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Planned Giving/Aurora St. Luke's Lifetime Philanthropists

Gifts by will | Gift annuities | Remainder trusts | Pooled income funds

Charitable contributions affect every patient, staff member and department at St. Luke's. Whether it is used to purchase state-of-the-art cardiac surgical equipment or to support the latest in cancer research, philanthropy is a vital ingredient in the formula that has made St. Luke's the high quality institution it is today. To ensure that this excellence continues into the future, gift planning by individuals is extremely important.

St. Luke's Lifetime Philanthropists are dedicated and compassionate individuals who have named St. Luke's as a beneficiary of their estate plan. They may have named St. Luke's as a beneficiary of their will, trust, insurance policy, retirement plan or bank account. They may have established a life income gift, such as a charitable gift annuity, pooled income fund or charitable remainder trust.

Gifts by will - bequests to St. Luke's

Few legal instruments are more important to the people and causes you care about than your will. This document directs the final distribution of your assets and ensures financial security for your family and support for charitable causes.

Bequests to St. Luke's have always been important, and are becoming more so with the cutbacks due to managed care and changes in Medicare funding. Through their wills and other estate plans, Lifetime Philanthropists have supported all aspects of patient care and research.

Through a bequest, you can have a direct impact on the future of medical excellence found at St. Luke's. A bequest also offers you financial advantages as charitable bequests are 100 percent deductible from your taxable estate.

Your attorney can advise you about the different ways to provide for your family and loved ones and, at the same time, provide for charitable causes that have meant something to you during your lifetime. A bequest can be for a specific sum or percentage, or the residue of your estate after specific bequests to loved ones have been satisfied. A bequest can memorialize a family member or friend. Bequests can be restricted for a certain program or research, or unrestricted, allowing St. Luke's the flexibility to use bequests where they are needed most.

We welcome inquires about specific uses for your bequest. We are pleased to work with you and your financial adviser to choose a giving plan that benefits you, your family and St. Luke's. We would be happy to provide sample language you can use when talking with your attorney. Your contributions will be used well into the future to maintain and enhance St. Luke's mission of excellence in health care.

Gifts that give back – life income gifts

This type of gift allows you to touch other people's lives, while at the same time help you meet your personal financial goals. These gifts can be funded with cash or appreciated securities. Options include:

• Charitable gift annuities
• Charitable remainder trusts
• Pooled income funds

The financial benefits of these vehicles varies, but all of these arrangements can do the following:

• Provide annual payments for you and/or your spouse or another person
• Reduce your tax bill with a charitable income tax deduction
• Enable you to "unlock" income from highly appreciated but low-yielding assets while saving, delaying or altogether avoiding capital gains tax
• Offer professional investment management
• Save estate and gift taxes

St. Luke's charitable gift annuities (CGA)

A charitable gift annuity is a simple contract between you and St. Luke's. In exchange for an irrevocable gift of cash or appreciated property, St. Luke's agrees to pay a specific sum of money each year for the remainder of your life and/or the lives of designated beneficiaries. A charitable gift annuity is both a purchase of an annuity and a charitable contribution.

The amount you receive depends upon your age at the time of the gift, the size of the gift, whether the income payments begin immediately or are deferred, and whether or not a second person is to receive annuity income. For example, a donor age 83 is entitled to an annuity rate of 9.7 percent.

You will receive a charitable tax deduction in the year you make the gift. If you cannot entirely use the income tax deduction in that year, it may be carried over for an additional 5 years. The deduction is immediate even if the payment of the annuity income is deferred.

The portion of your income payment that is attributable to the purchase of the annuity is considered to be a return of your own money, and thus, tax-free. The balance is taxed as ordinary income. If you give long-term capital gain property in exchange for a gift annuity, the amount of realized capital gain may be reported ratably over your life expectancy or that of both income beneficiaries. Should you die before the entire gain is reported, the gain not reported would be forgiven.

Example of immediate gift annuity: Mr. and Mrs. Smith, both age 76, donate $50,000 in cash for a 7.1 percent gift annuity. They will receive lifetime annual income of $3,550, which they choose to receive in quarterly payments. Of their annual income, approximately 60 percent, or $2,100, is tax-free. The Smith's income tax deduction the year they make the gift is $16,800, saving them $4,700 assuming a 28 percent tax bracket.(1)

A deferred payment gift annuity allows you to save income taxes now and provide income in your later years. Deferred payment gift annuities are often used as a retirement planning vehicle. You also receive a larger charitable income tax deduction when annuity payments are deferred. The deferred gift annuity also produces a higher annuity rate because you postpone the income payments until a later date, allowing the interest on your funds to compound.

Example of deferred gift annuity: Mrs. Jones, age 55, makes a gift of $50,000 in cash to fund a deferred payment gift annuity. She requests that at age 65, she will begin receiving annual income of $5,800 (a 11.6 percent rate), which she chooses to receive in quarterly payments. Of the total annual payout, $1,500 is considered tax-free. Her charitable income tax deduction is $19,400, saving her $5,400, assuming a 28 percent tax bracket.(1)

Now assume that instead of using cash for her gift, Mrs. Smith gave appreciated stock worth $50,000 with a cost basis of $25,000. Her annual payments of $5,800 will again begin at age 65, and she will receive an income tax deduction of $19,400. $770 of her annual income is considered tax-free. She will have a capital gain of $15,300, as opposed to a $25,000 gain if she sold the property outright. Because the capital gain is reported over her life expectancy, $770 a year is taxed as long-term capital gain beginning at age 65.(1)

(1) Figures cited in examples are based on current rates and subject to  change. Sample rates for a one-life immediate gift annuity:

• Age 65 - 6.7 percent
• Age 70 - 7.2 percent
• Age 75 - 7.9 percent
• Age 80 - 8.9 percent
• Age 85 - 10.4 percent
• Age 90+ 12.0 percent

For a personalized illustration demonstrating the financial benefits for your particular situation, please contact Russ Hinz, Chief Philanthropy Executive, russ.hinz@aurora.org or 414-649-7125. The only information he will need from you to provide the illustration is your birth date. Of course, there is no obligation.

Charitable remainder trusts (CRT)

A charitable remainder trust is a special kind of lifetime trust that offers a way to support your favorite non-profit organization, while at the same time providing you with significant income and estate tax benefits. The charitable remainder trust is really quite simple.

A charitable remainder trust is one where an individual makes a contribution of cash or property in exchange for an income interest, payable for life or for a term of years, not to exceed 20 years, to benefit one or more non-charitable beneficiaries. Upon termination of the trust, the trust's remaining assets (called the remainder interest) are transferred to the charitable organization named in the trust document to be used as you direct. You state at the outset what program you want to eventually benefit from your gift.

Example: John transfers funds to a trustee (often times a bank) who agrees to invest the funds prudently and pay John an income for as long as he lives, or as long as he and another beneficiary live. The payments are either a fixed amount of money or a fixed percentage of the trust asset value (determined annually), whichever John prefers. On his death, the remaining principal will be paid to the organization John has chosen and used to advance a program that was important to John during his lifetime.

Advantages of CRTs

There are many advantages to you when establishing a CRT. You may, in fact, be able to increase your income received from the assets you donate. Let's assume you fund your trust with highly appreciated stock that is currently paying low dividends. Many people are reluctant to sell this type of stock and reinvest the proceeds in a higher yielding investment because the sale will generate a capital gains tax on the appreciation. The trustee of your CRT can sell the stock with no capital gains tax consequences and then reinvest the entire amount, with no reduction in value for capital gains tax, in investments that will provide you with a higher return.

Because the trust gift is irrevocable, you will also receive a current charitable income tax deduction. This tax savings increases the effective yield you enjoy from the trust. The amount of the tax deduction depends upon the ages of the beneficiary(ies), the percentage to be paid, and the fair market value of the assets used to fund the trust. If you fund your trust with cash, you may claim a charitable deduction of up to 50 percent of your adjusted gross income annually. If you fund it with appreciated securities, you may deduct up to 30 percent. If your gift is larger than your allowed deduction in any one year, you may carry over any surplus for up to 5 years.

There is a further advantage if you fund the trust with long-term capital gain property. As mentioned above, there is no tax payable on the capital gain when you fund the trust, nor is the trust reduced in value by the capital gains tax if any assets are sold for reinvestment.

When the trust terminates at your death or the death of the last income beneficiary, there are two other important benefits: No estate settlement costs are paid from the trust assets because they pass outside of probate, directly to a charitable beneficiary and the remainder value is not subject to the federal estate tax.

Types of CRTs

There are two basic types of CRTs, the annuity trust and the unitrust. The difference between them is largely based upon the way they determine the amount of income distributed each year.

The charitable remainder annuity trust pays income based upon the fixed percentage (of at least 5 percent) of the initial value of the assets on the date of transfer. The income remains constant (fixed) regardless of the value of trust assets or investment performance.

Example: Ruth funds an annuity trust with $100,000. She elects to receive $7,000 a year from the trust, payable in quarterly installments of $1,750 each. If the return on the trust assets is greater than $7,000 annually, the excess is reinvested. If the trust earns less than $7,000, the deficiency is made up from principal in order to pay Ruth.

In contrast, the charitable remainder unitrust pays income based upon a fixed percentage (of at least 5 percent) of the annual value of the assets on the annual valuation date. Therefore, the income paid to the beneficiary will fluctuate in direct proportion to the annual trust value. This feature provides flexibility in planning for the effects of inflation. You choose the percentage at the start, which then remains unchanged. A unitrust also allows for additional contributions in subsequent years.

Example: Bob funds a unitrust with $100,000 and arranges a payment to himself of 7 percent, payable in quarterly installments. The first year he gets $7,000 (7 percent of $100,000). When the market value of the trust assets is determined the following year, the value is $110,000. So that year, Bob receives $7,700 (7 percent of $110,000). If the value had dropped to $90,000, Bob would have received $6,300 (7 percent of $90,000).

Your individual situation determines whether an annuity trust or a unitrust is better suited for you. The unitrust lets you benefit from any growth in value of the trust assets and acts as a hedge against inflation. But, as you are well aware, investments don't always appreciate. For this reason, some people like the certainty of the fixed dollar amount they can expect each year from an annuity trust.

The income distribution from the trusts can be made annually, semi-annually or quarterly. You can determine the payout of your income. Income from the trust is first taxed as ordinary income to you.

In addition to providing a vehicle for a meaningful contribution to charity, a charitable remainder trust can give you:

• increased income
• an income tax deduction which can be taken years in advance of the actual receipt by charity of the donation
• the right to have the asset sold without incurring capital gains tax on the sale
• the ability to take the sales proceeds of the sale undiminished by the capital gains tax, and reinvest them in a portfolio that produces much better return
• the ability to diversify those assets
• the ability to better hedge against inflation
• the ability to relieve you of the management responsibilities associated with the contributed asset

Pooled income fund

St. Luke's Pooled Income Fund is a giving plan for those who want to receive income for life with the possibility of income growth. The Pooled Income Fund operates similarly to a mutual fund, with individual gifts combined and invested by professional trustees for the benefit of each donor and eventually for the future support of St. Luke's. All income earned by the Fund's assets is distributed to the participants.

How it works

You can make a gift of cash or appreciated securities to the Pooled Income Fund. You may claim a charitable income tax deduction based on the fair market value of the property in the year you make the gift. You will receive quarterly payments for life from the Fund's net income in proportion to your shares of the entire fund. Your income will vary according to investment performance. You can receive income payments yourself or jointly with another person. Fund payments are taxable as ordinary income.

How it benefits you

• Income for life for you and/or another beneficiary
• Receive an immediate income tax deduction
• Increase the earning potential from gifts of low-yielding assets
• Avoidance of capital gains tax when donating appreciated securities
• Professional management of a diversified investment portfolio
• Possible reduction in estate taxes and probate costs
• No legal fees, as compared to the creation of a separately managed trust
• Personal satisfaction gained from touching the lives of others through your gift

After your interest in the Fund is established, you may make additional gifts to it, either during your lifetime or through your will. At the death of the last income beneficiary, an amount equal to your share in the Fund transfers to St. Luke's to be used for the purpose you have determined.

St. Luke's offers two Pooled Income Funds, each with separate investment objectives to meet your particular financial goals and income needs.

• Income Fund – this fund suits donors who prefer a higher payout. The Fund is invested for the highest current income at the lowest necessary risk for a stable return.
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• Balanced Fund – this fund is for those interested in both income and capital growth over the long term. There is more chance for appreciation, which should produce higher payments over the years.

For a personalized illustration demonstrating the financial benefits for your particular situation, please contact Russ Hinz, Chief Philanthropy Executive, russ.hinz@aurora.org or 414-649-7125. The only information he will need from you to provide the illustration is your birth date. Of course, there is no obligation.