A life income plan is a product of your desire to preserve and advance what is important in your life. A life income plan can be designed to provide for your future income needs, to express your feelings about your favorite charities, and to reflect your personal investment strategy.
Although there are several types of life income plans that you might consider, they all have certain common provisions:
- A person who creates the life income plan (that would be you).
- A trustee who manages the assets (you select the trustee).
- A life income beneficiary (typically that would be you).
- A remainder beneficiary (that would be one or more of your favorite charities).
Instructions and Delegation
A life income plan is much like a basket. You design and create a basket by making decisions and then weaving the materials into the basket you designed. You design and create a life income plan by making certain decisions and weaving the materials into the plan you have designed. With a basket the materials are wicker or straw. With life income plans the materials are instructions for what your trustee is to do and delegation of authority for that trustee to accomplish what you have instructed at the appropriate times.
Four Roles
- The words "trustmaker," "donor," "grantor," "settlor" or "trustor" all refer to the same person, and that person is you. You make the decisions and create a plan.
- The "trustee" is the person or institution that handles the contents of your trust. The trustee is charged with the duty of following your instructions and is given the authority to do so.
- The "life income beneficiary" or "recipient" is the person (or persons) who receive the income stream from the life income plan arrangement. The plan might pay the specified amount of income for your life, for your life and then for the life of another person, or for a specified number of years. You make such decisions when you design and create your plan.
- The "remainder beneficiary" can be any number of qualified charities that you want to benefit from what is left in the fund after the life income payments cease. A qualified charity is one that is recognized by the Internal Revenue Service as having proper tax exempt charitable purposes and operations.
How a Life Income Plan Is Created
You decide what assets you want to use to create the principal of the life income plan. If cash or easily negotiable securities or life insurance cash value is contributed to your life income plan, such as a trust, the trustee can liquidate the asset without incurring capital gains tax, invest the cash, and pay the agreed amount beginning with the first scheduled payment after the plan is funded. That sequence of events might look something like this.
- You create the planned plan instrument of your choice. Greensboro College or another person or institution of your choice is appointed trustee, you are the life income recipient of a specified income stream typically referred to as the "unitrust amount" and you name one or more of your favorite charities as remainder beneficiaries.
- You transfer to the trustee the assets you decide to place into the life income plan.
- The trustee liquidates the assets and invests the proceeds in the Greensboro College endowment (if Greensboro College is named as trustee), which is professionally managed by experts outside the College.
- Each year thereafter, for as long as you live or for a specified number of years, the trustee pays you the unitrust amount (typically expressed as a percent of the principal in the trust) as reckoned on the annual valuation date. The unitrust amount can be paid on a schedule you select. It might be paid monthly, quarterly or annually.
- In the case of a unitrust, if the trust principal earns more than the unitrust amount being paid to you, the excess is added to principal. The next year the value of the principal, then, will have increased, and the payout percentage is calculated against a larger amount, thus producing more dollars to be paid to you for that year. Similarly, the principal might decrease if investments produce less than the amount paid to you, and the subsequent unitrust payment, still at the agreed percentage, would produce less dollars.
You may always add to the principal of a unitrust if you desire to do so over the years.
In the case of an annuity trust, the life income payment amount is set when the plan is created, and changes in the principal from year to year do not change the amount of the payments.
- When you pass away, whatever remains in the trust (called the "remainder") passes to one or more charitable remainder bene-ficiaries you named in the instrument.
NOTE: You may name more than one charity as remainder beneficiary. You may specify the uses of your gifts (scholarships, capital projects, endowment, annual fund, etc.) or you may defer to the leadership of the charity to determine how the gift would best serve the purposes of the charity at the time it receives your gift.
Summary of the Benefits
There are financial benefits, management benefits and personal and spiritual benefits that flow from creating a life income plan with the remainder passing to your favorite charities.
Financial Benefits
- Income. Your income may be increased compared to what you are presently receiv-ing from the asset you use to create your life income plan. This consideration is an important one in designing a life income plan.
- Income Tax Deduction. You may claim an immediate income tax deduction for the present value of the remainder passing to charity. If the rules do not allow you to utilize the full deduction the first year, you may carry that deduction forward for five years.
- Avoidance of Capital Gains Tax. Capital gains tax may be avoided on the liquidation of a capital asset allowing the full proceeds to be invested instead of merely the net after tax proceeds.
- Avoidance of Estate Tax. An asset placed in a life income charitable plan will not be included in your taxable estate.
Management Benefits
- Assets in a life income plan do not become entangled in guardianship pro-ceedings if you become incompetent.
- Assets in a life income plan do not pass through costly, time consuming, public court proceedings after you pass away. The instructions you write into the life income plan document control where the remainder goes and how it is used.
Personal and Spiritual Benefits
The personal and spiritual benefits of creating a life income plan favoring your favorite charity or charities are priceless. There is no better way to act on your values and to preserve and advance what you hold as important and worthwhile in your life than a charitable life income plan.
Timing
How important is timing? When will a person become incompetent? When will a person pass from this life? Of course, no one knows for certain.
What is certain is that basic and advanced estate planning can be accomplished only by a person who is legally competent. Should a person become incompetent or die, the window of opportunity for planning is closed. If competence is restored, the window may reopen.
Estate planning may be compared to auto, fire or life insurance. By the time you need it, it is likely too late to get it. Traditional wisdom tell us something about estate planning in the phrase, "An ounce of prevention is worth a pound of cure."
Please feel free to call at your convenience if you have any questions. I look forward to discussing these matters with you and to answering your questions. Our goal is to help you understand these matters in order that you, in your own time and in consultation with your professional advisors, can make informed decisions that reflect your feelings and accomplish goals.
Conclusion
A life income plan at Greensboro College is your opportunity to provide for yourself and your loved ones during life and to preserve and advance what is important to you.
Implementing a life income plan specific-ally tailored to your values, goals and interests is very easy and can produce many worthwhile results. Such a gift can be an integral part of a carefully considered estate plan that will provide numerous benefits and protections to you, to your loved ones and to other named beneficiaries.
Your plan will take shape and provide the desired results only when you move forward, create the necessary instruments and fund the trust or trusts.
Discover
Call Dr. Don Lassiter, Assistant to the President and Director of Planned Giving, (336) 272-7102, extension 223 to discover how a life income gift might serve your personal values, goals and interests.
This discussion of basic estate planning concepts is not legal, tax or financial advice and is provided for educational purposes only. Legal, tax or financial questions should be directed to your professional advisors for discussion in context with your personal situation.
Office of Planned Giving
Greensboro College
815 West Market Street
Greensboro, North Carolina 27401-1875
336-272-7102, extension 223
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