Gift Planning Options

Even if you have a modest estate you can arrange to leave a charitable bequest by simply including Children's Hospital Central California in your will or living trust. Such a bequest may be arranged in one of several forms:

• You can leave a specific gift of cash, named securities, or other property.
• You can designate a percentage of your estate or a portion of the residue as a gift.
• You can create a Give it Twice Trust in your will to provide an inheritance to your heirs in the form of an income stream and all or a portion of the remaining assets as a gift to the Children's Hospital Central California.
• If you have minor children, you can create a “minors trust” which will provide for their education and support and allow for a charitable gift only when those support obligations have been satisfied.

We invite you to name Children’s Hospital Central California in your will, revocable trust, retirement plan, life insurance or other estate plan. A bequest is one of the simplest and most popular ways to leave a legacy of hope for future generations of children. Through your will or trust, you can make gifts to family, friends, and charitable organizations such as Children's Hospital Central California.

A bequest is easy to arrange (see sample text below):

• It is not payable until death, so it does not affect your assets or cash flow during your lifetime.
• It is private – your will is not filed or made public until your death.
• It is revocable – you can change the provisions in your will or trust at any time until death.

A bequest can deliver a specific gift to Children's: "I bequeath the sum of Ten Thousand ($10,000) Dollars." Or, it can deliver a percentage of the balance remaining in your estate after taxes, expenses and specific bequests have been paid – what's known as the residue of your estate: "I bequeath ten percent of the residue of my estate." Generally, giving a percentage of the residue allows for more flexibility in your long-term planning.

If you choose to make a bequest to Children’s, the following language may be helpful to your attorney:

I give, devise, and bequeath ____________ (entire estate, percentage, residue, dollar amount, specific property) to Children’s Hospital Central California Foundation, a non-profit corporation of California.

Bequest Frequently Asked Questions

What's the difference between a will and a trust?
A will is your instruction manual to your survivors about how you want your property distributed. It's a revocable, private document that only takes effect after your death.

A revocable trust (sometimes called a living trust) is a legal entity that holds assets during your lifetime, then transfers ownership of them - or benefit from them - upon your death. Unlike a will, a trust must take title to assets before it can pass them to your survivors.

There is no difference between wills and trusts in how transfers from them are taxed. In some states, however, the probate and distribution process is simpler with a revocable trust. Your advisors can guide you in choosing which vehicle will work better for you.

What if I've already written my will or trust?
You can amend a will or trust to make a gift to Children's Hospital Foundation. Your attorney can prepare the simple document, called a codicil, that adds a new bequest to us while reaffirming the other terms of your will. Similarly, he or she can prepare an amendment to your revocable trust to add Children's Hospital Foundation as a beneficiary.

Children’s Hospital life income plans offer a variety of ways to support our mission while providing income for you, family members or other beneficiaries. In addition, you may benefit through the tax advantages and investment diversification derived from the execution of such plans. Theses plans include:

• Charitable Gift Annuities
  The charitable gift annuity is among the simplest and most-often-utilizedplanned giving options in which you transfer assets to Children’s in exchange for guaranteed income payments for life.
• Charitable Remainder Trusts
  You can support Children’s Hospital Central California while providing an income for you, your spouse and/or another beneficiary for life or a set number of years.
• Charitable Lead Trust
  The charitable lead trust allows you to transfer assets to your heirs and make a significant charitable gift through your estate. Income from the trust flows to Children's Hospital, typically for a stated number of years, after which the assets in the trust are distributed to your heirs.
• Retained Life Estate
  Your home can become a valued gift to Children's Hospital -- even while you are still living in it, and even if your spouse or other survivor continues to live there for life.

Charitable Gift Annuities

Has your income been affected by low interest rates? Are you concerned about the volatility of the financial and stock markets? Discover how you can help Children’s Hospital Central California Foundation and help yourself with a charitable gift annuity. The charitable gift annuity is among the simplest and most-often-utilized planned giving options.

How a Charitable Gift Annuity Works
A charitable gift annuity is part gift and part annuity. First, you make a gift of cash or marketable securities to the Children’s Hospital Central California Foundation. In exchange, we agree to pay you a fixed income for life (and, if desired, the life of a second beneficiary). Upon the death of the last beneficiary, the funds become available to help us carry out our charitable purpose, that is, to help our sick and injured children. 

Through a gift annuity contract, you will receive guaranteed income payments for life. The amount of income paid to you is determined by your age (or the annuitant’s age, if you will not be receiving the income) and the available interest rates at the time you create the annuity (older donors generally receive higher payout rates for gift annuities). The annual income from charitable gift annuities can be greater than income received from savings accounts, certificates of deposits, bonds and stock dividends. The additional benefits allow you to:

• Provide a significant gift to Children’s Hospital while potentially increasing your income from current assets
• Gain freedom from investment responsibilities. Simply receive a check in the mail, as a fixed rate of return
• Receive an immediate income tax deduction
• Save on future taxes. A portion of all your future annuity payments is tax-free for the estimated life expectancy of all income beneficiaries
• Defer capital gains taxes. If you contribute appreciated securities, the capital gain for the “sale” portion is deferred over your life expectancy.

Example: Ms. Anderson, Age 75, transfers $25,000 to Children’s Hospital for a gift annuity. She will receive a guaranteed annual income of $2,050 for life ($25,000 x 7.11%). Because a portion of the annuity is a tax-free return of principal, the tax equivalent return is often considerably greater than the states annuity rate.

We follow rates recommended by American Council of Gift Annuities. Rates are subject to change. Annuity amount will not change once the gift annuity is established regardless of current economic or market conditions.

Deferred Charitable Gift Annuity

If you are among our younger donors, you might want to consider a deferred gift annuity agreement. To create a Deferred Gift Annuity, you transfer funds now and receive an income tax deduction immediately for a portion of the gift. Payments to you will begin at a future date that you specify.

A number of donors use this giving method to enhance their retirement income or to defer current income. The Deferred Gift Annuity can also diversity your investment portfolio. Many individuals have incorporated Deferred Gift Annuities into the fixed income portion of their diversified investment and retirement portfolios.

Example: Mr. and Mrs. Smith, both 50, own a block of stock with a current value of $100,000. The couple purchased the stock years ago for $20,000, and in spite of the increase in value the stock generates almost no income.  The Smith’s transferred the stock to Children’s for a Deferred Gift Annuity. They will receive a guaranteed annual income of $6,120 for life ($100,000 X ___%) and receive a charitable income tax deduction and bypass part of the tax due on the $80,000 capital gain. Part of the annuity payment will even be tax free.

Charitable Remainder Trusts

A charitable remainder trust is a tax-exempt trust. Therefore, when assets are sold income earned in the trust it is not subject to capital gain or income tax. One hundred percent of the proceeds from the sale of the assets can then be invested to produce income for you and your family. When the trust ends, the remaining trust assets are transferred to Children's Hospital Central California. There are several different types of Charitable Remainder Trusts allowing you the flexibility to design one that best meets your objectives.

Charitable Remainder Trusts enable you to support Children’s Hospital Central California while providing an income for you, your spouse and/or another beneficiary for life or a set number of years. At the demise of the last income beneficiary, the remaining trust assets will be transferred to Children’s Hospital.

Among the benefits of a Charitable Remainder Trust, you may:

• Generate income from assets you currently own
• Receive an immediate charitable income tax deduction
• Eliminate capital gains taxes on appreciated assets contributed to the trust
• Reduce estate taxes, enabling you to pass assets to your heirs and make a meaningful gift to Children’s Hospital

Charitable Remainder Unitrust

Because the Unitrust is a deferred gift plan, it lets you make a major donation of securities to us, but lets you keep the income from those assets. Charitable Remainder Unitrusts are structured to provide for variable income, with payments based on a fixed percentage of the fair market value of the assets, determined annually.

How a Unitrust Works
You transfer assets (appreciated property or stocks generate the greatest net savings) to your Unitrust. The amount you receive as income is a set percentage (you choose it at the start) of the current value of the Unitrust assets. The amount of your income is calculated annually by multiplying the percentage you chose times the value of the assets in the Unitrust at the beginning of each year. The term of the Unitrust may be for the lifetime of an individual or individuals, or for a term of years (not to exceed 20). When the Unitrust terminates, the remaining assets go to the Children’s Hospital Central California Foundation. 

You can receive the same percentage every year, even if the Unitrust actually earns less income than the percentage you chose. Any difference comes out of the capital gains or principal in the Unitrust. This type is referred to as a Standard Unitrust.

Or, you can choose a Unitrust with a net income plus make-up option, so that if the actual income amount is below the stated percentage, you receive only the amount of the income the Unitrust earned that year. Deficiencies can be made up in later years when the Unitrust income exceeds the stated percentage. This is called a Net Income or Net Income with Make-up Unitrust.

If you fund your Unitrust with assets that are “hard to value” or that do not produce income, such as real estate, you might consider a Flip Unitrust. Initially the Unitrust is set up to pay a Unitrust income only out of net income. If the asset does not produce any income, there is no Unitrust payment. However, when the asset is sold and converted to income producing assets, the trust will “flip” to a standard Unitrust that will pay Unitrust income based on the Unitrust percentage. 
Unitrust benefits include:

• Sizable income tax charitable deduction in the year the Unitrust is created. Your deduction is based on the current market value of the assets, not the cost basis.
• Complete avoidance of capital gains on the sale of appreciated property funded to the Unitrust.
• Income for life or term of years not to exceed 20 (often greater than your previous yield).
• Annual income is recalculated each year and can provide a hedge against inflation.
• You can continue to manage trust investments or use professional management services
• Unitrusts are often used by persons desiring to create an income source for retirement years.

Example: Mr. Cott, age 55, and Mrs. Cott, age 53, transfer real estate worth $250,000 to create a Charitable Remainder Unitrust. They select a payout rate of 5%. They purchased the real estate for $115,000 many years ago. The trust will sell the real estate and Mr. and Mrs. Cott eliminate the capital gain tax on the appreciation of $135,000.

The Cotts will receive $12,500 (5% of the trust’s assets) in the first year. The yearly payments thereafter will remain at 5% of the trust value. If, for example, the value of the trust assets increase to $270,000 in year two, the Cotts’ income would be $13,500 (5% of $270,000). The income in future years will be 5% of the value of the Unitrust assets each year of the Unitrust’s existence.

Charitable Remainder Annuity Trust

A Charitable Remainder Annuity Trust offer benefits and conditions comparable to those of the Unitrust, except they are structured to provide a fixed payment. The fixed dollar value is set at the time the trust is established and is based on the initial value of the trust assets.

This is ideal for the person who may be uncomfortable with the risks of traditional investments and who is looking for a stable income stream.

A fixed dollar value or percentage is set at the time the trust is established, and is calculated on the initial value of the trust assets. 

Example: Mr. and Mrs. Jones, both 78, own securities currently worth $300,000, which they acquired 25 years ago for $100,000. The current dividend yield is 3%, or $9,000 annually. They are interested in increasing their income, and because of their advanced age, earning a steady income. If they were to sell the securities and reinvest, they would be subject to a capital gain tax on the $200,000 appreciation and consequently have less capital available for reinvesting.

They use the securities to create a charitable remainder annuity trust. The couple chose to have the trust pay them income based on a payout rate of 7%. Mr. and Mrs. Jones will receive an annual lifetime income of $21,000. This allows for a predictable annual income from the trust, which is not reliant on market performance.

How You Can Establish a Charitable Remainder Trust
You can establish either an Annuity Trust or a Unitrust with an irrevocable gift to Children’s Hospital Foundation of $250,000 or more. A variety of assets may be donated to a trust, including: cash, publicly-traded stocks and bonds, closely-held stock, real estate and other less common assets.

Charitable Lead Trusts

The charitable lead trust allows you to transfer assets to your heirs with substantially reduced gift and estate taxes. Assets are transferred to a trust, and you agree to make annual income payments to Children’s Hospital for a set number of years. At the end of the term of years, the assets are transferred to your designated beneficiaries with a reduction (or elimination) of gift or estate taxes. The trust can also be structured to return the assets back to the donor, if you so desire. (The lead trust is a particularly useful estate-planning tool if you anticipate significant estate and gift tax liabilities.)

The benefits of the charitable lead trust enable you to:

• Make a gift that will provide immediate support to the children and programs at Children’s Hospital
• Transfer assets to future generations with a substantial reduction or elimination of gift or estate taxes
• Exclude income during high-earning years for the benefit of Children’s Hospital, while retaining ownership of the assets for lower-earning years

How You Can Establish a Charitable Lead Trust
You can establish a charitable lead trust with publicly-traded securities, closely-held stock, income-producing real estate, partnership interests, cash, or a combination of the above. Typically, a lead trust is most effective for individuals who wish to fund the trust with assets valued at $500,000 or more.

Stocks, Bonds & Appreciated Assets

If you contribute long-term appreciated assets to Children’s Hospital Central California Foundation, you get a two-fold income tax benefit. First, a charitable deduction for the full present fair market value and, second, you will avoid the capital gains tax on the appreciation. Your deduction is limited to 30% of your adjusted gross income. Any excess deduction may be carried over for the next five years. Appreciated assets include stocks, bonds, closely-held stock, and real estate.  

Example 1:  Harold contributes long-term stocks that are now worth $20,000.  They originally cost $10,000.  He is entitled to a charitable deduction of $20,000 and will pay no tax on the $10,000 appreciation.

Example 2:  Shannon contributes one-half interest in 25 acres of land that she purchased in 1970 for $100,000. She retains one-half interest. The charity and Shannon join in the sale of the property for its value of $1,000,000. Shannon receives $500,000 cash. Her charitable deduction of $500,000 offsets the gain she realized on the sale of her one-half interest.  Shannon was able to make a “tax free sale” of her property and a substantial contribution. 

Retained Life Estate

A Retained Life Estate is for you if...

• You're considering a lifetime gift in partnership with Children's.
• Your home is your principal asset, you want to continue to live there, and you can continue to maintain it.

You're seeking an income tax deduction, not more income. Your home can become a valued gift to Children's Hospital -- even while you are still living in it, and even if your spouse or other survivor continues to live there for life. You can make a gift now of your personal residence or farm, while retaining the right to use and live in the property for the rest of your life, and receive the benefit of a current charitable income tax deduction.

Example:  Sue, a widow who is 65 years old, donates the remainder interest in her home, subject to her right to occupy or rent the home for the rest of her life. The market value of her home is $200,000. Her accountant determines that the amount of the charitable income tax deduction to which she is entitled is $55,000. She would deed the “future” interest in the house to Children’s Hospital Central California Foundation with the understanding that she will continue to maintain the property as long as she lives.

The rules also apply to a farm, vacation home, condominium, or stock in a cooperative housing corporation, if used by you. A farm may include acreage with or without the house.

Retirement Plans

In recent years, assets in individual retirement accounts and other retirement plans have increased significantly in value. The funds held in Traditional IRAs and other retirement plans generally have not been taxed. Accordingly, passing them to individual heirs may trigger both income and estate taxes that are incredibly steep.  These combined taxes can reach as high as 85%.

You can successfully eliminate these taxes while making a meaningful gift to Children’s. This is accomplished by designating Children’s Hospital as the beneficiary of your IRA, annuities and savings bonds, while leaving other assets such as stock and real estate (both of which are subject to fewer taxes) to family members and other heirs.

Real Estate

If you have been thinking about making a substantial gift to Children’s Hospital Central California Foundation, but a gift of cash or securities at this time may not be practical, perhaps you should consider real estate. Your personal residence, farm, vacation home, commercial or rental property, or parcel of undeveloped land might be more suitable. A present or future gift offers you the opportunity for valuable income tax and estate tax savings. You can also free yourself of burdensome management and the problems involved in selling the property or leaving it to estate liquidation. 

Life Insurance

You may name Children’s Hospital Central California Foundation as a beneficiary of your personal or group life insurance.
The gift of a life insurance policy that you no longer need can result in tax savings now. For example, assume that you purchased a life insurance policy 30 years ago as a part of a buy and sell arrangement with your business partners. You are now retired and have sold your partnership interest to the other partners. You no longer need to maintain the policy. You can gift the policy to Children’s Hospital Central California Foundation. You would be entitled to an income tax deduction of the policy’s cost basis or its replacement value whichever is less.

For instance, you may have purchased a policy to provide for your child’s education expenses in the event of your premature death. You can support the Hospital by naming Children’s Hospital Central California as a beneficiary of your policy. You can also generate a current income tax deduction by irrevocably naming the Foundation as the owner and beneficiary of the policy. The income tax deduction is based on the policy’s gift value or its replacement value (whichever is less).

We invite you to explore such a contribution, as well as other giving possibilities related to insurance policies.

Brokerage & Bank Accounts

There’s good news for donors who would like to include Children’s Hospital in their estate plan but do not want the expense of hiring an attorney to write or revise a will—you can designate Children’s as a beneficiary for assets held in stock brokerage accounts, certificates of deposit or other bank accounts.

Make Children’s a Beneficiary of a Bank or Brokerage A Payable-on-Death (POD) arrangement allows you to name Children’s as a beneficiary of your bank or credit union savings account, checking account or CD. A similar program known as a Transfer-on-Death (TOD) account, allows you to name Children’s as a beneficiary on your stocks, bonds and mutual funds.

With either of these plans, assets in these accounts are passed to beneficiaries without going through probate.
It is simple to set up a POD or TOD account with your bank, credit union or brokerage. You control the exact amount that will be passed to Children’s and you have full access to your funds as long as you live.

In order to help nonprofit organizations like Children’s Hospital Central California Foundation further their good work, Congress extended the rules for charitable gifts made from individual retirement accounts (IRA) through December 31, 2009. If you are at least 70 ½ years of age, the federal government now permits you to rollover amounts from your IRA to a nonprofit without claiming any increased income or paying any additional tax. These tax-free rollover gifts could be for any amount up to $100,000.

What are some of the benefits?
It’s especially good for donors who would like or intend to make a charitable donation, are required to take a minimum distribution and do not need the additional income at this time. Some benefits of an IRA rollover directed to a nonprofit organization include:

• The IRA rollover will not be included in your income for tax reporting purposes.
• The IRA rollover will count towards your annual required minimum distribution.
• The IRA rollover will reduce any potential estate tax.

How do I know if an IRA charitable rollover is right for me?

• You are at least age 70 ½ AND
• You do not need the additional income generated by the minimum required distribution OR
• Your charitable gifts already equal 50 percent of your adjusted gross income, so you do not benefit from an income tax charitable deduction for additional gifts OR
• You are subject to the 3 percent rule that reduces your itemized deductions OR
• You do not itemize deductions

How do I initiate an IRA charitable rollover?
Contact your IRA administrator. Children’s Hospital Central California Foundation can provide you with a sample letter of direction if you would like. Make sure that you also let Children’s Hospital know when to expect your gift.

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