As an Estate Planning attorney and an active volunteer for Scouting,  I  strongly support the Boy Scouts of America and I urge you to become a supporter through your Estate Planning.  If you have any questions about making a charitable contribution to the Boy Scouts, please give me a call or send me an email.  I hope you find the following information helpful in making your decision to contribute to the Cascade Pacific Council.

Richard Noble

"Win.. .Win...  Estate Planning"

Introduction

It's been said that there will be only two kinds of charities in the 21st century:  former and endowed.  Even Scouting,  with almost 90 years of service to America and its youth,  must be concerned and diligent about finding the necessary support for its financial future.

In the last few years the Boy Scouts have seen a remarkable growth in its membership.   It is clear that there is an unprecedented need for Scouting in our community and an unparalleled demand by families for Scouting.  Fortunately the Cascade Pacific Council has also experienced a great increase in the number of major gifts and endowment growth.  Many of these were innovative gifts like the ones described later in this article--gifts that provide great benefits not only for Scouting but for you and your family as well.

As you read this article,  consider how some of these gifts might fit into your planning.  These gifts,  from benefactors like you,  will make it possible for the Cascade Pacific Council to continue offering the traditional family values,  leadership skills,  and ethical decision making that America looks to Scouting to provide.  
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Cash Gifts

Gifts of cash have always represented the most fundamental and important source of support for Scouting. 

The net cost of a gift decreases for donors in the higher tax brackets.  The table below gives estimates of the cost and tax savings from cash gifts in different brackets:

• Gifts of cash are deductible up to 50% of your adjusted gross income each year.  However,  unused deductions may be carried over and used for five years after the gift is made.
• These gifts are considered made on the date they are had delivered or mailed.  So,  a year-end gift mailed in December is deductible that year,  even if it is not received by the Council until January.
• Income-producing interest such as oil and gas or mineral interests,  mortgage income,  or copyrights may also be contributed to produce a continuing source of cash for Scouting.

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Stock Gifts-Publicly Traded Securities

In many cases, a gift to the Cascade Pacific Council of stocks or bonds may provide even greater tax benefits than a gift of equal value in cash.  This is especially true for securities that have appreciated in value and could generate capital gains tax if they were cashed in.

Many donors choose to make gifts of appreciated securities because they can avoid paying capital gains tax on them.  They can take a charitable deduction for the full market value of the securities (if owned for at least one year) and,  through the deduction,  save tax dollars which can be reinvested.

For stocks that are worth less than you paid for them,  it may be better to sell the stock,  report your loss for tax purposes,  and then donate the cash proceeds.

Securities that have been held less than one year may be donated,  but your charitable tax deduction will be limited to your cost basis.

Gifts of stock held for more than a year are deductible up to 30 percent of your adjusted gross income (AGI) every year.  If held for less than a year,  they are deductible up to 50 percent of your AGI every year.  Excess deductions may be carried over for five years after the year of the gift.

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Stock Gifts-Closely Held Stock

Often very highly appreciated in value (and expensive to sell) gifts of closely held stock offer the same tax advantages as gifts of common stock.  In fact,  some donors use these gifts as a way of either "transferring" ownership interests to others such as family members,  or regaining controll of the shares and establishing a new cost basis for the stock.  

Though the advantages of closely held stock gifts are similar to those of publicly traded stock gifts,  an appraisal may be required to establish the market value of these shares.

• Example: A donor owns 80 percent of a family business.  His children own the other 20 percent.  He transfers to the Cascade Pacific Council a 5 percent interest in the company and gets a tax deduction for value of those shares.  If the company buys the shares from the Council (reducing its accumulated earnings), the children's ownership of the company goes up.  If the donor buys back the shares,  he retains the same ownership percentage,  but has greatly increased his basis in the reacquired shares.

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Stock Gifts-Stock Options

A gift of stock options can be every bit as valuable to the Cascade Pacific Council as a gift of the stock itself.  It is also a "painless" way to make a gift.  You're giving away stock you haven't actually received yet.  These gifts will not produce an immediate tax deduction,  since the value of the gift cannot be determined until the option is exercised by the Council.  But when the option is exercised,  you are then entitled to a tax deduction equal to the difference between the option price and the stock value.

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Personal Property Gifts

Whether through inheritance,  collecting,  or investment,  we accumulate a lot of personal property.  Sometimes these items are valuable -- sometimes the value is purely sentimental.  But often these items may be costly to insure or difficult to sell.

A gift to the Cascade Pacific Council of artwork,  collections (such as stamps or coins),  antiques,  boats or cars,  or other items of personal property maybe an effective alternative for giving.  Personal property gifts that could be used for Scouting purposes,  or items that are worth less than you paid for them,  will be deductible at their current fair market value.  Other personal property gifts may be deductible only at their cost basis, so you should discuss these options with your own tax advisor.

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Gifts of Land, Homes, and Farms
-Outright Gifts

With the continuing increase in property values,  many people find that the real estate they own is their greatest asset.  They may also find that it is an asset with a high price:  property tax and maintenance costs, if held;  capital gains tax, if sold.  A gift to the Cascade Pacific Council of property--residential, rental, vacation homes, farms, commercial,  undeveloped,  or even land rights such as oil, gas, water and mineral rights--may offer significant benefits.

Generally, outright gifts of real property entitle you to:

• Avoid the capital gains tax on any appreciation in value.
• Take a charitable income tax deduction based on the fair market value of the property.

Before deciding on a gift method,  you will need to know (1) the appraised value of the property, (2) your basis and any debts or liens on the property,  and (30 your plans for,  and any family interest in,  the property.  You should also discuss your gift with the Council so it can determine whether the property will be used in its program,  generate income,  or be sold,  or if there are any environmental concerns.

• As with gifts of stocks and bonds,  land held for more than one year is deductible up to 30 percent of a donor's AGI for the year.  If held for less than a year,  it is deductible up to 50 percent of the AGI for the year,  but the deduction will be limited to the property's cost basis.  The five-year carryover rule applies here as well.
• Property with a mortgage or lien usually does not make a good gift.  The tax deduction will be reduced by the debt amount,  and the donor is also treated as having taken a similar amount into income,  regardless of who is responsible for the debt.

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Gifts of Land, Homes, and Farms
-Bargain Sales and Gift/Sales

A gift of real estate does not have to be an all-or-nothing proposition.  You may donate a partial interest the land--or any accompanying land rights--instead of donating the entire property.  You receive a deduction based on the appraised value of the interest you donate.  When the property is sold,  the proceeds are distributed accordingly.  This is referred to as a gift/sale arrangement.

Gifts of Land, Homes, and Farms
-Life Estate Gifts

Some people anticipate a gift to Scouting of a home,  vacation home,  or farm sometimes in the future,  but may not want to give up the use of their property yet.  It's possible to do both with a life estate gift.  It's simply a contract arrangement where you give Scouting the rights to your property after your lifetime,  but you keep the right to use and enjoy it for the rest of your life (or the life of another).  If the property is income-producing (e.g., from rent,  crops,  timber,  etc.),  you're also entitled to keep any income it produces during your lifetime.

Though Scouting has no right to use or possess the property until after your lifetime,  you receive an immediate income tax deduction for part of the property's value.  Also,  the property won't be in your estate at death,  so your estate may save taxes and probate costs as well.

• If you make a life estate gift and at some point decide you no longer want to use your property,  you can simply give the council your remaining rights in the property and receive additional tax benefits at that time.
• The value of a tax deduction for a life estate gift is determined by the value of the land and the age of the life tenants.  The older the donor,  the larger the income tax deduction.

Real estate can also play an important role in income-producing trusts;  this will be discussed later in this article.

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Life Insurance

Life insurance plays an important role in the estate plans of many people.  Though most people have some form of insurance,  it's common to have a policy that may no longer be needed for its original purpose.  For example,  do you have a policy:

• To provide money for a spouse or children who no longer need it?
• To cover a mortgage on a home or other property that is now paid off?
• To cover educational expenses you've already paid from other funds,  or to protect a business that no longer exists or needs help?

You may find it beneficial to donate such policies to Scouting.  Many donors also buy new policies for the sole purpose of giving it to the the Cascade Pacific Council.  In general,  if you choose to donate a new or existing policy to Scouting,  you can deduct from your income taxes an amount roughly equal to the policy's cash surrender value,  as well as any annual amounts you pay to help keep the policy in effect.

There are a number of ways you can use life insurance in your charitable gift planning for Scouting:

1. Name the Cascade Pacific Council as primary or secondary beneficiary of an existing policy.

2. Name the Cascade Pacific Council as the owner and beneficiary of an existing policy.

3. Buy a new policy and contribute it to the Council.

4. Buy a policy on the life of someone else and contribute it (for donors who may not qualify personally for affordable coverage).

5. Buy a policy that benefits your heirs to replace a gift to Scouting you've already made.

The available income tax deduction for a gift of insurance my vary depending on the type of policy donated.  You should seek advice from your own advisor,  and get an appraisal of your policy's value,  prior to any donation of an existing policy.

A donor will receive a tax deduction,  and the value of the policy will be removed from a donor's estate,  only if a charity is named both the owner and beneficiary of the policy.

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The BSA Gift Annuity Program 

A gift annuity involves a simple contract between a donor and Scouting.  In exchange for a gift,  Scouting agrees to pay quarterly income to  the donor or others chosen by the donor.  This income is paid for life,  to one or two individuals,  and guaranteed by the general assets of the  Boy Scouts of America.  The donor also receives an income tax charitable deduction.

The gift may be of cash,  stocks,  bonds,  or shares in a mutual fund.  The minimum gift required to receive a gift annuity is only $2,500.  Though you cannot add to a gift annuity once it is made,  you may enter into as many separate gift annuity contracts as you wish.

The donor may choose anyone to receive lifetime annual income,  and all income will be paid quarterly.  However,  a beneficiary must be at least 50 years of age at the time of the contract.  Most donors select themselves and/or a spouse to receive the income.

The amount of annual income depends on the age of the beneficiaries.  The older the income beneficiary`,  the more income they receive.  At mid-1999,  the annual returns for gift annuities ranged from 5.8 percent to 12 percent for donors between the ages of 50 and 90.  Most of the gift annuity payments are taxable income to the beneficiaries,  but part of each payment is often considered tax-free -- the IRS considers part of each payment a partial return of principal. This may increase the effective rate of return,  depending on your tax bracket and the cost basis of the property you contribute.

At the end of the gift annuity term --  the lifetime of the income recipient(s) -- the remaining value of the original gift is removed from the gift annuity fund and given to the Cascade Pacific Council.  Most gift annuities are currently handled through the BSA Gift Annuity Program at the National Council;  this relieves the Cascade Pacific Council from administrative burdens and state filings and fees.

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Deferred Gift Annuities 

Some donors choose to set up a gift annuity now -- to get the income tax deduction now -- but defer the start of the payments until a later time.  Payments may be deferred as long as the donor wants,  and the rates of return are often higher than for non-deferred annuity payments.  This strategy may be useful for donors currently in a high income bracket and planning  for retirement.  Unlike IRAs and other retirement alternatives with maximum contribution limits,  there is no limit to how much you can place in a deferred gift annuity.

Though donors may select anyone to receive gift annuity income,  there may be gift tax implications for beneficiaries other than the donor and/or spouse.

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Pooled Income Fund 

The BSA's Pooled Income Fund is often described as a "charitable mutual fund."  It represents the gifts of many donor to Scouting that are managed and invested as a group.  It is possible to join the BSA Pooled Fund with an initial gift of only $5,000 in cash,  stocks,  or bonds (additional gifts to the fund require a minimum of only $1,000).  As with other charitable gifts,  a donor receives an immediate income tax deduction of the gift and avoids owing any capital gains tax on the appreciated securities given to the pooled fund.

Income is paid for one or two lifetimes to anyone chosen by the donor (as long as they are at leat 40 years of age at the time of the gift).  The income often varies,  depending on the actual investment return of the fund's portfolio.  All earnings  are distributed quarterly based on the units of participation held by each beneficiary.  At the end of a beneficiary's lifetime,  the amount of the original gift is removed from the fund and distributed to the Cascade Pacific Council.

The income from a pooled fund is taxable.  However,  pooled funds may also provide against inflation,  since the income will increase as the portfolio income increases.  Also,  you receive income based on the full value of the gift -- not possible if you,  instead,  sold your highly appreciated property,  paid the capital gains tax,  and could only reinvest the after-tax proceeds.

• As with other income-producing gifts,  there may be gift tax implications if income payments go to anyone other than the donor and/or donor's spouse.

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Charitable Remainder Trusts 

Perhaps the most popular and flexible of all the ways to make a major gift to the Cascade Pacific Council is the charitable remainder trust (CRT).  Your gift is placed in trust.  The trust sells and reinvests the assets,  and makes regular income payments to you and/or other named beneficiaries.  Payments may last either for a specific number of years or for one or two lifetimes.  Trusts may be funded with cash,  stocks,  bonds, land,  and even other assets.

The payout rate is variable and based on the fair market value of the gift placed into the trust.  Payments can be either a specific amount per year (annuity trust) or a fixed percentage (unitrust).  Trusts with percentage payouts are revalued each year;  as the principal grows in value,  the annual income will also grow.  After the trust ends,  the principal passes to the Cascade Pacific Council.

The rates of payment,  investment philosophy,  type of income,  and other details can be tailored to provide a financial planning tool that is creative,  fiscally sound,  and responsive to your needs.  It provides a significant gift to Scouting,  so you also receive an income tax deduction when you create your trust.  It is also a great opportunity to fund the trust with low-yielding,  highly appreciated assets;  avoid capital gains tax and increase your income stream.

You may also have heard these trusts referred to as charitable remainder trusts,  unitrusts,  or annuity trusts.

• Example:  A donor has highly appreciated land worth $300,000 (he paid only $50,000 for it).  It is currently generating no income.  He places it into a charitable unitrust to pay 6 percent annually to him and his spouse for 15 years (there is a 2 percent annual principal growth).  The benefits:

• In general, the shorter the trust term or the smaller the annual payout,  the larger the deduction.
• Since trust property is removed from a donor's estate,  this may result in significant savings in estate taxes and/or probate costs at the end of the donor's lifetime. 

Computer Illustration of a Charitable Remainder Trust

• Would you like to see how Charitable Remainder Trusts work?  BSA National uses Crescendo software to illustrate this online. 
  
  Click here and choose the Multimedia Scenarios and hit the Back button to return to this page

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Retirement Planning 

For retirement planning not involving a charitable trust,  there is a funding maximum before you lose your tax benefits.  However,  by combining your charitable objectives with your retirement needs, you may find much more flexibility.

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Charitable Lead Trusts 

Some people think about lead trusts as a partnership between themselves and a charity.  Some think of it as a "mirror image" of a charitable remainder trust. Others think of it as a loan to charity.  Regardless,  the lead trust is a great way to make a significant gift to Scouting using funds that eventually will return to you or your loved ones.  It's also a great way to pass assets to your loved ones at very little cost.

In a lead trust,  your assets are protected in a trust for a period you choose -- either a number of years or measured by someone's lifetime.  During this period,  the income is paid to the Cascade Pacific Council.  You also determine the amount of income that will go to the Council.  Any trust earnings not needed for income will be accumulated as part of the trust principal.  At the end of the trust,  the principal (including all undistributed growth) will be distributed tax-free either to the donor or to anyone selected by the donor.

Tax deductions are largely determined by who eventually receives the principal,  the term of the trust,  and the annual payout.  If the trust returns to the donor,  an income tax deduction is available.  If the trust goes to someone other than the donor,  a gift tax deduction is available instead.

Without the lead trust,  a donor might have to leave the children more than $1,500,000 in the estate just so they would net $750,000 after potential estate tax rates of more than 50 percent.

The lead trust greatly reduces the cost of making a large gift to children and -- just as important -- Scouting gets a sizeable gift that the Council may use right away for operating needs or a capital campaign.

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Wills and Bequests 

The charitable bequest is the most familiar and widely used way to benefit Scouting at some future time.  It is how many donors choose to establish a legacy after their lifetime,  but in a way that remains revocable at any time during their life.

Those who include Scouting in their wills often benefit their heirs at the same time.  A charitable bequest is completely deductible from the estate and may even shift the remaining assets for the family into a lower tax bracket.  Depending on your needs,  there are many forms a bequest to Scouting can take.  These include:

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IRA's and Retirement Plans 

Retirement fund assets can be one of the most significant assets left in an estate.  In fact, studies show that 90 percent of the people at age 90 still have 90 percent of their original funding amount left in the fund.  During the optional withdrawal for IRAs,  only 10 percent to 20 percent of Americans make any withdrawals.  And during the mandatory withdrawal period (after age 70 1/2),  85 percent to 90 percent of Americans take only the minimums.

This is important because -- for many people -- the gift of an IRA to a child or grandchild can be the costliest gift of all.  Retirement given to children or grandchildren can be hit by federal estate taxes,  state death taxes,  income tax,  generation-skipping taxes,  and penalties.  Of course,  you can always name Scouting as an alternate or contingent beneficiary of your retirement accounts;  just request a change of beneficiary form from your plan administrator.  But there may be a better way.

Another idea for dealing with an IRA or other retirement account is to create a charitable trust in your will that will be funded with your IRA.  Compare the results with that of a testamentary trust that pays income to the grandson for 15 years and then goes to the Cascade Pacific Council.  Of course,  this does not take into account any income or increase in value of the cash,  stock,  or land held by the grandson for this same 15-year period.

Most donors will not give away their retirement accounts during their lifetimes.  There may be some tax disadvantages for lifetime charitable gifts of IRAs. Also many donors like the flexibility of a revocable designation of whatever is left after their lifetime.  Talk with your own tax advisor about your options for your estate and your family.

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Revocable Gifts 

Of course,  gifts by will are always revocable during your lifetime.  However,  there are many other types of gifts that may be changed or revoked.  This may be particularly comforting to those who are concerned about their financial future.

Many donors enjoy naming the Cascade Pacific Council as the eventual beneficiary of an insurance policy or retirement account.  Someday,  this could be a significant gift to Scouting,  and it's as simple as contacting your employer,  insurance agent,  or plan administrator.  However,  if circumstances change and you find that others close to you may need part of all of these assets,  it is simple to change your gift at any time.

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 Noncharitable Gift Planning

Charitable gifts play an important role in the estate planning of many.  However,  there are other plannign strategies that may be combined with these gifts to help preserve your estate for your family and loved ones.  Some of those strategies include:

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National Recognition for Council Endowment Gifts

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