Bequests Included in Wills
One of the most common ways for you to make a gift to the TAPPI Foundation is through a bequest in your will. The tax laws encourage bequests; consequently, a bequest is an excellent way to support TAPPI’s programs.
Bequests work particularly well for those who are unable to make an immediate outright gift, but would like to aid the Foundation in the future.
THERE ARE THREE BASIC CATAGORIES OF BEQUESTS:
Specific bequests take the form of an outright gift of securities, a specific fund of money or other property. In your will, you describe one item and you give that particular item to TAPPI. Specific bequests are usually honored after debts and expenses of your estate are paid and before other bequests are distributed.
General bequests do not provide for the source of payment of the bequest. For instance, you may wish to transfer $25,000 to TAPPI. With a specific bequest, you might designate $25,000 from your Money Market account at XYZ National Bank. With a general bequest, you would simply state, "I give the sum of $25,000 to TAPPI." Your executor may honor the bequest from any available source in your estate.
With a residuary bequest, you take care of what remains of your estate after all expenses, debts and taxes have been paid and all specific and general bequests have been honored. If you don’t make arrangements for your residuary estate, any asset not mentioned specifically in the will is treated as if you had died intestate (without a will).
THERE ARE TWO VARIATIONS OF BEQUESTS:
A contingent bequest takes effect only in the event that all other bequests, for whatever reason, fail. This type of bequest is not one of the basic categories- that is, specific, general, or residuary. Instead, it’s a rider that attaches itself to a bequest and comes into play only when certain conditions are met. It is an excellent way to include the Foundation in your will.
Charitable bequests are similar to contingent bequests in that they, too, overlap the basic types of bequests. TAPPI, for instance, can be the beneficiary of a specific, a general, or a residuary bequest. You may make charitable bequests either outright or in trust (using one of the excellent gift mechanisms mentioned earlier).
When you make a bequest to the Foundation, your taxable estate is reduced by a 100 percent estate tax deduction for the amount of a cash bequest, or the fair market value of property. This deduction results in tax savings whenever the taxable estate - after other deductions - exceeds the amount offset by individual estate tax credits. Because the estate tax rate schedule is progressive (the rate of taxation increases with the size of the estate), the larger the taxable estate, the greater the potential tax savings per dollar given.
Example:
Mrs. Youngblood, a widow, had her attorney draft a new will stating that, upon her death, an amount equal to the unified estate and gift tax credit equivalent should be transferred outright to her daughter. The remaining estate would be given to the Foundation to establish a charitable remainder annuity trust, which would pay her daughter a fixed dollar amount-equal to six percent of the initial value of the trust principal -for the rest of her life. By utilizing the outright transfer and the charitable trust, Mrs. Youngblood ensured that after debts and funeral expenses the bulk of her estate, now worth $775,000 would be put to work for her daughter.
Mrs. Youngblood died, and the terms she expressed in her will were carried out as follows: $600,000, an amount equal to the unified credit equivalent, was transferred to the daughter.
$175,000, the remaining estate, was transferred to the TAPPI Foundation to establish a charitable remainder annuity trust. Income payments, again, go to the daughter for the rest of her life.
Because of the charitable trust, which resulted in a federal charitable estate tax deduction of $87,052, the federal estate taxes were $32,541. Had Mrs. Youngblood not used this method of transferring her estate, the federal estate taxes would have been $65,250. Therefore, the use of the charitable trust enabled the daughter to have $32,709 more working for her well-being.
Had Mrs. Youngblood elected to make her $175,000 gift to the Foundation outright or in a trust of which TAPPI Foundation was the sole beneficiary, there would have been no federal estate taxes. In this case, the estate would have passed tax free.