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Estate Planning Q & A



Q: I would like to change my will to leave some money to Christ Community Church, but the thought of re-doing the whole thing gives me a headache. Is there any easy way to modify my will to include Christ Community Church and/or change the amount I plan to leave to the church?

Thank you for considering Christ Community Church in your estate planning! Yes, a brief document called a "codicil" is often used to make simple changes, additions or deletions to a will. To be valid, a codicil must be written, signed and witnessed with the same formalities as a will. Wills may not be legally changed simply by crossing out or erasing existing language or writing in new provisions. If you add a codicil, it is important to make sure it is kept in a safe place with the will it modifies.

For many of us, even remembering where we filed our will can be a headache--and this assumes we've done the right thing by creating a will in the first place.  But putting the headaches aside, the responsible thing is to review our wills every two to three years for life changes such as births, deaths, marriages, divorces or relocation to a new state, or for significant changes in the size of an estate. Someone you appointed as a representative or guardian may have died or might no longer be appropriate for the role, or a favorite charity may have changed. If you're like me, you may not even remember what your current will has to say about executors or amounts, if any, to go to Christ Community Church or other worthy causes.

Let me throw out a challenge: If you haven't done so recently, find and read your will this week--if you wait until next week, will it really get done?--to ensure it still speaks to your circumstances and wishes. Once a will is in place, it should not be that daunting or expensive to replace it with a new document making necessary changes. Consider it an act of faithfulness and duty to those you love including, perhaps, Christ Community Church.

Q: A friend told me she has a provision in her will to ensure her current annual tithe will continue to be given to the church in perpetuity from her estate. That sounds like a nice idea. What would be involved in setting it up?

What a significant and thoughtful legacy to leave for those who follow after you. If we all did that, think of the difference it could make over time in expanding the ministry of our church.

It would not be difficult to set up what you have referenced. There are several ways to go about it, depending upon your circumstances. One way would be to execute a new will or add a codicil to your existing will, leaving funds from your estate to Christ Community Church for that purpose, with instructions to invest the funds and to use only the aggregate earnings over the original balance for general operations or any other purpose you may choose to designate.

How much would be needed? Historically, a portfolio made up of 50 percent stocks, 40 percent bonds and 10 percent short-term investments yields around 8.5 percent over the long-term. Using this average, an investment of $11,750 generates about $1,000 each year in annual income. If you currently tithe $5,000 annually to Christ Community Church, a gift of $58,750 (5 times $11,750) could provide similar funds to the church in perpetuity, based upon historical averages.

If that seems like too much, you could set aside a lower amount, with additional instructions to allow the funds to accumulate until they reach a certain level. For example, using the same assumptions, it would take about two years for a gift of $50,000 to grow to the $58,750 target, and every year thereafter would produce the desired result.

If you don't want to change your will, you could purchase an insurance policy naming Christ Community Church as the beneficiary (or simply name Christ Community Church as the beneficiary of a current policy). The same guidelines set forth above would apply to stipulating payoff instructions and to determining an appropriate face amount of the policy.

Both these methods give the flexibility to change your mind at a later date. There are other ways to achieve a similar result and a current tax deduction, but the gift would have to be "irrevocable." meaning it could not be revoked or changed once put in place.

Q. I just received an inheritance and I'm fortunate to not need the money for living expenses.  I'd rather put the funds to work in a long-term way to honor the memory of my ancestors. Any suggestions?

Christ Community Church maintains a list of available memorial opportunities, and they would be happy to work with you to tailor a new idea.

While you may choose to allow the church to use such funds to purchase a specific capital item (furniture, art, serving pieces, etc.), you might also consider a gift "endowment." An endowment is when you give funds to Christ Community Church to be invested, with instructions to use the earnings from such funds in perpetuity for a designated or undesignated cause. This is truly the gift that "keeps on giving."

Don't assume endowments are only for gifts in the millions—those are just the ones you read about in the newspapers! While Christ Community Church would love to benefit from that level of generosity, the church will accept endowments of virtually any size, particularly if you are willing to allow the gift to be grouped with similar funds for record-keeping purposes.

Endowment possibilities are virtually limitless. Here are just a few ideas to spark your imagination:

Acts 29.  Allow the income to be used for future Church Plants to further the kingdom.
Education.  Allow the income to be used to help ensure continuation of Christ Community Church's clergy apprenticeship program. This gift ultimately benefits the broader church community, as succeeding classes of interns graduate from the program and move on to other churches.

Missions.  Allow the missions committee discretion to apply the income annually to ministry projects of their choosing.

Music.  Allow the income to be used by the music ministry for acquisition and/or maintenance of instruments.

Growth Groups.  Allow the church discretion to apply the income annually toward events to promote spiritual growth or evangelism.

Children.  Allow the church discretion to apply the income annually toward faith-building activities for our children.

Since endowments are intended for the very long term, it is important that their instructions are drafted with sufficient flexibility to allow the funds to be used for similar purposes in the event the original intended use ceases to exist.

Q. With the current low interest rates, my investments in CDs are earning next to nothing.  I have heard about charitable gift annuities. How do they work, and would this be a good thing for me to do with the money?

If you could give a gift today, enjoy a guaranteed income from that gift for the rest of your life (at rates higher than your current CD is paying), get a current tax deduction, and leave a meaningful legacy to Christ Community Church, would you think it is too good to be true? But with a charitable gift annuity, you can in fact do all these things.

How does it work? Well, first you exchange a gift of cash (such as a maturing certificate of deposit), appreciated stock or other assets for a charitable gift annuity contract. The contract guarantees payment of a fixed income to you for the rest of your life, or the life of you and your spouse (or any other person you designate). The annuity's rate of return is determined by your age(s).

For example, let's assume you make a $20,000 gift to Christ Community Church, and you want the income stream to continue for the lives of both you (age 75) and your spouse (age 70). Rates are subject to change, but you could expect the annuity would pay around 5 percent to 6 percent annually, or about $1,100 to $1,200 per year.

There are also tax benefits. The example above creates a deduction of about $4,400 at the time of the exchange. And each year, a portion of the annual payments will be considered a return of principal and will, therefore, be excluded from taxable income.

How does Christ Community Church benefit? Any funds remaining after the lives of you and your spouse are distributed to the church to be used in its ministries.

Is there a catch? Not really, but there are some things to think about, like the irrevocable nature of the exchange. Unlike a CD, which may be withdrawn subject to payment of a penalty, once a charitable gift annuity contract is entered into, the funds are permanently invested. That may or may not be a significant factor, depending upon the amount of the annuity and your other assets.

Charitable gift annuities are simple to establish and offer a great deal of structuring flexibility, including the option to defer income to a later date at a higher payment rate.

Q. I plan to sell some stock that will result in a significant tax as a result of the gains. Someone told me that donating an appreciated asset is an effective tax planning strategy. How does that work?

Donating an appreciated asset to charity, whether the asset is common stock, real estate, bonds or other property, is a great idea that is too often overlooked. Now that the stock market has posted some gains again, maybe others will also benefit by your question.

In short, if you currently make regular contributions to Christ Community Church, or are planning to make a contribution, and you have appreciated assets, there is no reason not to use the asset in lieu of a cash contribution. Not only will you qualify for a tax deduction equal to the current value of the asset, you will avoid taxes on the appreciation.

Let's look at an example. Say you plan to give $15,000 to Christ Community Church this year, and you have publicly traded stock worth $15,000 you could transfer to Christ Community Church instead of cash. Then, let's assume you paid $10,000 for the stock you intend to transfer (meaning it has appreciated 50 percent to $15,000). By donating the stock, you will receive the same $15,000 charitable contribution deduction that you would have received if you made the donation in cash. Additionally, by transferring the stock, you will avoid the taxes otherwise payable on the $5,000 gain when the stock is sold.

Christ Community Church's policy is to immediately sell any property it receives as a contribution, so the church benefits from the full $15,000 either way.

Q. I have a sizeable amount of money invested in "safe" investments I don't really need right now. Eventually I intend for most of it to go with my heirs. Are there any planning techniques that would benefit me and Christ Community Church currently, while preserving my ability to eventually leave the money to my family?

Let's talk about charitable lead trusts. For openers, please understand this is only an estate planning technique for someone in your fortunate situation and wouldn't be a good fit for most Christ Community Church members. However, it can provide great tax benefits for moderate to large taxable estates, while providing significant current income to the church.

A charitable lead trust (also called a charitable income trust) is designed so investment income from a portfolio of securities flows first to a charity and at some point in the future the remainder interest either passes to non-charitable beneficiaries (such as children) or reverts to you.
Let's say you transfer $1 million to a trust today, with instructions that Christ Community Church is to receive, say $50,000 per year of the trust's income until your death, after which time any remaining assets are distributed by the trustee to your children. Assume you have a 20-year remaining life expectancy that proves eventually to be accurate, and that the trust averages 10 percent annual portfolio income over that time. You will receive an immediate tax deduction of about $575,000; Christ Community Church will benefit from $1 million in contributions ($50,000 x 20 years); and your children will receive about $3.8 million at your death.
This is a "grantor" trust illustration; "non-grantor" trusts may also be established that have different tax characteristics. There are many IRS rules and regulations applicable to these types of structures, and the dollars involved are usually large, so by all means you will want to consult estate-planning and tax professionals as to the type of structure, if any, which will be best suited for your individual circumstances.

The bottom line is that if you have significant assets, there may be a way to design something so that, after taxes, your children will come out better than they might otherwise, and in the meantime you can make Christ Community Church the recipient of a truly wonderful gift!

Please contact Christina at crobb@cccdaytona.org if you would like more information regarding estate planning.



This Q and A series on Estate Planning was developed by Steve Brookshire a layman at Wilshire Baptist Church in Dallas, Texas.  He has agreed to allow anyone who finds it helpful to reproduce it in any manner. Neither the author nor NACBA intends it for legal or financial advice and encourages you to consult an attorney and/or financial planner before making decision on estate planning.  Neither the author nor NACBA accepts any liability related to the use of this Q and A.  If you find these helpful and use/or reproduce please let us know how they have been helpful by sending email to editor@nacba.net.