WHY DOES SFC NEED PLANNED GIFTS?

As protectors of the land we own and stewards of the conservation easements we hold, SFC has mad a commitment to guard these lands in perpetuity. The implication is that SFC can only do this if, as an organization, it survives forever. Nobody really knows how long that is, but only a few of the very oldest organizations in the United States have been around for more than 200 years. Many more have ceased to exist. One of the best ways an organization can ensure that it will survive for many, many years is to have a solid endowment that grows with time.

Planned giving is one of the principle ways that an organization can build up its endowment. And just as importantly, it is one of the most cost-effective ways to donate to a good cause with considerable tax benefits to the donor.

This guide is only intended to scratch the surface on each of the issues it covers. For detailed information on how to make and benefit from a planned gift, set up a trust, or make a bequest, consult a tax attorney, accountant or financial planner. The guide is designed to be an introduction to planned giving and is not intended to serve as legal advice.

Planned giving generally refers to methods that donors can use to provide financial support to charitable and non-profit organizations and still receive income and/or tax savings as a personal benefit. While planned giving may take a variety of forms, it is based on three principles:

           A gift of value is made to a nonprofit or charity

               Tax benefits accrue:

Income Tax (deductions)

Estate Tax (savings)

Capital Gains Tax (avoided)

                Beneficiaries may receive income

The following explains the calculations that are used throughout this guide to illustrate the various forms of planned gifts and the tax benefits that can be realized. They are for illustration only and your actual tax benefits will depend on your personal circumstances.

(Value of the Gift) x (Income Tax Bracket) = Tax Savings

The easiest way to make a gift to the Sierra Foothill Conservancy is by making a cash donation. In most cases, the amount of the donation is deducted from your taxable income. You can only claim a charitable deduction for a cash gift if you itemize deductions. The benefit to SFC is that this money can be used immediately to pay for operating expenses or conservation projects.

Example: An SFC member who itemizes deductions sends SFC a check for $1,000. The member, who is in a 28% federal tax bracket and a 9% state tax bracket takes a $1,000 charitable deduction on their tax returns. This reduces the total income tax by $370 (37% of $1,000). The actual cost of this $1,000 gift is $630.

Tax Deduction of $1,000                                       $1,000 Cash

The sale of property that has appreciated in value and has been owned for more than twelve months usually results in a long-term capital gain tax that is due on the increased value of the property. If the appreciated property is donated to the Sierra Foothill Conservancy, the donor not only receives an income tax deduction but also avoids capital gains tax on the increased value of the asset. The benefit to SFC is that income generated by the endowment can be used for operating expenses or conservation projects.

Example: A supporter from Madera County wants to ensure that SFC continues to protect land in the Millerton Lake watershed. She donates $100,000 in appreciated stock to the SFC Endowment. The stock has a cost basis (original purchase price) of $10,000 which results in a capital gain of $90,000.

Tax Deduction of $100,000                                         $100,000 in stock

Capital Gain Tax on $90,000 Avoided

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Many valley and foothill residents have real estate that has appreciated greatly over the past twenty years. Supporters who donate land to the Sierra Foothill Conservancy receive an income tax deduction for the value of their donation, avoid capital gains tax and protect the land. SFC can either keep the land or place a conservation easement on the land and then sell it and use the income for stewardship and other expenses.

Example: A Fresno County member donates 320 acres of grazing land to SFC while reserving 40 acres of adjacent land for a home site for his daughter. He purchased the land for $80,000 twenty-two years ago but the current appraised "fair market" value of the land is $300,000. This creates a long-term capital gain of $220,000.

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A conservation easement is legal restrictions placed on the use of land for purposes of protection. If the terms of the conservation restrictions meet I.R.S. requirements, the donor may deduct as a charitable contribution the difference between the value of the property before and after the restrictions go into effect. These values must be determined through a qualified appraisal. SFC benefits by having land permanently protected as well as providing inspiration for other property owners in the area to place conservation easements on their land.

Example: A local rancher donates a conservation easement on 1,200 acres of grazing land, reserving four homesites for himself and his family. He can continue to use the land to graze his cattle as he has always done but no other use of the land is permitted. An appraiser determines that the land was worth $192,000 before the restrictions went into effect but is only worth $90,000 afterwards. The value of the gift is $102,000.

The donor realizes the income tax savings while retaining ownership of his land to be used as he has always used it. There is also a significant potential for the avoidance of capital gains tax or estate tax should the property be sold or left to an heir (depending on the total value of the estate).

Income Tax Savings of $37,740                Conservation Easement

Continued use of the land for grazing

A donor can also make a gift of real estate to SFC while reserving the right to use the property for the rest of their life (Life Tenancy). If the property is a personal residence, ranch or farm, the donor may deduct the value of the "remainder interest" as an immediate charitable contribution. The "remainder interest" is the current value of the property reduced by inflation and donor usage until the time SFC inherits the property. I.R.S. actuarial tables are used to determine the remainder interest based on the donors age. Upon the death of the donor, the land can be sold with (or without) a conservation easement and the proceeds used to build the SFC Endowment.

Example: A husband and wife, both age 80, have donated a remainder interest in their ranch to the Sierra Foothill Conservancy, reserving the right to operate the ranch during their lifetimes. The property is valued at $350,000. Under I.R.S. actuarial tables, the remainder interest has a value of $167,300 (47.8%), resulting in income tax savings of $61,901. In addition, the value of the ranch will be excluded from their estates, possibly saving thousand of dollars in estate taxes.

Donor Receives                                         SFC Receives

Tax Deduction                                           Value of Property

Protection of Land                                    when inherited

Lifetime Use of the Land

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A charitable remainder trust is a type of life income gift which allows a donor to make a gift to SFC and perhaps even increase income from a low-yielding asset (real estate or securities), while creating charitable income tax deductions and avoiding capital gain tax. SFC benefits by inheriting the remaining principle from this irrevocable trust upon the death of the donor.

Example: A member from Kingsburg, age 70, owns a second home at Shaver Lake that he bought in 1972 for $31,000. He seldom, if ever, uses the house anymore which is now worth $185,000. Last year the house cost him over $2,500 in taxes, insurance and repairs. Sale of the house would cost him nearly $67,000 in capital gains taxes and transaction fees leaving him $118,000 to generate income. He donates the house to the trust and the trustee sells the property for a net $175,000 used to produce a 6% annual payment to the donor. The donor receives a tax deduction of $87,000 (present value of the gift) and an annual income of $10,500. The value of the gift is excluded from the donor’s estate.

Income Tax Deduction                         Principle from the Trust

Life Income

Capital Gain Tax Avoided

Charitable remainder trusts can also be funded with land. Combined with a gift of a conservation easement, the donor can protect the land, receive a tax deduction, increase income, and avoid capital gain tax. The benefit to SFC is the easement (protection of the land) and the principle from the trust upon the death of the donor.

Example: A member from Fresno, age 72, owns land currently valued at $200,000 that she purchased for $20,000 seventeen years ago. She would like to protect the land and generate some income. First, she places conservation restrictions on the land and then she transfers ownership of the land into an irrevocable trust. The trustee will sell the land subject to the conservation restrictions (now valued at $100,000) and invest the proceeds to produce trust income which pays the donor $6,000 per year.

Many Tax Benefits:                                  Principle from the Trust

(Income, Capital Gain, Estate)               Conservation Easement

Protected Land

Income for Life                                                           

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Possibly the easiest way to make a gift to the Sierra Foothill Conservancy is through a bequest. Bequest provisions in a Will work particularly well for people who want to support SFC but are not able to make an immediate outright gift. Donors may benefit from an unlimited charitable estate tax donation.

There are several types of bequests:

Specific: Bequests that take the form of an outright gift of money, securities, or other property.

Example: A donor bequeaths $10,000 and 500 shares of stock to SFC.

Residual: The testator leaves the remainder of his or her estate to one or more persons or charities after all other bequests have been made.

Example: A member bequeaths 50% of the rest and residue of his entire estate to SFC.

Contingent: This type of bequest takes effect only in the event that all other bequests fail, for whatever reason.

Example: A supporter leaves her entire estate to SFC, provided her spouse and children all fail to survive her.

Testamentary Trust: All or part of the estate is placed in a trust to provide income for heirs. To receive the tax benefits allowed by law, the trust must eventually pass on to a qualified charity

When you make a bequest to SFC, the taxable estate is reduced by 100% of the value of the bequeathed property. Depending on the size of the estate, the tax savings could be as high as 55% of the value of the bequest.

A charitable provision can be written into a Will to provide income for a beneficiary by directing assets from the estate to a charitable remainder trust. This "testamentary trust" not only benefits the beneficiary and SFC, but it also provides a charitable estate tax deduction for the estate. SFC benefits when it receives the residual from the trust. When the donor writes SFC into his Will, he has the option of choosing how the gift will ultimately be used after the beneficiary’s death. For example, he could restrict the use of the funds exclusively for the expansion of existing preserves.

Example: Bob’s estate is worth $1.2 million and includes a vacation home in Oregon valued at $250,000. Bob wants to provide for his daughter after his death, but she has no interest in keeping the home. Bob directs his will to donate the home to SFC in the form of a charitable remainder trust. The trustee of the trust will sell the home and invest the proceeds to produce income for Bob’s daughter for as long as she lives. When she dies, the trust principle passes to SFC for their endowment, as Bob directed.

Life Income for Daughter                                Trust Principle

Estate Tax Reduction

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