Bequests can be made by will or revocable trust, and can take a variety of forms, such as a specific amount, a percentage of your estate or a certain asset. You can also name Akshaya Patra as the "residual beneficiary" of all or part of your estate after other bequests have been made, or as a "contingent beneficiary" in the event other named beneficiaries do not outlive you.
Charitable Remainder Trusts
Charitable Remainder Trusts are flexible vehicles that allow you to make a charitable gift but retain an income stream (for yourself and/or others) for life or a fixed number of years.
These tax-exempt trusts are particularly well suited for gifts of cash and appreciated securities or other assets such as real estate or securities producing little or no income. Because the trust is tax-exempt, it can sell the asset without incurring capital gains tax and reinvest for higher yield.
There are two general types of charitable remainder trusts:
• With a charitable remainder unitrust, you receive a fixed percentage (minimum 5%) of the trust's assets each year.
• With a charitable remainder annuity trust, you receive a fixed dollar amount each year, which is determined at the time the trust is funded.
With a charitable remainder trust, you will receive an immediate income tax charitable deduction in the year the gift is made, avoid capital gains when making a gift of appreciated securities and reduce estate tax liability.
Charitable Lead Trusts
With a charitable lead trust, income payments are made initially to Akshaya Patra for a term of years or for the lives of individuals. At the end of the term, the remaining assets pass to heirs or other individuals you designate. Charitable lead trusts can be established during life or by will.
Although you do not receive an immediate income tax charitable deduction for the gift, you will receive a federal gift tax deduction for the value of the income interest passing to the Akshaya Patra. In addition, you are not taxed on any income earned by the trust.
The IRS permits donors to charitable lead trusts to assume a rate of growth. Any rate of appreciation that exceeds the assumed rate ultimately passes to heirs free of gift tax. You can use all or part of your gift tax exemption amount to offset or eliminate entirely any gift tax upon initially funding the trust. Finally, the trust assets will be removed from your estate for estate tax purposes. (Please consult your attorney about gifts to grandchildren which may result in Generation Skipping Transfer Tax.)
There are two general types of charitable lead trust:
• With a charitable lead unitrust, Akshaya Patra will receive a fixed percentage of the trust's assets each year.
• With a charitable lead annuity trust, Akshaya Patra will receive a fixed dollar amount each year, which is determined at the time the trust is funded.
Retirement Plan Assets
When retirement assets pass to your heirs, these assets can be subject to both estate and income taxes which can total more than 70% of the assets. A donor can elect to avoid these taxes by designating Akshaya Patra as the beneficiary of their retirement accounts and designating other assets (such as appreciated stock with a stepped-up cost basis) to their heirs.
A second alternative is to name a charitable remainder trust as the beneficiary of your IRA or qualified retirement plan. The trust can benefit your family for a period of time that you specify, no income taxes will be due on the assets at your death and your estate tax liability will be reduced. When the trust term ends, the remaining trust assets will pass to Akshaya Patra.
You can make a gift to Akshaya Patra by naming Akshaya Patra as the beneficiary of a life insurance policy. You may also irrevocably designate Akshaya Patra as the owner and beneficiary of a paid-up insurance policy. In that case, you will receive an income tax charitable deduction equal to the lesser of the "replacement" value or cost basis of the policy.
You can also use life insurance as a wealth replacement asset. You may replace the dollar value of an asset transferred to Akshaya Patra with a life insurance policy of which your family members are beneficiaries. The income tax and other tax savings from your gift to Akshaya Patra are often more than enough to cover the cost of the insurance premiums.