by Susan Shields, OBF President
May 18, 2013

The primary sources of funding for the Oklahoma Bar Foundation (OBF) are IOLTA, Fellows dues, cy pres awards and other contributions made by organizations and individuals during their lifetime.  However, another increasingly important funding mechanism to maintain the grant-making endowment of the OBF is through charitable planned giving.  Charitable planned giving, during lifetime or at death, can take many forms.  The “planning” involved in “planned giving” typically involves a donor (the giver) making a charitable gift that will occur at a future date as a way to support a non-profit charitable entity, such as the OBF.

Many OBF supporters would like to leave a legacy to the OBF after their deaths.  The available options for charitable giving range from simple cash bequests to more complex planning through charitable trusts.  The following is a brief discussion of some common types of planned charitable gifts that we encourage you to consider incorporating into your own estate plan to support the OBF.[1]

Bequests:  A simple form of planned charitable gift is a gift to charity in a will or trust that takes effect upon the death of the donor.  For example, a person may provide for the following type of specific bequest in his or her will or revocable trust:

“Upon my death, I leave the sum of $50,000 (or 5% of my estate) to the Oklahoma Bar Foundation.”

A donor can also leave all or a portion of the residue or remainder of his or her estate (what is left over after specific bequests are made) to charity through a “residuary bequest.”  Another way to accomplish a gift at death is to complete a “pay on death” or “transfer on death” beneficiary designation for a bank account, investment account or certificate of deposit so that any remaining balance in the account will pass to the OBF following the account holder’s death.

Outright Planned Gifts:  While many planned gifts are deferred until a later date, this is not always the case.  In many circumstances a donor may achieve greater income tax benefits by making a charitable gift today rather than including such a gift in his or her estate plan.  Outright gifts can consist of any property that is transferred directly from a donor to a qualified charity such as the OBF, including cash, securities, automobiles, boats, artwork, mineral interests, real estate and personal property.

Cash Gifts:  Cash gifts are the simplest form of charitable gift for both the donor and the charity.  In the case of a cash gift during lifetime, the total amount given to the OBF will usually generate a chartable income tax deduction on the donor’s tax return.  If the gift exceeds 50% of adjusted gross income, the deduction typically may be carried over up to five years or until the deduction is completely exhausted.

Gifts of Securities:  Gifts of appreciated securities to the OBF can result in additional tax savings to the donor.  First, the fair market value of the securities at the time the gift is made may be taken as an income tax charitable deduction.  Further, in most cases, no capital gains tax is paid on the built‑in appreciation of the securities given away, so long as the securities are long‑term capital gain property.  In general, the deduction limit for securities is 30% of adjusted gross income; however, again, any excess deduction can usually be carried over by the donor for the next five tax years.

Gifts of Tangible Property:  Outright gifts can also be made of tangible personal property, including art, jewelry, antiques, automobiles, boats and other items.  If the tangible property given is not related to the recipient’s charitable purposes, then it is deductible only to the extent of its cost basis to the donor.  Charitable gifts of automobiles valued at over $500 are subject to special rules.

Gifts of Mineral Interests and Real Estate:  Mineral interests and real estate may also be given away as a charitable gift.  The tax treatment for gifts of land, mineral interests, farms, homes, and other real property is generally the same as the treatment of appreciated securities.

Gifts in Trust: A donor may wish to give assets to the OBF in a manner that will pay lifetime income to the donor or to a designated beneficiary.  Alternatively, a donor may wish to give an income stream to the OBF for a term of years, retaining a reversionary remainder interest in the gifted assets.  However, a donor is only entitled to a charitable deduction for income, gift or estate tax purposes when he or she makes a charitable contribution by means of a trust if the gifts are made in a qualifying charitable lead trust, a qualifying charitable remainder trust, or a pooled income fund.  These types of charitable trusts require careful planning with your professional tax advisor but can be a win-win charitable gifting strategy for both the donor and the donor’s family and the OBF providing benefits for many years.

Charitable Gift Annuity:  A charitable gift annuity is a contract between the donor and the charity.  The donor makes a gift of cash or appreciated securities qualifying for long-term capital gain treatment to the charity in exchange for the obligation of the charity to make fixed annual payments (an annuity) to the donor for his or her lifetime.  The rate of return is based on the age of the beneficiary or beneficiaries at the time of entering into the annuity agreement.  A charitable gift annuity also involves special planning with the donor and his or her tax advisor and the OBF.

Life Insurance:  Another powerful tool for charitable planning would be to donate a life insurance policy to the OBF, perhaps because the original reasons for the purchase of the policy have been fulfilled.  Donors may also choose to designate the OBF as the primary or contingent beneficiary of a life insurance policy.  Estate tax benefits are generally realized by having these assets pass to charity.  Donors who wish to name a charity as the beneficiary of their life insurance policy get leverage by making a charitable gift at a fraction of the face value of the policy.

Gifts of Retirement Plan Assets:  Donors may also designate the OBF as a primary or secondary beneficiary of a qualified retirement account, such as an IRA or a 401(k) account after the donor’s death.  If the qualified plan assets pass to charity after the death of the account owner, an estate tax charitable deduction will be available and the income tax liability that would be owed if the retirement assets passed to individual beneficiaries will be avoided.

The provision for tax-free distributions of up to $100,000 from IRAs for donors age 70 ½ and older to public charities was also extended until December 31, 2013 in the American Taxpayer Relief Act of 2012 which became effective on January 2, 2013.  This allows qualifying donors to direct the distribution of up to $100,000 in 2013 to the OBF and exclude the amount distributed directly to charity from their gross income.

Conclusion:  The Oklahoma Bar Foundation Inc. (OBF) is the third oldest state bar foundation in the United States and is a recognized tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code.  OBF membership is comprised of all the members of the Oklahoma Bar Association (OBA).  If you are a member of the OBA, you are a member of the OBF.  The charitable purposes of the OBF are accomplished through annual grants that advance legal education and promote the administration of justice throughout the State of Oklahoma.  The stated mission of the Oklahoma Bar Foundation is: “Lawyers Transforming Lives through the advancement of education, citizenship and justice for all.”

All contributions to the OBF are deductible for estate, gift and income tax purposes to the maximum extent allowed by law.  Plan to consult with your professional advisors in order to create the perfect charitable gift program for you and your family, and consider including the OBF as a part of that plan.  All of these charitable giving tools, from the simple to the complex, can be mixed and matched to leave a legacy to the OBF in a way that fits your own financial and family situation.  The OBF Director of Development, Candice Pace, is available to answer your questions regarding the OBF and its planned giving programs at (405) 416-7081.

[1] Consult your professional tax advisor concerning the tax rules applicable to your own charitable giving.  Reference may also be made to Internal Revenue Code Sections 170 et seq. and IRS Publication 526, “Charitable Contributions” for further information.