, a significant opportunity may be lost for the client and the community. • Any amount can be contributed to our community’s permanent philanthropic endowment, managed by CFHZ. If your client wants their own fund at CFHZ, it takes a minimum of $10,000, and funds can be built over a five-year time window. • According to a recent study by the Rural Policy Research Institute (RUPRI) Center for Rural Entrepreneurship, if everyone in the Holland/Zeeland area leaves 5% of their estate to the community, more than $75 million will be invested locally in the next 10 years. • If CFHZ and professional advisors together initiate more charitable conversations, our community will be the better for it. 3
Charitable Conversations... What if my client is not charitably minded? Some clients, when approached about charitable issues, may say something like, “my children are my charity.” However, in many cases, they have more than sufficient financial resources for retirement and their children’s needs. The key is to find something they have a connection to. Most people have a special affinity for the place where they live. The community gave them many memories and contributed to their ability to be successful. While they may not have connected with any one charity’s mission in a deep and meaningful way, they most likely feel a sense of connection to the place they call “home.” This is where CFHZ enters the conversation, because a gift to CFHZ is a gift to the community. CFHZ is not tied to a single social cause or mission; rather, it is focused on allocating resources to produce the largest possible benefit for the Holland/Zeeland area. An individual not accustomed to charitable giving doesn’t have to make a decision about which individual charities to support; they can give back to the community in general through a gift to CFHZ. The key message is place. You need to connect the conversation back to their affinity for Holland/Zeeland, a place that has been good to them. Another common place of connection is faith. Many people derive their sense of generosity and stewardship from their religious beliefs. All faith traditions value giving of oneself for the benefit of others. You might not always be comfortable asking your client how their faith impacts their decision making, but if you are, it is a great place to start a conversation about giving to others. Even for individuals who do not currently give much, faith is still often present in their life, and conversations about faith can lead to generosity.
What if my client is charitably minded? Many of your clients already make charitable gifts and have charitable priorities. By working to understand what is motivating them to give, you will be in a good position to help advise on what is the best asset or method for them to be giving. Your client is most likely being motivated by some of the following perspectives:
1. Someone I know asked me to give, and I want to help them. 2. I felt emotionally moved by someone’s story. 3. I want to feel I’m not powerless in the face of need and can help. 4. I want to feel I’m changing someone’s life. 5. I feel a sense of closeness to a community or group. 6. I need a tax deduction. 7. I want to honor someone. 8. I was raised to give to charity—it’s tradition in my family. 9. I want to be “hip,” and supporting the charity is in style. 10. It makes me feel connected to other people and builds my social network. 11. I want to have a good image for myself and/or my company. 12. I want to leave a legacy that perpetuates me, my ideals, or my cause. 13. I feel fortunate (or guilty) and want to give back to others. 14. I give for religious reasons—God wants me to share my affluence. 15. I want to be seen as a leader/role model.
When working with charitably-minded clients, encourage them to follow Max DePree’s advice: The question is not, “How much should I give?”…the real question is “How much should I keep?” 4
Charitable Conversations... “A gift to CFHZ is a gift to the community.”
How will I know when to start a charitable conversation? As with so much else that professional advisors do in consulting with clients, active listening is critical. You can help your clients achieve their charitable goals by listening for charitable giving opportunities, explaining the various options, and suggesting solutions. Significant giving opportunities also arise when clients are making major business, personal, and financial decisions. These are the key times to be talking to your clients about charitable giving. Charitable giving is particularly effective when clients: • Sell a business or business interest • Sell real estate, including second homes and farms • Liquidate appreciated assets such as stock and mutual funds • Retire, particularly if the client takes lump sum payouts or is subject to IRA required minimum distributions at age 70 ½ • No longer need their amassed life insurance • Experience windfalls that bring significant tax liabilities • Mention or demonstrate a particular affinity to a charitable organization These situations provide an easy transition into a discussion about giving to charity.
How do I start a charitable conversation? There are many questions which easily extend conversations you are already having with your clients. Ask a few simple opening questions that can begin a dialogue about charitable giving: • How important is it that you convey your values to your children? Grandchildren? • What was the most meaningful or satisfying gift you’ve made? • How would you like to be remembered? • What do you love about Holland/Zeeland? • What change(s) would you like to see in our community? • Did a specific nonprofit organization ever help you or loved ones? If so, what impact did it make on you? • Would you like to learn how you can provide appropriately for your family while also providing meaningfully for your favorite charity or for the Holland/Zeeland community at large? 5
Charitable Conversations... How can my client provide for their children and charity in their estate plan? One of the difficult considerations for many charitably inclined individuals when engaging in estate planning is the question: “How much do I give to my family and how much do I give to charity?” For many parents, their primary wish is to ensure their children share their assets and possessions at their passing, but oftentimes they want to balance that with a desire to support charities they have given to for much of their lives. These individuals should consider using the “child called Charity” concept. The theory is that if your client has 3 children, instead of dividing the estate in thirds and leaving one third to each child, your client adds a fourth “child” and divides the assets in quarters, leaving 25% of the estate to each child. The fourth child is named “Charity.” Their estate would be divided between the number of their children…plus one. It’s as though they’ve added one child to their family, but that child is a single charity or a list of charities. Another iteration of the same concept is “child called Community.” By naming CFHZ as an additional “child” in your client’s estate plans, it is as if your client is adopting our community as an heir of his/her hard-earned assets.
What tools does CFHZ offer to assist my client during specific life situations? The following are some typical scenarios that you may encounter when charitable giving through CFHZ can be helpful: • Distributing the charitable portion of your client’s estate – Your client wants to give the charitable portion of their estate to nonprofits in the easiest way for all involved. We can disburse your client’s estate’s charitable gifts in a lump sum to any number of nonprofit organizations, or your client may perpetuate their yearly giving after they are gone with annual distributions to their favorite charities, payable over a number of years. Your client may change the charitable distributions as often as needed without returning to an attorney to rewrite or amend the will or trust. Your client’s executor will have less work to do and, should one of the specified nonprofits cease to exist, we follow your client’s predetermined directions to apply that allocation elsewhere. • Year-end tax planning – Your client just earned a large bonus and wants to give a portion back to the community but does not have the time to decide on the most deserving charities. Here is an opportunity to recommend your client consider establishing a Donor Advised Fund at CFHZ for an immediate tax deduction and the ability to stay involved in recommending uses for the gift for years to come. • Preserving an estate – Estate planning identifies significant taxes going to the IRS, but your client wants to direct dollars for local benefit. CFHZ can work with you and your client to reduce his/her taxable estate through a charitable bequest or other planned gift. • Sale of a business – Your client owns appreciated stock in a company that is about to be acquired. CFHZ can work with you to suggest several ways to structure a charitable gift to help your client reduce capital gains tax and maximize impact to the community. • Strategic giving – Your client is passionate about helping meet a specific community need and wants to make a meaningful gift. You and your client can work with our grantmaking experts to understand community needs and programs and then direct gift dollars to make the greatest impact. 6
Charitable Conversations... • Redirecting Tax Dollars to Charities – Your client is concerned about how the government spends his/ her tax dollars. Charitable planning can reduce taxes and allow the dollars that would otherwise pass to government to be spent based on the government’s priorities, and instead pass to charities aligned with the client’s priorities. • Retiring in comfort – Your client wants to secure their financial future, but has always been charitable. Recommend establishing a life income gift (such as a charitable gift annuity) at CFHZ that pays income for life. Upon your client’s death, the gift can be distributed by CFHZ in accordance with his/her charitable interests. • Closely held stock – Your client’s personal net worth is primarily tied up in a closely held company, but it’s important for him/her to give back to the community. Recommend establishing a Donor Advised Fund or planned gift; your client is eligible for a tax deduction measured by the fair market value of appreciated stock (less any planned gift value). • Sale or disposition of highly appreciated stock – Your client has appreciated stock he/she wants to use for charitable giving, but the identified charities are too small to accept direct stock gifts. Suggest making the gifts through CFHZ with a gift of appreciated stock. Your client receives a tax deduction on the full market value while avoiding the capital gains tax that would otherwise arise from the sale of the stock. • Substantial IRA/401(k) assets – Your client wants to leave his/her estate to community and family and has substantial assets in retirement accounts. CFHZ can help you and your client evaluate the most beneficial asset distribution to minimize taxes, giving more to his/her heirs and achieving charitable goals. • Inheritance – Your client is going to receive a significant inheritance which may result in substantial taxes during the year the estate is settled. Recommend establishing a Donor Advised Fund at CFHZ for an immediate tax deduction and the ability to stay involved in recommending uses for the gift for years to come. Regardless of the context in which the conversations begin, you need to be prepared to have meaningful conversations with your clients to help them make the right decisions about where and how to give.
Is giving through CFHZ right for your clients? If you answer yes to any of the following questions, your clients would benefit from knowing more about CFHZ.
1. Do I have clients who care deeply about the Holland/Zeeland area? 2. Do they give to more than one charitable cause? 3. Are they interested in creating a personal or family legacy in Holland/Zeeland? 4. Are they considering creating a private foundation? 5. Would they like to stay personally involved in the use of their gift dollars? 6. Do they want to receive maximum tax benefits for their charitable contributions? 7. Do they place a priority on sound financial management of their contributions? 8. Are they struggling to determine which individual charities most deserve their support?
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“I support the Community Foundation every year. My heart is in this organization. The Foundation is one way that people can give to the future.� - Les Hoogland
Meet Your Community Foundation
When was the last time you changed someone’s life? Some people make a difference by giving their time. Others donate money directly to a nonprofit. We all can change lives in big and small ways every single day.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
What if your giving could make an impact today, tomorrow, and forever? The Community Foundation of the Holland/Zeeland Area: • Builds our Community’s Endowment to ensure there will always be philanthropic resources available for future generations to meet the community’s most pressing needs and promising opportunities. • Provides services to donors to help them achieve their charitable goals by making the process of giving easier and more efficient.
For good. For ever.® Our commitment to endowment enables us to be involved in current and future projects to meet changing needs as they arise. People like you have been investing in our region through the Community Foundation since 1951. There is no other local nonprofit that focuses on endowment like the Community Foundation does. We are uniquely positioned to be both proactive and responsive, funding across a broad range of issue areas.
Give where you live We build and energize a community of philanthropists, working to make the Holland/Zeeland area a place people want to call home. Our board of trustees is composed of community members that represent the broad diversity of our region. Their knowledge and local expertise helps us best identify needs and better serve our community.
Our Community’s Endowment Focusing on the present, planning for the future
Together we build our Community’s Endowment to ensure there will always be philanthropic resources available for future generations to meet the community’s most pressing needs and promising opportunities.
We can’t predict the future, but we can prepare for it So many of the solutions our charitable dollars make possible now are the results of gifts made by yesterday’s donors who recognized that today’s needs may not be tomorrow’s. Local community leaders started the Community Foundation to manage and steward those “gifts for the future” in a permanent community endowment. These gifts to the Community Foundation require not only generosity, but also donors’ confidence, trust, and vision for the sake of the future.
Giving together, we can do more Giving is very personal; we all have our favorite causes and charities we are passionate about supporting. At the same time, we feel part of a larger community and want to see it thrive. Since 1951, thousands of people like you, giving gifts ranging from $2 to $2 million, have pooled their resources in our Community’s Endowment. By giving together, they have achieved greater impact today while providing philanthropic possibilities for the next generations.
Growing our Community’s Endowment
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Unrestricted Funds: Our community is sure to change, and we need to be ready. The flexibility of unrestricted gifts allows the Foundation to use the expertise of our staff and widely representative board to make the best possible community investments. Field of Interest Funds: These funds allow donors to identify an area of personal interest, such as human services, the arts, the environment, youth, seniors, economic development, or housing. Within that area of interest, the Foundation will identify the best philanthropic use of the fund’s distributions.
Community Impact Investing in lasting, positive change
The Community’s Endowment is not tied to a single social cause or mission. Rather, it is available to address a broad range of issue areas including arts and culture, community and economic development, environment, education, health, human services, housing, seniors, and youth. We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Since its creation in 1951, the Community’s Endowment has invested more than $8 million into making the Holland/Zeeland area a better place to live, work, and play. Our nonprofit partners play a pivotal role in our ability to transform the funds generated by the Community’s Endowment into community impact. We are committed to building strong relationships with the full range of organizations that make up our local nonprofit sector.
Grantmaking Competitive Grants are our primary grantmaking tool for direct investment of funding from the Community’s Endowment in the project and programs of our nonprofit partners. We work with our nonprofit partners in seasons of growth or change where an extra infusion of resources from the Community’s Endowment can accelerate their impact. Program Related Investments (PRIs) are used when a charitable projects possesses the ability to generate revenue along with creating a social benefit to the community. Once repaid, the money used for a PRI can be recycled into new charitable investments.
Strengthening the Nonprofit Sector Organizations matter – We invest in the capacity of our local nonprofit organizations, individually and collectively, in order to maximize their impact in the community. Leadership matters – We allocate a portion of our funding directly to increasing the leadership capacity of local nonprofit staff and board members.
Serving Donors You have a charitable dream; we can make it a reality
The Community Foundation provides services to donors to help them achieve their charitable goals by making the process of giving easier and more efficient.
We are your philanthropic partners, managing the administrative side of your charitable giving so you can experience the full joy of generosity.
Why partner? • Enable tax savings for you • Benefit those charitable organizations that are close to your heart, whether they are near or far • Make your charitable giving more efficient • Amplify your grantmaking capacity as investment returns grow your fund • Draw on our local experience and knowledge • Provide legacy options for you and your family
Ways to partner • Donor Advised Funds: Donors recommend the nonprofit organizations in which they want to invest, and CFHZ staff do all the work in administering the grants. • Designated Nonprofit Funds: Support a pre-determined nonprofit by providing annual financial support through a professionally managed endowment. • Scholarship Funds: Honor loved ones, inspire scholarship recipients, and invest in the community’s future. • Charitable Estate Management: Have CFHZ distribute the charitable portion of your estate to make things easier on your executor and simpler for nonprofit recipients.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Financial Expertise Our sixty years of experience ensures that your gift is secure. The Community Foundation manages its investments for long-term return and can accept virtually any type of gift for any type of charitable purpose. Common gift types include cash, securities, closely held stock, life insurance policies, real estate, and retirement assets.
Gifts of all Shapes and Sizes You can give virtually any asset
The Community Foundation has the professional expertise to accept even the most complicated asset. This allows you to give your most tax-efficient asset.
Giving comes from the heart, but it makes financial sense to give the most tax-efficient asset whenever possible. The Community Foundation is experienced with accepting non-cash gifts.
You can give: • Cash: Cash is the simplest gift to give. You can combine multiple cash gifts over time to establish a fund at the Community Foundation. • Stocks, Bonds, Mutual Funds: These often provide greater tax benefits than a cash gift of equivalent value, especially if they have a low cost basis. You will receive a charitable deduction for the full fair market value of your property—even if you initially bought it for less. You will also avoid capital gains tax on the asset appreciation. • Closely Held Stock: Receive a deduction for the appraised market value and avoid capital gains tax. • Real Estate: Whether it be a home, cottage, business property, or undeveloped land, we can help you turn this asset into an excellent charitable gift. You receive a deduction for the appraised market value (not the original cost) and avoid paying tax on your capital gain.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
• 401k and IRA Accounts: Avoid the possibility of double taxation, income and estate taxes, by directing retirement assets to the Community Foundation in your estate plan. • Life Insurance Policy: Give a significant future gift to charity and receive tax benefits in the year of the gift. • Planned Gifts: Leave your hard-earned assets to loved ones and your charitable interests. Planned gifts allow you to make significant charitable contributions that may not be possible during your lifetime.
Types of Gifts Q & A From a donor’s perspective, selecting the “right” assets to give is an important consideration. Tax consequences, transaction ease, and timing of the gift can vary by gift type. The following table outlines the current charitable income tax deductions available to individuals for gifts of different kinds of property. Note: Contributions in excess of the percentage limitation may be carried over for charitable deduction purposes in the subsequent five tax years.
Cash Ordinary income property, such as inventory, depreciable property, agricultural projects, oil and gas property, Section 306 stock, original issue discount debt instruments, artwork by its creator and other property, the sale of which at fair market value would yield ordinary income
Cash Value Cost Basis
Percentage of Adjusted Gross Income that can be deducted in one year 50% 50%
Short term capital gain property (held less than 12 months) such as stocks, bonds, and other capital assets, the sale of which at fair market value would yield short term capital gain
Cost Basis
50%
Long term capital gain property (held more than 12 months) such as stocks, bonds, and other capital assets, the sale of which at fair market value would yield long term capital gain
Fair Market Value
30%
Long term appreciated real property
Fair Market Value
30%
Cost Basis
30%
Type of Contribution
Tangible personal property, if the recipient’s use of the property is related to its exempt purpose or function. Unrelated use limits deduction to cost basis but the 50% ceiling applies.
Amount that can be deducted
If your client wishes to make a gift of a specific asset to a nonprofit that is not experienced in accepting that type of asset, please let us know, as we may be able to help facilitate the gift.
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Why is gifting appreciated stock more tax-efficient than cash? With either a gift of cash or securities, the amount available for income tax deduction would be the same—$10,000. If you are in the 39.6% income tax bracket, your net cost of a cash gift would be $6,040. But if you give securities that you purchased for $2,000, you could also avoid the payment of $1,600 in capital gains tax and $304 in Medicare Tax. The net cost of the gift: just $4,136. Current fair market value of gift Cost basis Income tax savings (assuming 39.6% income tax bracket) Capital gains tax avoided (assuming 20% capital gains bracket) Medicare tax on investment income avoided (3.8% tax) Net cost of gift
Cash $10,000 $10,000 $3,960
Appreciated Property $10,000 $2,000 $3,960
$0
$1,600
$0
$304
$6,040
$4,136
What should I know about gifts of closely held stock? Since there is not a public market for closely held stock, please contact us if you are considering making a gift to CFHZ with this type of asset. We will need a contemporaneous valuation of closely held stock exceeding $10,000 for the purposes of preparing IRS Form 8283. CFHZ will also need to conduct an extra layer of due diligence to ensure that we can accept and later sell the stock. If CFHZ sells the stock within two years of its receipt, we must file Form 8282 informing you and the IRS of the sale of the stock. Because the process takes extra time, please begin the gifting process by early December if the gift is to be completed by year’s end.
What should I know about gifts of real estate? Because most real estate is not easily liquidated and because of the significant responsibilities to third parties that can arise from ownership of real estate, we ask that you contact CFHZ if you are considering making a gift of real estate. This will enable us to conduct appropriate environmental, title, and other due diligence. If you are considering a gift to CFHZ of an interest in real estate that you otherwise expect to sell in the near future, please do not agree to a buy-sell agreement before contacting CFHZ and giving the real estate to CFHZ. Doing so can jeopardize your tax deduction and our ability to accept property if due diligence or the terms of the transaction would expose CFHZ to risks it cannot assume. In addition, prior to CFHZ’s acceptance of a gift of real estate, you will be required to provide, at your expense, a signed, written agreement stating the terms of the gift and the value of the gift. As in the case of gifts of closely held stock, CFHZ will advise you if we sell or liquidate within two years of receipt of the gift any real estate that was listed on IRS Form 8283. CFHZ is required to file a report with the IRS on Form 8282 reporting the actual proceeds and other facts about the sale, and you will be provided with a copy of the report as well. 15
“We’d like to give to so many organizations. But since we can’t, we let the Community Foundation do some of it
for us.”
- John and Eileen Nordstrom
Unrestricted Funds and Field of Interest Funds It takes courage to invest in the future
Unrestricted and Field of Interest dollars are the hardest to ask for. And for some donors, they are the hardest to give. But in the long run, they hold the most promise.
This is your gift to the community Unrestricted and Field of Interest Funds combined make up our Community’s Endowment. The Foundation uses these funds to invest in community change across all organizations improving the Holland and Zeeland area. These funds open the possibility that, whatever new challenges or opportunities arise, we’ll have the resources to respond with the best solutions. That’s why they are one of the most important investments you can make in the community that you call home.
Holland/Zeeland is sure to change; we need to be ready No other gift has the vision of an unrestricted donation. Our staff and board possess a broad perspective and knowledge of community issues and will always be here to maintain close connections with the nonprofits seeking to address them. Our expertise allows us to award grants that create the greatest impact for Holland/Zeeland. An Unrestricted Fund enables you to be part of this work and accomplish more than you could on your own.
Personal passion meets professional expertise We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
You identify an area that’s meaningful to you—whether it’s arts and culture, community and economic development, environment, education, health, human services, housing, seniors, or youth. A Field of Interest Fund allows you to give a gift to support that special area of interest while still taking advantage of the foundation’s community expertise as we make annual distributions from the fund.
Unrestricted and Field of Interest Funds Q & A CFHZ’s Unrestricted and Field of Interest Funds are combined to make up our Community’s Endowment. Once established, these funds no longer require donor involvement, but we keep donors updated about the use of their funds.
What are the benefits of an Unrestricted or Field of Interest Fund? Unrestricted and Field of Interest Funds allow your resources to be pooled with other donors’ resources for greater impact. Individually you might not have been able to make a $50,000 investment in a new program or initiative, but by having an Unrestricted or Field of Interest Fund at CFHZ your resources are combined with others to make these larger grants possible. In addition, Unrestricted and Field of Interest Funds allow you to take advantage of CFHZ’s knowledge of local nonprofit programs. CFHZ will often hear about new ideas that individual donors might never become aware of but may be excited to support. CFHZ has close connections with almost all of the nonprofit organizations in the Holland/ Zeeland area, so you can be assured that your fund supports good programs.
What type of individual might these types of funds be right for? These two types of funds are perfect for individuals or companies who want to be generous and want to give back to the community but don’t have the time or the desire to research the best organizations around town. There are so many nonprofit organizations in our community that it can be overwhelming to try and figure the best way to give away your money to achieve the greatest impact. Donors most likely to consider these two funds are those who are willing to give up control and trust that CFHZ will make good decisions about how to distribute resources in the community. Also, individuals who are looking to set up a charitable fund through their estate plan are highly likely to consider these two types of funds because control of the distributions is not a priority or a possibility. They are truly giving for the future, giving for beyond their lifetime. They may have given to specific organizations during their lifetime but instead of including all of the various charities in their estate plan they choose to start an Unrestricted or Field of Interest Fund knowing that CFHZ will continue to support many of their favorite charities for them.
What is the difference between Unrestricted Funds and Field of Interest Funds? A Field of Interest Fund will award grants to projects or programs within a special interest area identified by the donor. Unrestricted Funds award grants across all community issue areas. The options for special interest areas are endless, but often donors will choose a broad category such as arts and culture, community and economic development, environment, education, health, human services, housing, seniors, or youth. Grant decisions are made through our competitive grantmaking process using the expertise of CFHZ, staff and board. Field of Interest Funds provide a more specific focus to where the grants go. 18
What is the minimum size required to start an Unrestricted or Field of Interest Fund?
CFHZ requires a minimum of $10,000 to start an Unrestricted or Field of Interest Fund. This will allow you to have your own named fund. This fund minimum may be built with a multi-year pledge.
May I recommend who should receive grants from my Unrestricted or Field of Interest Fund? No. CFHZ’s Distribution Committee is responsible for making grant decisions on distributions from Unrestricted and Field of Interest Funds. They bring a diverse set of community knowledge to the decision making process and are guided by informed staff. If you would like to be involved in a hands-on way, we would encourage you to start a Donor Advised Fund. Once a fund is established as an Unrestricted or Field of Interest Fund it cannot be converted into a “more restricted” type of fund (i.e. a Donor Advised Fund, Scholarship Fund, or Designated Agency Fund).
Will I receive any information from CFHZ about my fund after it is established? Yes. If you establish a Field of Interest Fund, you will receive information regarding the specific grants that were given from your fund each year as well as annual fund statements indicating the current balance of the fund. If you establish an Unrestricted Fund, you will receive details regarding all of the competitive grants that your fund helps make possible each year in addition to an annual fund statement indicating the current balance of the fund. All of our grant amounts are public information and can be seen in our Annual Report. If you ever have any questions about grants that CFHZ has given, please feel free to give us a call, and we will be happy to hear your thoughts.
What types of projects and programs do Unrestricted and Field of Interest Funds grant to? All of our competitive grants stay in the Holland/Zeeland area. Within our geographic service area, we support nonprofit organizations involved in Arts and Culture, Economic Development, Education, Environmental Preservation, Health, Housing, Human Services, Seniors, and Youth. Since we fund all issue areas, we aren’t able to provide funding to individual organizations every year. Rather, we work with our nonprofit partners in seasons of growth or change where an extra infusion of resources from CFHZ can accelerate their impact.
We look to fund proposals that: a. Are core to the organization’s mission b. Have the potential to create a lasting impact on either the constituents being served or the organization’s ability to do its work effectively c. Represent a turning or pivot point for the organization d. Demonstrate the organization has the capacity needed to successfully implement the proposed project or program as measured by financial stability, leadership capacity, and past record of success 19
“I have found that among its other benefits, giving liberates the soul of the giver.� - Maya Angelou
Donor Advised Funds Giving that grows, legacies that last
With a Donor Advised Fund, you recommend which nonprofit organizations you want to invest in. We do all the work of administering the grants for you.
Making your giving easy You enjoy administrative convenience, cost savings, and tax advantages by giving through a Donor Advised Fund. Each year, you can recommend the nonprofit organizations in which you want to invest, and Community Foundation staff do all the work in administering the grants. A Donor Advised Fund offers the opportunity to create a low-cost, flexible method of charitable giving as an alternative to direct giving or creating a private foundation.
Benefits of setting up your own fund When you establish a Donor Advised Fund with the Community Foundation, you: • Only have to make one gift and keep track of one donation receipt. • May add to your fund at any time, receive an immediate tax deduction, but then distribute funds over longer periods of time. • Have the opportunity to give anonymously, if desired. • Have access to the expertise of the Community Foundation’s professional staff.
Engaging the next generation We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Donor Advised Funds offer the option of allowing your children to participate as advisors during your life or to become advisors after your death. Many people are choosing this option as a way to include the next generation in the family’s philanthropy, passing along the joy and values of charitable giving.
Donor Advised Funds Q & A The purpose of CFHZ’s Donor Advised Funds (DAF) is to create an opportunity for people to organize their charitable giving and give back to the community in an informed and active way. Who can be advisors on the fund I establish? When the fund is established, the donors may choose anyone to be an advisor on the fund. While often the advisors are the donors themselves, some parents establish donor advised funds for each of their kids as a way to engage them in charitable giving. Corporations can establish DAFs and name individuals who are associated with the corporation as advisors to the fund.
What is the minimum size of a Donor Advised Fund? CFHZ requires a minimum gift of $10,000 to establish a DAF. This fund minimum may be built with a multi-year pledge. Going forward, the fund must maintain a permanent minimum balance of $10,000. All assets above the $10,000 minimum balance are eligible to be recommended for distribution. Ordinarily, however, CFHZ recommends giving no more than 4% of the average daily balance of the fund from the most recent 12 quarters (3 years) if the donor wants the fund to be permanent and act as an endowment.
What kind of organizations may I recommend grants to? You may recommend grants to nonprofit organizations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code (most well-known nonprofit organizations have this status) such as schools, municipalities, religious organizations, and other tax exempt organizations that serve a charitable purpose. If you are not sure of the status of an organization, give us a call and we can quickly determine if an organization is recognized under Section 501(c)(3).
How do I suggest a grant from a Donor Advised Fund? We provide a grant suggestion form, and you provide the grant details. Grants may be suggested at any time. Individual grant recommendations of $100 or more are strongly preferred. Once you make your recommendation, CFHZ Board and staff conduct due-diligence on the nonprofit organization and approve your request. 22
How can I use my fund? • May I recommend grants to organizations outside of the Holland and Zeeland area? Yes. We will verify that the organization has qualified as a charitable organization under Section 501(c)(3) of the Tax Code, including obtaining a copy of the organization’s letter from the IRS recognizing their tax exempt status. CFHZ can make limited international grants if the nonprofit organization operates under the umbrella of a recognized U.S. charitable organization. • May I recommend a multi-year grant from my Fund? Yes, at the time of your recommendation please indicate that the distribution is to be made in increments. We will administer the distribution and payment schedule. We require that you maintain a minimum balance in your fund equal to any remaining balance of your multi-year recommendation. • Can CFHZ automate my recurring charitable gifts? Absolutely. Do you routinely make monthly gifts to your church or do you make quarterly or annual gifts to your favorite nonprofit organizations? CFHZ can set up your donor advised fund to automate such charitable gifts according to the schedule and amounts you specify. You may instruct us at any time to change or discontinue an existing scheduled gift; you may also choose to add new ones. • May I serve on the board of an organization and recommend a grant to it from the Donor Advised Fund? Yes, as long as you receive no personal benefit from the grant. • May the Fund make an anonymous contribution to a grant organization? Absolutely. One of the benefits of a DAF as compared to a Private Foundation is the ability to make anonymous grants. Just let us know that you desire anonymity, and we will ensure that your wishes are followed.
Are there any restrictions? Donors are subject to only a few restrictions when recommending grants. One of the most important restrictions is that the DAF cannot make a gift that fulfills a personal commitment or charitable pledge by the donor. Therefore, if you anticipate supporting an organization through a DAF, whether it is a one time gift or a multi-year commitment, it is important that the donor does not sign a pledge card or make any other binding commitment to the organization. Grants from DAFs also may not be used to pay memberships or dues; nor can they be used for grants, loans, compensation or similar payments (including expense reimbursement) to donors, advisors, or donor related parties of an advised fund. A grant may not be given to an individual. The IRS requires distributions be made to qualifying public charities and governmental organizations. CFHZ staff verifies all organizations for documentation of eligible status. Another important restriction is that grants may only be made in a circumstance where the gift is 100% charitable. In other words, no personal benefit may be derived from the gift for the donor, advisors or any related parties. For example, grants cannot be used to purchase tickets for, or to sponsor, an event where the value of a meal, entertainment or a premium is included in the cost of the ticket or sponsorship. 23
How is the grantee notified? When the Foundation makes a grant from a DAF, we send the check with a letter to the recipient charitable organization indicating which Fund made the grant.
What fees are charged to my Donor Advised Fund? Each Fund held by CFHZ is charged an administrative fee to help cover the operational costs of CFHZ. The administrative fee is set by CFHZ’s current fee schedule. As of 2015, the fee for a DAF is 1% annually. Administrative fees are assessed quarterly, based on the market value of the fund.
Will I receive an accounting of my Fund’s activities? Yes, you will receive a quarterly fund statement. You may also call the CFHZ office at any time for a current balance. In addition to accounting activity, CFHZ maintains records of the organizations your fund has supported in the past and corresponding amounts.
How is pairing a Donor Advised Fund with gifts of appreciated stock a smart giving option? Though some people know about the financial advantage of giving appreciated assets, they don’t always choose to make such a gift. Often, they find it cumbersome to divvy stock shares to a variety of charitable organizations, so they default to writing checks. This is where a Donor Advised Fund at CFHZ can help. We manage donor advised funds which makes giving appreciated assets really easy for donors. Donors make one gift of appreciated assets into their Donor Advised Fund, and then recommend distributions from their fund to their favorite charities. Since CFHZ is a certified 501(c)(3) nonprofit organization, donors receive the full charitable deduction and avoid capital gains taxes at the time of the gifts. The donors’ recommended charities then receive a check, which is easiest for them to process. And since the donors were able to “give smarter,” they are able to increase their charitable giving. If your client is one of the 95% of people who will make a charitable gift this year and they own appreciated assets, they should strongly consider giving smarter. Giving smarter really does allow donors to give more. 24
Donor Advised Funds Q & A How is my Donor Advised Fund invested? The Board of Trustees has the ultimate responsibility for CFHZ’s investment portfolio. The Board has delegated that responsibility to CFHZ’s Investment Committee for implementing and monitoring CFHZ’s investment policy. The Investment Committee meets bimonthly and is comprised of local business and financial leaders in our community. The Investment Committee selects custodians and financial advisors to manage CFHZ’s investment portfolio. A complete investment profile is available upon request. If a Donor Advised Fund is established with one million dollars or more, we allow the advisor to recommend a custom investment strategy with a specific investment advisor. If you have a client who is considering this option, please contact CFHZ. CFHZ is audited annually, and its report as well as the Form 990 or 990-T is available upon request or on our website as a PDF file.
What happens to my Donor Advised Fund upon my/our death(s)? Typically, we make provision for this at the time you initiate your Donor Advised Fund and include it in the Donor Advised Fund agreement. Some donor advisors name a child(ren) as a successor advisor(s), thus enabling the next generation to recommend grants from the fund. CFHZ’s policy allows for one generation of successor advisors. But we also offer four other options. When the last of the advisors is no longer living, the remaining balance in a Donor Advised Fund (less the $10,000 minimum balance) may be used for one or more of these purposes: 1. Creates an unrestricted fund in your name, with the balance pooled with others’ gifts in CFHZ’s Community’s Endowment and used at CFHZ’s discretion for significant, vetted grants to nonprofits that benefit the Holland/Zeeland community. 2. Creates a field of interest fund at CFHZ named for you, with interest from the fund directed to those local nonprofits that focus on the area(s)/need(s) you name. 3. Goes to create an endowment fund at CFHZ for a specific nonprofit to which you feel a strong affinity. Or, if the nonprofit(s) already has an endowment fund with CFHZ, the balance is credited to that pre-existing fund. 4. Is bestowed on a percentage basis to the nonprofit(s) you have pre-designated via a designation form CFHZ provides you. We can release funds to those nonprofit(s) in a lump sum or over a pre-specified number of years. The CFHZ board may consider an exception to the “one successor generation only” limitation provided: 1. The fund is endowed with $250,000 or greater; 2. Each successor generation will have only one named advisor; 3. All grants from the fund will support charitable projects within CFHZ’s service area; and 4. Any other requirements as determined by the CFHZ board. 25
Donor Advised Funds Q & A What is the difference between a DAF at the Community Foundation and a DAF at a Commercial Gift Fund (Fidelity Charitable, Schwab Charitable, etc.)? There are several important differences between a Donor Advised Fund (DAF) at CFHZ and a Commercial Gift Fund. These differences include the level of grantmaking support, investment options, fees, and the ability of the donor to leave a local legacy. Grantmaking support, local expertise The Community Foundation has professional staff available to help you identify and assess local grantees and provide input on current local community needs. A DAF at CFHZ also allows you to co-invest in philanthropic projects with other DAFs and CFHZ’s competitive grantmaking program. Commercial Gift Funds are not familiar with our community and are unable to assist with due diligence involving local grantees. In addition, the Commercial Gift Funds are not aware of local organizations that might be engaging in initiatives or projects that would be of interest or appropriate to your Donor Advised Fund. As a result, you and your Donor Advised Fund may miss out on important opportunities to fund local initiatives or projects. Investment options DAF assets less than $1 million at CFHZ are pooled with our 475 funds and invested together using a wide variety of investment strategies approved by our Investment Committee. Commercial Gift Funds often allow donors to pick from only a few different investment strategies. Fees CFHZ charges a 1% administrative fee for assets in DAFs commensurate with the level of service and community intelligence CFHZ provides, while the Commercial Gift Fund fees tend to be a little lower (around 0.75%). Local Legacy One of the main reasons individuals start a DAF at CFHZ instead of with a Commercial Gift Fund is to leave a legacy gift to the Holland/Zeeland area. The assets remaining in a CFHZ DAF when the final advisor passes away are converted into a permanent fund here at CFHZ. This enables the donor’s generosity to continue to benefit the local community after the final advisor’s death. After the final advisor’s death, a DAF at a Commercial Gift Fund is under the control of an organization and staff far removed from our local community, making it very unlikely that the funds will become a legacy gift for our community.
What is the difference between a Donor Advised Fund and a Private Foundation? Donor Advised Funds provide an excellent alternative to creating a private foundation. Because of the costs and complexities of forming and administering Private Foundations, they are typically recommended only when philanthropic assets will be $5 million, and work best when the funds are much larger. Even when a Private Foundation will be funded with gifts in excess of $5 million, a Donor Advised Fund can provide significant advantages over a Private Foundation. The chart to the right describes the main differences between a DAF and a Private Foundation. 26
Donor-Advised Funds
Private Foundations
Start-Up Time: Start-Up Costs:
Immediate None
On-going Administrative and Management Fees: Excise Taxes:
100 basis points (1%) plus investment management fees None
Tax deduction limits for gifts of cash: Tax deduction limits for gifts of stock or real property: Valuation of gifts:
50% of adjusted gross income
Can take several weeks or months Legal (and other) fees are typically several thousand dollars Can be in the range of 250-400 basis points (2.5% to 4% per year) 1% to 2% of net investment income annually 30% of adjusted gross income
30% of adjusted gross income
20% of adjusted gross income
Fair market value
Fair market value for publicly traded stock, cost basis for all other gifts, including gifts of closely-held stocks or real property Required Grant Distribution: None Must expend 5% of net asset value annually, regardless of how much the assets earn Grantmaking Support: Professional staff is available to Donors must arrange and support help identify and assess grantees, their own grantmaking and provide input on community needs, monitoring structure and verify nonprofit status of groups Donor Involvement: Donor recommends grants to Donor appoints boards which verified nonprofit groups. CFHZ’s controls investments and Board of Trustees approves grants grantmaking and controls investment of assets Privacy: Names of individual donors can Must file detailed and public tax be kept confidential if desired, and returns on grants, investment fees, grants can be made anonymously trustee names, staff salaries, etc. Administrative Responsibilities: Recommend grants to favorite Manage assets, keep records, charitable causes select charities, administer grants, file state and federal tax returns, maintain board minutes, etc. Preservation of Purpose: CFHZ protects the establishing Next generation board members donor’s purpose and prevents have full legal control to change future generations from changing goals and objectives of the private the fund’s goals or objectives foundation 27
“Giving frees us from the familiar territory of our own needs by opening our minds to the unexplained worlds occupied by the needs of others.� - Barbara Bush
Designated Nonprofit Funds Dollars that meet the present and future needs of a charity
The Community Foundation is an expert in managing charitable endowments. Nonprofits are experts in managing their causes. A Designated Nonprofit Fund combines an organization’s mission with a donor’s endowment for lasting impact.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Sustainability matters Designated Nonprofit Funds are created for the benefit of a select organization by providing ongoing support. The donor specifies how endowed funds are to be used, and the Community Foundation provides ongoing stewardship and oversight to ensure the donor’s intentions are fulfilled.
Support your cause forever You already faithfully support organizations you care about. A nonprofit fund allows you to continue to support its mission in your name forever. If the nonprofit you select ceases to exist or cannot fulfill its mission, the Community Foundation will redirect the fund so it continues to address your original charitable intent.
Join nonprofits in planning for the future Many local nonprofits have established endowment funds at the Community Foundation as a simple, efficient way to develop sustainability for their organization. We handle investment management and administrative responsibilities related to the endowment. The organization’s staff and volunteer hours may then concentrate on fulfilling their mission. You may give to any of these nonprofit endowment funds. Your gift will benefit the organization in perpetuity. We can facilitate even the most complex planned gifts as well as gifts of appreciated stock or real estate.
Designated Nonprofit Funds Q & A Designated Nonprofit Funds at CFHZ create opportunities for donors to sustain local charitable organizations by creating a professionally managed endowment at CFHZ in support of the organization’s long-term objectives and programs. A perpetual source of financial stability is offered in the form of yearly revenue grants from the income earned on the endowment. CFHZ provides professional investment management and administration services, allowing the nonprofit organization to focus on their mission. What is the minimum size of a Designated Agency Fund? CFHZ requires a minimum of $10,000 to start a Designated Agency Fund. This fund minimum may be built over a multi-year pledge.
How much will the designated charity receive annually? The annual spending policy is calculated each year based on 4% of the average daily balance of the fund from the most recent 12 quarters (3 years). CFHZ determines the upcoming year’s spending amounts following the end of the third quarter in the previous year (September 30). We notify agencies in the new year of the amount available for that year. The nonprofit may receive the spending amount available for distribution, request the spending amount be carried over as non-endowed funds for distribution in a future year, or add the spending amount to the permanent principal endowment fund balance for long-term investment and growth of the endowment.
Will the designated charity ever be able to access all the assets in the fund? No, unless you want them to. Establishing a Designated Agency Fund directly with CFHZ means that your gifts are held by CFHZ in an endowment for long-term investment outside the control of the agency. This gives you the comfort of knowing that your gift will always meet the charitable purpose you intended. If you wish to have a Designated Agency Fund “spend down” over a certain length of time, we are happy to distribute the funds over your specified period of time.
Can I designate a specific program within a charitable organization to receive funding? Yes. If there is a specific aspect of the organization’s work that you want to support, you can provide for the fund to do so at the time the fund is established. We will make sure that all future distributions go to support that specific program. 30
Can I change the charity benefiting from my Designated Agency Fund after it has been established? No. Once the fund is established to benefit a specific charity, the proceeds must always benefit that charity unless the Board of Trustees of CFHZ determines that the charity’s activities are no longer consistent with the charitable purposes the original donor intended to support.
“A Nonprofit Fund allows you to continue to support its mission in your name forever.” What happens if the designated charity ceases to exist? If the charity designated as the recipient of your fund ceases operations, CFHZ’s Board of Trustees will identify a different charity to receive future distributions whose mission is as closely related as possible to the original organization.
How is the fund invested? The Board of Trustees has the ultimate responsibility for CFHZ’s investment portfolio. The Board has delegated that responsibility to CFHZ’s Investment Committee for implementing and ongoing monitoring of CFHZ’s investment policy. The Investment Committee meets bimonthly and is comprised of local business and financial leaders in our community. The Investment Committee selects custodians and financial advisors to manage CFHZ’s investment portfolio. A complete investment profile is available upon request. CFHZ is audited annually, and its report as well as the Form 990 or 990-T are available upon request or on our website as PDF files.
What fees are charged to my fund? Each fund held by CFHZ is charged an administrative fee to help cover the operational costs of CFHZ. The administrative fee is set by CFHZ’s current fee schedule. As of 2015, the fee for Designated Agency Funds ranges from 0.75 – 1% annually, depending on the size of the fund. Administrative fees are assessed quarterly, based on the market value of the fund.
Will I receive an accounting of my fund’s activities? Yes, you and the designated agency benefitting from the fund will receive quarterly financial reports for the fund. In addition, you may call CFHZ office at any time for a current balance. In addition to accounting activity, CFHZ maintains records of past grants distributed from the fund and gifts received into the fund.
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“I was having a problem deciding where to donate money to, and the Community Foundation was the
best place that I found that I could donate money and not have to do all the research myself.� - Art Tolsma
Scholarship Funds Simply offer the gift of education
Scholarship Funds are established to honor loved ones, inspire young people, and invest in our community’s future.
Students need you Higher education has long been seen as one of the surest paths to increased opportunity. Unfortunately, many people who could benefit the most from a college education are the least able to afford it. In setting up a Scholarship Fund, not only do you show local students you believe in them, but you can create a lasting legacy in your name or the name of a loved one.
You know the type of students you want to help Whether it’s academic success, financial need, community involvement, or area of study, your gift can help fulfill the educational dreams for the type of students you want to support. When you start a Scholarship Fund with us: • You establish the selection criteria when you set up the fund. • Scholarships can be awarded to graduating high school seniors, current college students, graduate students, and/or non-traditional students. • Recipients live in the Foundation’s geographic service area of Holland and Zeeland.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
We can help you find those students The Community Foundation handles all administrative details of awarding scholarships, from promoting their availability and processing applications to selecting deserving students and writing the checks. You may participate in the scholarship selection process if you wish, or simply sit back and watch the impact of your gift.
Scholarship Funds Q & A The purpose of CFHZ’s Scholarships is to create an opportunity for people to provide educational opportunities to deserving local students. Why partner with CFHZ to establish a scholarship fund? As of 2015, CFHZ manages over 75 scholarships and offers professional assistance in the following areas: 1. Guidance in planning the scholarship. Our staff can help you clarify your goals for the scholarship. 2. Promotion of availability of scholarship in coordination with area high schools to ensure quality applicants. 3. Sophisticated investment management allows your endowed fund to live on forever. 4. Coordination of the administrative aspects of the selection/award process. 5. Ongoing evaluations of the scholarship process to ensure your charitable goals are being met.
How are recipients selected? Applications are submitted to CFHZ through an online application. The applications are provided to CFHZ’s Scholarship Selection Committee, which is comprised of members of our Board of Trustees and community members. The Scholarship Selection Committee reviews the applications based on the scholarship criteria you have established. The more specific you can be regarding the type of student you want to support the easier it is for the Scholarship Selection Committee to make sure your goals are being met. Many donors consider the following criteria as possible priorities for their scholarship: • Academics (including minimum GPA requirements) • Leadership • Organizational or activity involvement, including service to the community • Financial need • Specific fields of study • First generation college student
What type of awards can my scholarship give? At the time your fund is established, you can choose to give one-time awards or multi-year renewable awards. If you choose to give renewable awards, you also establish the renewal criteria. You have the choice as to whether your scholarship should be offered to graduating seniors, current college students, non-traditional students, or all of the above. 34
May I serve on the Scholarship Selection Committee? Yes. We allow you to designate 2-3 representatives to join our Scholarship Selection Committee to assist in the review process for your scholarship.
May I suggest that a student apply for my scholarship? Yes, you may encourage any student to apply for your scholarship; however, it is important for you (and the student) to remember that he/she will be one applicant among many, and that there are no guarantees that the committee will select him/her.
How is the recipient notified? Once the Board of Trustees of CFHZ considers and votes on awards recommended by the Scholarship Selection Committee, we notify the recipient. The award notice includes the name of the specific fund that provided the scholarship. Recipients are recognized at school honor ceremonies, with many of the awards being presented by our staff.
Am I able to meet the scholarship recipients? Yes. CFHZ hosts an annual evening social event where scholarship donors get the opportunity to meet the students their scholarship is supporting.
What happens if a scholarship recipient does not end up going to college? A memorandum sent to the college explains CFHZ’s policies and requests that the school notify us if the student does not register or withdraws from school. When this happens, institutions typically issue a refund check to CFHZ. Returned monies are credited back to your Scholarship Fund.
Is there anything I can’t do with my Scholarship Fund? Yes. The IRS has one clear restriction regarding Scholarship Funds. You are not allowed to choose the individual recipient. You and your family may comprise a minority of the selection committee, but your tax deduction and our nonprofit status could be jeopardized if you, as the donor, control the selection process. 35
Can a company establish a Scholarship Fund to benefit its employees? Yes. CFHZ is happy to help a company set up this type of scholarship. The IRS has specific rules for “Employer-Related Scholarship Funds� so please contact CFHZ directly for more details on this type of fund.
How do I add to my Scholarship Fund? You may make a tax-deductible contribution to your Scholarship Fund at any time. In many cases, significant tax benefits can be realized through gifts of appreciated stock or real estate. Once your Scholarship Fund has been established, it is also simple to add to it by bequest. Simply name your fund as one of the beneficiaries of your will or trust. Or you may create a new fund(s) bearing your family name or in honor of a relative or friend to serve as a memorial to them. Grants will be made in the name of these fund(s) in perpetuity.
What is the minimum size of an endowed Scholarship Fund? An endowed scholarship needs to have a balance of $15,000 in order to sustain a minimum annual $500 award. A balance of $25,000 will sustain a $1,000 award. The fund minimum may be built with a multiyear pledge.
Are all Scholarship Funds endowed? While most Scholarship Funds at CFHZ are endowed, we allow donors to set up non-endowed scholarships. Non-endowed scholarships receive a higher administrative fee but otherwise operate identically to endowed scholarships.
How is the amount of the award determined if I have an endowed Scholarship Fund, and how many awards can be given from my fund? Each year, a calculation is made based on the average fund balance over the past 12 quarters. Four percent of that average balance is available for scholarship awards. We request a minimum award amount of $500. If the spending policy is $1,000 or more, the donor may recommend whether they want to increase the size of the award or distribute multiple awards. If a fund is to award scholarships to more than five recipients per year, there is an additional administrative fee that applies. 36
Scholarship Funds Q & A How is the Scholarship Fund invested? The Board of Trustees has the ultimate responsibility for CFHZ’s investment portfolio. The Board has delegated that responsibility to CFHZ’s Investment Committee for implementing and ongoing monitoring. The Investment Committee meets bimonthly and is comprised of local business and financial leaders in our community. The Investment Committee selects custodians and financial advisors to manage CFHZ’s investment portfolio. A complete investment profile is available upon request. CFHZ is audited annually, and its report as well as the Form 990 or 990-T are available upon request or on our website as PDF files.
Will I receive an annual accounting of the fund’s activities? Yes, you will receive a quarterly fund statement. If the fund is endowed, the amount available for annual spending will appear in a letter in February.
What fees are charged to the Scholarship Fund? Each Scholarship Fund is charged an administrative fee to help cover the costs of administering the scholarship program and the overhead and operating costs of CFHZ. The administrative fee is set by CFHZ’s current fee schedule. As of 2015, the fee for a Scholarship Fund ranges from 1 – 2.5% depending on whether the fund is endowed or non-endowed and the nature of the awards. There is a $250 minimum annual fee for endowed scholarship funds and a $500 minimum annual fee for non-endowed scholarship funds. Administrative fees are assessed quarterly, based on the market value of the fund.
“Not only does the recipient receive financial
assistance, but equally important is the support and encouragement that the scholarship represents.”
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“Philanthropy is not just the rich man’s responsibility…it’s all of ours.” - Grace Piersma
Planned Giving Some giving requires advanced planning
Leave your hardearned resources to loved ones, your charitable interests, and your community. Consider adding an additional “child” to your estate plan, a “child called charity.”
Give more than you ever thought possible Many people like to include a charitable gift in their wills or trusts. When you combine your overall financial and estate planning with such planned gifts, you can minimize your tax burden, provide for your family, honor loved ones, preserve your family name, and reinforce your personal values. Furthermore, you can make significant charitable contributions to your favorite causes— gifts that may not be possible in your current financial position. Sometimes you can also receive income during your life in exchange for a charitable gift.
Do you want to: • Avoid tax on retirement plan assets? Name CFHZ a beneficiary of this most heavily taxed asset and leave other assets to family. • Give charitably from your estate while providing adequately for your family? Let us introduce you to the concept of “child called charity.” • Defer a gift until you know you will not need the resources? Consider a bequest in your will or trust. • Supplement income for life and make a charitable gift at the same time? Establish a charitable gift annuity or a charitable remainder trust. • Reduce gift and estate tax when passing assets on to family? Consider a charitable lead trust. • Make a significant gift at little cost to you? Name CFHZ a beneficiary of an existing life insurance policy.
Distributing your estate’s charitable gifts We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
CFHZ offers you flexible options to make distributing the charitable portion of your estate simple for your estate executor and easy for nonprofit recipients. You choose your favorite nonprofits, including local, national, or religious organizations, and specify how much you want each organization to receive. We distribute the charitable gifts on your behalf, either in a lump sum or in annual distributions over a period of years determined by you. Partnering with us saves you money now and time later when giving through your estate plan.
Bridge Builder Society Everyone can leave a legacy
More than 100 individuals and couples have made a commitment to support the future of our community through an estate gift to the Community Foundation of the Holland/Zeeland Area.
What is the Bridge Builder Society? The Bridge Builder Society recognizes individuals and couples who have named the Community Foundation as the beneficiary of any type of planned or deferred gift. Planned gifts to any fund at CFHZ qualify for Bridge Builder Society membership. The purpose is to acknowledge and thank those who have made these gifts and to encourage and inspire others to do the same.
Who is joining the Bridge Builder Society? Members of the Bridge Builder Society have a few things in common. They have worked hard, saved wisely, and invested well. They understand the power of endowment and know that the assets they leave to the community will continue to grow, supporting good work for generations to come. Most importantly, they love Holland/Zeeland and want to see it thrive forever.
How do I join the Bridge Builder Society? First, arrange for a planned gift to the Community Foundation. Second, inform the Foundation that you have created a planned gift. We encourage you to discuss the intent of your gift with us to ensure we best comply with your wishes. Many of our Bridge Builder members provide for an estate gift in their wills or trusts. Others find it highly effective to name CFHZ as the beneficiary of 401k or IRA funds or to gift life insurance policies. You may also establish a planned gift that returns income to you during life.
We’re ready to help you: Call: (616) 396-6590 Email: info@cfhz.org Website: cfhz.org
Thank You! We consider planned gifts to be a demonstration of the highest level of trust in the Community Foundation due to their importance in your life and the meaningful impact they make on the community. Because Bridge Builders are such close friends of the Foundation, we offer them exclusive invitations to events and special gatherings. Together we can continue building this community we call home.
Adopt a Child Named Charity
Think of a married couple with three children, each of whom might typically receive a third of their parents’ estate.
Estate Division You’ve worked hard and now live comfortably. You’ve worked to pass on important values to your children— faithfulness, commitment, generosity, concern for others, and a strong work ethic. Now, from your comfortable place in life, you’d like what you value most to outlive you. As you think about your estate, you might wonder: • How can I give meaningfully to the community I so appreciate while providing appropriately for my family? • How do I witness to and convey those values and commitments I’ve had in life? A good solution may be to adopt a “child named Charity” to add to your estate plan.
Adopting Charity
Child 1
Child 1
Child 2
Child 2
Child 3
Child 3 Child Named Charity
By adopting Charity, each of the three children instead receive 25% of the estate, with the final 25% reserved for charitable gifts to the donors’ favorite nonprofits, i.e. Charity’s portion. The parents demonstrate their values while providing for their children at an appropriate level. The Community Foundation will manage Charity for your estate: distributing funds to nonprofits per your instructions or using funds in perpetuity for community projects.
“A very rich person should leave his kids enough to do anything, but not enough to do nothing.” - Warren Buffett
Distributing Your Charitable Gifts
At the Community Foundation of the Holland/Zeeland Area, we help you carry out your charitable goals, even when you’re no longer here. Carrying Out Your Charitable Giving
Benefits of working with CFHZ:
We can disburse your estate’s charitable gifts in a lump sum to any number of nonprofit organizations. You may also perpetuate your yearly giving after you’re gone with annual distributions to your favorite charities, payable over a number of years.
• Change your charitable distributions as often as needed without returning to your attorney to rewrite or amend your will or trust. Simply submit a new form to the Community Foundation reflecting your current directives.
Either way, it’s a simple two-step process with distinct benefits for you, the executor of your estate, and your recipient nonprofits.
• Make charitable distribution from your estate easier for your executor. One check from your estate, payable to the Community Foundation, triggers your predetermined charitable plan.
Two simple steps: 1. Designate the Community Foundation as the recipient of your estate’s charitable funds. 2. Using a form we provide, specify your recipient nonprofits and the time frame in which you’d like us to disburse funds to each.
• Wary of giving a windfall to specified nonprofits? Instruct us to release funds to them over a number of years. • Should one of your specified nonprofits cease to exist, we follow your predetermined directions to apply that allocation elsewhere. • We honor your gifts to any 501(c)(3) nonprofit in good standing, including non-local and religious organizations.
Planned Giving Q & A A fund at the Community Foundation of the Holland/Zeeland Area is a qualified recipient of any type of deferred giving plan. How can my client provide for their children and charity in their estate plan? One of the difficult considerations for many charitably inclined individuals when engaging in estate planning is the question: “How much do I give to my family and how much do I give to charity?” For many parents, their primary wish is to ensure their children share their assets and possessions at their passing, but oftentimes they want to balance that with a desire to support charities they have given to for much of their lives. These individuals should consider using the “child called Charity” concept. The theory is that if your client has 3 children, instead of dividing the estate in thirds and leaving one third to each child, your client adds a fourth “child” and divides the assets in quarters, leaving 25% of the estate to each child. The fourth child is named “Charity.” Their estate would be divided between the number of their children…plus one. It’s as though they’ve added one child to their family, but that child is a single charity or a list of charities. Another iteration of the same concept is “child called Community.” By naming CFHZ as an additional “child” in your client’s estate plans, it is as if your client is adopting our community as an heir of their hard-earned assets.
I don’t currently make significant charitable contributions, why would I give through my estate? For many people, there are two reasons they don’t make significant contributions to charities during life. The first is that they are worried about having sufficient financial resources for end of life care. The second is that they have not connected with any one charity’s mission in a deep and meaningful way or they can’t choose which specific charity to support. If you are in the above situation you may find a charitable bequest to CFHZ to be the perfect gift. Since the gift is paid after your death through your estate, you will never be put in a place where you “might want that money back.” The gift will only happen if you do indeed have enough resources to satisfy your end of life needs. Also, a gift to CFHZ avoids the need to decide with which specific charity you connect to most. A gift to CFHZ is a gift to the Holland/Zeeland community in general. Most people have a special affinity for the place where they live. The community gave them many memories and contributed to their ability to be successful. A charitable bequest to CFHZ is the best way to ensure that future generations living in the Holland/Zeeland area will enjoy the same quality of life you have benefited from.
Can I establish a Donor Advised Fund through my estate? Yes. It is common for parents to establish a Donor Advised Fund through their trust and name their children as advisors. This is a great way to help pass along their values to the next generation. 43
What are the different methods for making a charitable bequest in my will? Specific Bequest – With a specific bequest, you designate CFHZ to receive a specific dollar amount or specific property. I give to the Community Foundation of the Holland/Zeeland Area, a Michigan nonprofit corporation of Holland, Michigan, (dollar amount or specific property), to be held, administered, and used by that organization for grants, programs, and support in the areas of greatest need and opportunity. I request, but do not require, that this gift be used to establish a fund to be known as the (Name your Fund) _______________ Fund. Residuary Bequest – A residuary bequest is used to give CFHZ all (or a percentage) of your property, after all debts, taxes, expenditure, and all other bequests have been paid. I give to the Community Foundation of the Holland/Zeeland Area, a Michigan nonprofit corporation of Holland, Michigan, (all of or percent of) the residue of my estate, to be held, administered, and used by that organization for grants, programs, and support in the areas of greatest need and opportunity. I request, but do not require, that this gift be used to establish a fund to be known as the (Name your Fund) _______________ Fund. Contingent Bequest – In the event of an unexpected occurrence, (e.g. your heirs predecease you) a contingent bequest will ensure that property will pass to CFHZ rather than unintended beneficiaries. If, at any time, there is no one to take under the other provision of this will, I give the assets to the Community Foundation of the Holland/Zeeland Area, a Michigan nonprofit corporation of Holland, Michigan, to be held, administered, and used by that organization for grants, programs, and support in the areas of greatest need and opportunity. I request, but do not require, that this gift be used to establish a fund to be known as the (Name your Fund) _______________ Fund.
What if I would like to restrict the use of my bequest? You may prefer to restrict your bequest for a specific purpose. For example, if you wish to honor a family member, special friend, or colleague, you can establish a legacy fund that will provide support for a program in which you (or the honoree) are particularly interested. A restricted bequest should be made in the broadest terms that are consistent with your purpose to guard against the possibility of your gift becoming impractical or obsolete. We are happy to work with you and your attorney to help you achieve your charitable goals through a restricted bequest. Please contact CFHZ to discuss your specific goals to ensure we can deliver on your request.
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Planned Giving Q & A Why should I include a charitable bequest in my will or trust? A charitable bequest enables you to make a much larger and more significant contribution than may have been possible during your lifetime. In doing so, you leave a legacy to your community, while enjoying the assets you need to maintain your current lifestyle. Leaving a charitable bequest also reduces the size of your taxable estate, which may reduce your estate tax liability. In our ever-more mobile society, your children may not share the same affinity for the Holland/Zeeland area that you do. If you leave your entire estate to your heirs, it may be less likely that your hard-earned assets will benefit the community you love and cherish. A charitable bequest to CFHZ is a gift back to our local community, and by creating a named fund, you can ensure that your family’s legacy will always contribute to the quality of life we all have enjoyed.
Do I have to tell CFHZ (or any other charity) if I have included them in my estate? No, but we appreciate knowing. You are not obligated to notify any charity that they are included in your estate plans. However, if your bequest has any restrictions we would like to know so that we can fully understand your goals and objectives and to ensure we fully carry out your gift intentions. In some cases, we may be able to offer suggestions for describing your restrictions that will help us carry out your wishes. In rare instances, involving us early will identify situations in which we are unable to receive your gift in the form you might have otherwise described and will permit you to change the restrictions or to identify a more suitable recipient able to carry out your wishes. CFHZ maintains a Bridge Builder Society, which serves as a way to recognize those that have notified CFHZ that we are included in your estate plans. The Bridge Builder Society is also a way for us to encourage others to consider a similar type of gift to benefit the community. If you have included CFHZ in your estate plans, please consider allowing us to list you as a member of this group.
What assets are the best assets to leave to charity? Some of the most tax-efficient assets to give through your estate plan come from retirement plan accounts because family members would pay taxes on the proceeds, which are treated as income in respect of the decedent (IRD). Series EE and Series HH savings bonds are also very attractive sources for charitable bequests because so much of their value is attributable to untaxed interest income, which makes them IRD assets as well. Because charitable bequests of IRD assets can provide both estate tax and income tax charitable deductions, an IRD asset often is the preferred asset to bequeath to charity.
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Planned Giving Q & A Can I make charitable bequests to other nonprofit organizations through CFHZ? Yes. We can disburse your estate’s charitable gifts in a lump sum to any number of nonprofit organizations. You may also perpetuate your yearly giving after you’re gone with annual distributions to your favorite charities, payable over a number of years. Either way, it’s a simple two-step process with distinct benefits for you, the executor of your estate, and your recipient nonprofits. Two simple steps: 1. Designate CFHZ as the recipient of your estate’s charitable funds. 2. Using a form we provide, specify your recipient nonprofits and the time frame in which you’d like us to disburse funds to each. Benefits of working with CFHZ include: • Change your charitable distributions as often as needed without returning to your attorney to rewrite or amend your will or trust. Simply submit a new form to CFHZ reflecting your current directives. • Make charitable distribution from your estate easier for your executor. One check from your estate, payable to CFHZ, triggers your predetermined charitable plan. • Wary of giving a windfall to specified nonprofits? Instruct us to release funds to them over a number of years. • Should one of your specified nonprofits cease to exist, we follow your predetermined directions to apply that allocation elsewhere. • We honor your gifts to any 501(c)(3) nonprofit in good standing, including non-local and religious organizations.
Life Insurance Can I use life insurance to build up the fund I create at CFHZ? Yes. Many people find in later years that they don’t need all the insurance they required when they were younger. They donate the policies to the fund they established at CFHZ. If a policy is fully paid up, the tax deduction is either the replacement value or the donor’s cost, whichever is less. If a policy is not paid up, and the donor decides to continue paying the premiums, those amounts become deductible as charitable contributions. In either case, the donor gets an immediate tax deduction and substantial estate tax savings later.
How does it work? You need to make CFHZ the owner and irrevocable beneficiary of the life insurance policy. You can either give a paid-up policy or continue to pay the premiums. Upon your death, the policy pays out into your already existing fund or establishes a new fund per your wishes. 46
Charitable Remainder Trust A Charitable Remainder Trust (CRT) is one of the most flexible and tax advantaged ways to give to charity. With a Charitable Remainder Trust, you create a trust and donate an asset to the trust, while retaining the right to receive payments for life or a fixed number of years. The assets remaining at the end of your life, or the fixed number of years, transfer to the charity. Because the CRT is considered a charitable entity for tax purposes, the CRT can sell appreciated property without paying capital gains taxes, and the full amount of the gift will be available to support the payments to you and for the charitable recipient. How much income can I expect to receive from a Charitable Remainder Trust? Payments from a CRT are made in one of two ways: fixed (annuity) or variable (unitrust). A charitable remainder annuity trust pays a fixed amount equal to at least 5% of the initial fair market value of the trust. Payments are made for a fixed number of years (up to twenty years) or for one or more person’s lifetimes. The annuity amount is fixed at the time the trust is created. A charitable remainder unitrust pays a percentage of the trust assets each year. The payments vary from year to year as the fair market value of the trust assets fluctuates. You must specify a payment rate (at least 5% by law) when the CRT is established. If your trust assets outperform that rate, the gains in excess of the payment can be reinvested, eventually increasing your principal and future payments. This can serve as a hedge against inflation. The reverse, however, can also be true. If your trust earns less than the rate you specify, you will still be paid that same percentage. This could erode your principal and lower your future payments. With either charitable remainder annuity trusts or charitable remainder unitrusts, the payments occur for either a fixed number of years (up to twenty years) or for one or more persons’ lifetimes.
Can the payments from the trust be made to someone other than myself? Yes. Payments from a CRT may be made to you for your life and then made to your spouse or other beneficiary after your death. You may also direct the payments initially to some other beneficiary for his or her lifetime or a period of time. The eventual distribution of assets to CFHZ, or other charity, will take effect only at the end of the term of years determined by you or at the death of the last of the individual beneficiaries. 47
Planned Giving Q & A
What is the taxability of a Charitable Remainder Trust? When you establish a CRT, you will receive an immediate income tax deduction for the present value of the charitable remainder interest. The charitable deduction you are allowed is based on the fair market value of the assets (even though you may have purchased them for much less), the payout rate you choose, the number of individual beneficiaries you specify, and the age of the beneficiaries or the term of years for which the trust is established. Typically, the allowable charitable deduction from a charitable remainder annuity trust is slightly greater than from a charitable remainder unitrust when the initial value and cost basis of the assets gifted are equal. If you contribute appreciated property, neither you nor the CRT will immediately pay capital gain taxes on the transfer or sale of the appreciated property. The beneficiary of the trust typically will pay income taxes on all or a portion of the amounts distributed by the trust. The payments are treated as first coming from the trust’s ordinary income and then from capital gains. How much of the payments will be taxable and whether they will be ordinary income or capital gains will depend upon the extent that the trust has realized ordinary income and capital gains. CFHZ has Crescendo Pro gift planning software and is happy to run income and tax scenarios at your request. Contact the office at 616-396-6590 for more details.
Can I realize increased income from this arrangement? A CRT can provide an opportunity to increase the cash flow or yield from your property, including securities. After contributing appreciated property to a CRT, the CRT can sell the property. The sale does not trigger capital gains tax. The trustee can reinvest proceeds in assets generating tax-sheltered income or growth, thereby producing greater returns than might have been earned—and taxed— outside of the CRT.
Charitable Lead Trust What is a Charitable Lead Trust? A Charitable Lead Trust (CLT) is created under a trust agreement or by your will and pays a fixed annuity or percentage unitrust payment from the trust to a qualified charity. Your fund at CFHZ would be a qualified recipient. Payments would be for a designated period of time, at the end of which the remaining property of the trust would be paid to any non-charitable beneficiary you select. 48
What is the advantage of a Charitable Lead Trust? A Charitable Lead Trust (CLT) can reduce the estate taxes payable on your death, because of the charitable deduction for CFHZ’s charitable interest in the annuity or unitrust payment. The value of the charitable interest and deduction depends on the amount contributed, interest rates at the time the trust is funded, the length of the trust, and the amount or percentage to be paid out each year. The savings in estate taxes means that the members of your family may ultimately receive substantially more than if the property were left to them at your death. A CLT also can be a way to pass property on to your children or grandchildren while incurring little or no gift taxes.
Who would be the trustee of the CRT or CLT created either during my lifetime or by my will? The trustee of a CRT or CLT typically is a bank or individual, or combination thereof, whom you select. In some cases you can serve as the trustee. CFHZ generally does not serve as the trustee for charitable trusts.
Retirement Assets How do I gift a retirement account to CFHZ? You simply name CFHZ as successor or contingent beneficiary for all or part of the assets upon death of either the retirement asset owner or spouse. This direction is made on the beneficiary designation form of the retirement account, not by Last Will and Testament.
Why are retirement assets often the most tax-efficient asset to give to charity? Assets held in 401(k), 403(b), and IRA accounts require special consideration in your financial and estate planning. The law requires income tax to be paid on any withdrawals from the accounts, which may diminish its value for you and your heirs. If you leave retirement assets to family members in your estate plan, an estate tax may be levied as well. This double taxation could significantly decrease the value of the asset for your heirs. By donating a retirement asset to CFHZ during your lifetime, you can remove it from your estate, preserve more of its value, and receive a federal deduction for the gift. By leaving retirement assets to CFHZ in your will, you can avoid income and estate taxes and preserve your hard-earned assets for the good of the community. 49
Charitable Gift Annuity How does a Charitable Gift Annuity work? 1. You make a gift to CFHZ. You can give any type of asset, but an appreciated asset is the most tax efficient. 2. We enter into an agreement with you that provides for annuity payments and allows for a deferred charitable gift. 3. You, or whomever you established as the beneficiary, will receive a stream of income that is fixed, regardless of market conditions. 4. You also receive an immediate tax deduction for the charitable portion of your gift. 5. Upon your death, the assets remaining from the initial gift will go into your existing fund or can start a new fund at CFHZ.
How is a Charitable Gift Annuity different from a Charitable Remainder Annuity Trust? The two main differences between a CGA and a CRAT are how the payout rate is determined and how the assets are managed. When setting up a CRAT, a donor and the trustee of the trust can agree to any annuity rate above 5% of the initial fair market value of the assets. When establishing a CGA, the annuity rate is determined using a standard set of tables, with the donor’s age being the most important factor to determine the rate. The reason that a CRAT is allowed to establish a higher annuity rate is because each individual trust’s assets are managed independently. If the entire value of the trust were to be paid out to beneficiaries, the annuity payments would stop because there would be no assets left to make payments with. Conversely, assets transferred in exchange for a CGA contract are pooled with general CFHZ assets, and the annuity payments are guaranteed for life. CFHZ is in essence guaranteeing the lifetime of payments with the backing of its own assets should they be needed.
How are the annuity rates determined? CFHZ, along with almost all charities, uses the standard American Council on Gift Annuities (ACGA) rates. These rates are updated periodically and are standardized to ensure that charities do not commit themselves to too high of payouts, which might jeopardize their other assets or their ability to continue their charitable work. The ACGA provides rate tables for all age levels based on one-life and two-life annuity agreements. The older you are, the higher the payment rate. 50
Planned Giving Q & A
What is the minimum gift size needed to start a CGA at CFHZ? Donors can establish a Charitable Gift Annuity for as little as $10,000.
Will CFHZ administer a CGA if another charity is the scheduled beneficiary? No. Since CFHZ is guaranteeing the payments through its own assets, we only administer CGAs where a fund at CFHZ is the ultimate recipient. This may be a designated agency fund to benefit a specific organization, but it must be a fund at CFHZ.
What is a deferred gift annuity? A deferred gift annuity allows you to make a gift now, receive the income tax deduction this year, but delay the start of payments until later in life. This type of gift is attractive to younger donors who are planning for retirement. You will receive a higher payment rate and lifetime income, depending on when you want to start receiving payments.
What is the taxability of a charitable gift annuity? When you establish a CGA, you will receive an immediate income tax deduction for the present value of the charitable portion of your gift. You will not immediately pay capital gain tax on the appreciation on the property given in exchange for the annuity. A portion of the income the beneficiary receives may be a tax-free return of principal, while some is taxed as ordinary income or capital gains depending on the nature of the asset you gave. CFHZ can run scenarios for any donor outlining what the income stream and tax implications would be if they established a CGA. We would just need the ages of the beneficiaries, the amount of the gift, and the cost basis for the gift. CFHZ uses Cresendo Pro gift planning software to determine tax implications for donors and income payouts for CGAS and charitable trusts. We are happy to run sample scenarios for you or any of your clients if you are interested in seeing how a specific scenario would play out.
Does CFHZ charge an administrative fee for holding a CGA? Yes. The administrative fee is set by CFHZ’s current fee schedule. As of 2015, there is a 1% annual fee for a Charitable Gift Annuity. Administrative fees are assessed quarterly, based on the market value of the remaining assets.
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Additional Resources The following additional resources may be helpful to attorneys, certified public accountants, and financial advisors assisting their clients with their charitable goals and objectives and utilizing the tools discussed in this Giving Guide:1 Important Sections of the Internal Revenue Code and Treasury Regulations Internal Revenue Code Section 170 and Treas. Regs. Sections 1.170A-1; 1.170A-6 Internal Revenue Code Section 642 and Treas. Regs. Sections 1.642(c)-1 (unlimited deduction for amounts paid for a charitable purpose); 1.642(c)-2 (unlimited deduction for amounts permanently set aside for a charitable purpose); 1.642(c)-3 (adjustments and other special rules for determining unlimited charitable contributions deduction) Internal Revenue Code Section 664 and Treas. Regs. Sections 1.664-1 (charitable remainder trusts in general); 1.664-2 (charitable remainder annuity trusts); 1.664-3 (charitable remainder unitrusts); 1.664-4 (calculation of fair market value of remainder interests) Internal Revenue Code Section 2055 and Treas. Regs. Sections 20.2055-1 (deductions for transfers for public, charitable and religious use; in general); 20.2055-2 (transfers not exclusively for charitable purposes); 20.2055-3 (effect of death taxes and administration expenses) Internal Revenue Code Section 2522 and Treas. Regs. Sections 25.2522(a)-1 (charitable a similar gifts); 25.2522(c)-3 (transfers not exclusively for charitable purposes in the case of gifts made after July 31, 1969)
Internal Revenue Service Publications Internal Revenue Service Publication 526 – Charitable Contributions (http://www.irs.gov/pub/irs-pdf/p526.pdf) Internal Revenue Service Publication 1771 – Charitable Contributions-Substantiation and Disclosure Requirements (http://www.irs.gov/pub/irs-pdf/p1771.pdf) Internal Revenue Service Publication 561 – Determining the Value of Donated Property (http://www.irs. gov/pub/irs-pdf/p561.pdf)
Internal Revenue Service Revenue Procedures The Internal Revenue Service has issued a list of the current Revenue Procedures pertaining to tax-exempt organizations: http://www.irs.gov/pub/irs-tege/eorevenueprocedures.pdf The Internal Revenue Service has issued Revenue Procedures containing provisions that meet the requirements of IRC Sections 170(f)(2)(A), 664(d), 2055(e)(2)(A), 2522(c)(2)(A) for the most common forms of charitable remainder trusts: 1 The foregoing list of section of the Internal Revenue Code and Treasury Regulations is provided as a service to advisors
to help them identify key provisions of the law applicable to charitable gifts and as a starting point for their own research. The list is not exhaustive, and advisors are reminded that the law changes frequently and is subject to interpretation by the Internal Revenue Service and the courts. Advisors therefore are cautioned to perform their own research to confirm the tax treatment of the planning tools they employ on behalf of their clients.
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Rev. Proc. 2003-53 (http://www.irs.gov/irb/2003-31_IRB/ar04.html) (inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments for one measuring life) Rev. Proc. 2003-54 (http://www.irs.gov/irb/2003-31_IRB/ar05.html) (inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments for a term of years) Rev. Proc. 2003-55 (http://www.irs.gov/irb/2003-31_IRB/ar06.html) (inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments payable consecutively for two measuring lives) Rev. Proc. 2003-56 (http://www.irs.gov/irb/2003-31_IRB/ar07.html) (inter vivos charitable remainder annuity trust (CRAT) providing for annuity payments payable concurrently and consecutively for two measuring lives) Rev. Proc. 2003-57 (http://www.irs.gov/irb/2003-31_IRB/ar08.html) (testamentary charitable remainder annuity trust (CRAT) providing for annuity payments for one measuring life) Rev. Proc. 2003-58 (http://www.irs.gov/irb/2003-31_IRB/ar09.html) (testamentary charitable remainder annuity trust (CRAT) providing for annuity payments for a term of years) Rev. Proc. 2003-59 (http://www.irs.gov/irb/2003-31_IRB/ar10.html) (testamentary charitable remainder annuity trust (CRAT) providing for annuity payments payable consecutively for two measuring lives) Rev. Proc. 2003-60 (http://www.irs.gov/irb/2003-31_IRB/ar11.html) (testamentary charitable remainder annuity trust (CRAT) providing for annuity payments payable concurrently and consecutively for two measuring lives) Rev. Proc. 2005-52 (http://www.irs.gov/irb/2005-34_IRB/ar06.html) (inter vivos charitable remainder unitrust (CRUT) providing for unitrust payments for one measuring life) Rev. Proc. 2005-53 (http://www.irs.gov/irb/2005-34_IRB/ar07.html) (inter vivos charitable remainder unitrust (CRUT) providing for unitrust payments for a term of years) Rev. Proc. 2005-54 (http://www.irs.gov/irb/2005-34_IRB/ar08.html) (inter vivos charitable remainder unitrust (CRUT) providing for unitrust payments payable consecutively for two measuring lives) Rev. Proc. 2005-55 (http://www.irs.gov/irb/2005-34_IRB/ar09.html) (inter vivos charitable remainder unitrust (CRUT) providing for unitrust payments payable concurrently and consecutively for two measuring lives) Rev. Proc. 2005-56 (http://www.irs.gov/irb/2005-34_IRB/ar10.html) (testamentary charitable remainder unitrust (CRUT) providing for unitrust payments for one measuring life) Rev. Proc. 2005-57 (http://www.irs.gov/irb/2005-34_IRB/ar11.html) (testamentary charitable remainder unitrust (CRUT) providing for unitrust payments for a term of years) Rev. Proc. 2005-58 (http://www.irs.gov/irb/2005-34_IRB/ar12.html) (testamentary charitable remainder unitrust (CRUT) providing for unitrust payments payable consecutively for two measuring lives) Rev. Proc. 2005-59 (http://www.irs.gov/irb/2005-34_IRB/ar13.html) (testamentary charitable remainder unitrust (CRUT) providing for unitrust payments payable concurrently and consecutively for two measuring lives) 53
The Internal Revenue Service also has issued Revenue Procedures containing provisions that meet the requirements of IRC Sections 170(a), 170(f)(2)(B), 642(c)(1), 2522(c)(2)(B), and/or 2055(e)(2)(B) for the most common forms of grantor and nongrantor charitable lead trusts: Rev. Proc. 2007-45 (http://www.irs.gov/irb/2007-29_IRB/ar10.html) (inter vivos charitable lead annuity trust (CLAT) providing for annuity payments payable to one or more charitable beneficiaries for the annuity period followed by the distribution of trust assets to one or more noncharitable remaindermen) Rev. Proc. 2007-46 (http://www.irs.gov/irb/2007-29_IRB/ar11.html) (testamentary charitable lead annuity trust (CLAT) providing for annuity payments payable to one or more charitable beneficiaries for the annuity period followed by the distribution of trust assets to one or more noncharitable remaindermen) Rev. Proc. 2008-45 (http://www.irs.gov/irb/2008-30_IRB/ar19.html) (inter vivos charitable lead unitrust (CLUT) providing for unitrust payments payable to one or more charitable beneficiaries for the unitrust period followed by the distribution of trust assets to one or more noncharitable remaindermen) Rev. Proc. 2008-46 (http://www.irs.gov/irb/2008-30_IRB/ar20.html) (testamentary charitable lead unitrust (CLUT) providing for unitrust payments payable to one or more charitable beneficiaries for the unitrust period followed by the distribution of trust assets to one or more noncharitable remaindermen)
Software A variety of commercial software is available to assist with, and calculate the gifts associated with, the planning tools described in this Giving Guide, including: Tiger Tables – Published by Larry Katzenstein and available from www.tigertables.com Crescendo – Crescendo publishes a variety of planned giving software. Information available at www.crescendointeractive.com PG Calc – PG Calc is a publisher of planned giving software. Information available at www.pgcalc.com
The Community Foundation has Crescendo Pro gift planning software and is happy to calculate income and tax scenarios for potential planned gifts for any of your clients. Contact the office at 616-396-6590 for more details.
This publication in its entirety was printed by Holland Litho Printing Service.
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85 East 8th Street, Suite 110, Holland, MI 49423
We’re here for you. For more information, call (616) 396-6590 or visit us online at cfhz.org