Each day we hear reports of the increase or decrease in the stock market. These reports help those who own stock follow the value of their particular investments.

Many supporters of EMM purchase and hold stock as part of their financial plans. Although an increase in the value of the stock is desirable, it can also lead to a dilemma for the owner. The stock must be sold in order to take advantage of the increased value. However, the proceeds from the sale of the stock are significantly reduced by the taxes due on the increase in value.

This is where an organization like Eastern Mennonite Missions can help. As a charitable organization, EMM can sell stock without paying any taxes. This exemption from taxes allows EMM to help its supporters maximize the value of the stock they own. This brochure identifies three ways this can happen.


Outright Gifts
The simplest stock gift is an unconditional transfer of ownership. This outright gift provides two advantages to you as the donor. You receive a charitable deduction for the current market value of the stock, and you avoid the capital gains tax that would have been due upon sale of the stock.

Example 1
Carlos and Marie Campana own 400 shares of stock that they bought 18 years ago for $20,000. The current market value of the stock is $32,000. The Campanas would like to donate $8,000 to EMM. If they sell 100 shares at $80 per share, they will have to pay capital gains tax of $600, leaving only $7,400 to contribute.

If they give 100 shares directly to EMM, the Campanas will receive a charitable deduction for $8,000, the fair market value of the stock on the date of the gift. In the Campanas’ 38 percent tax bracket, this amounts to a $3,000 deduction. Additionally, they will avoid the $600 capital gains tax that would have been due if they had sold the stock.


Charitable Gift Annuities
A second option for a gift of stock is a charitable gift annuity. In this arrangement, you agree to give stock to EMM in exchange for a lifetime flow of income, a portion of which is nontaxable income. This allows you to make a gift to EMM while continuing to receive the income you need. You also receive a charitable deduction for a portion of the value of the stock you contribute, and avoid the capital gains tax that would have been due upon sale of the stock.

The persons you designate to receive the annuity are the beneficiaries. The amount of the annuity paid to the beneficiaries is based on the market value of the stock and the ages of the beneficiaries. The older the beneficiaries, the higher the annuity.

You may name yourself, family members, or anyone else as beneficiary of the annuity. If you name two beneficiaries, the annuity will continue to be paid until the last beneficiary passes away. After the last beneficiary has passed, the funds remaining in the annuity will be available for EMM to use in its ministries.

You also have the option to defer payment of the annuity until some future date. This allows you increased tax planning by delaying the annuity income to a period when your taxable income may be decreased.

Example 2
Robert and Carol Richardson are both 70 years old. They are considering selling some stock they own, which has a market value of $40,000. They bought the stock 15 years ago for $5,000. They would like to re-invest the proceeds from the sale for income to meet their living expenses. After paying capital gains tax of 20 percent on their gain from the sale, they would have $33,000 to reinvest.

The Richardsons decide instead to use the stock to fund a charitable gift annuity, naming themselves as the beneficiaries. In exchange for the gift of stock, EMM agrees to pay them 5.9 percent, based on the market value of $40,000. This annuity of $2,360 will continue for the remainder of their lives, and only $950 of the $2,360 will be considered taxable income. The Richardsons avoid the $7,000 capital gains tax and receive an $11,700 charitable deduction, which they can use on this year’s tax report.


Charitable Remainder Trusts
In some situations, you may need to continue to receive a flow of income after the gift of stock, but a charitable gift annuity may not be flexible enough to accomplish your goals. A charitable remainder trust may be more appropriate.

A charitable remainder trust is a legal entity capable of owning and selling stock and other assets. You create the trust and transfer ownership of the stock to the trust. The trust sells the stock, invests the proceeds, and provides an income flow to the beneficiaries named in the trust document. When the final beneficiary has passed away, the balance of the trust principal is forwarded to the charities named in the trust.

A charitable remainder trust allows you a charitable deduction for a portion of the value of the stock placed in the trust. As a charitable trust, the trust can sell the stock and avoid the taxes associated with selling the stock, allowing all of the proceeds from the sale to remain in the trust.

The additional flexibility of a trust allows you:
• the option of making more than one contribution to the trust. You may make these additional contributions with additional stock, or other types of assets.
• to name more than two beneficiaries to receive the income from the trust.
• to base income paid from the trust on the fair market value of the trust. This allows income to increase as the market value of the trust increases.
• to limit the life of the trust to 20 years or less.

Example 3
Joseph and Lisa Guntz are both 70 years old and have three adult children. Their assets include 500 shares of stock they purchased 18 years ago for $35,000. The stock’s market value has risen to $180,000. The Guntzes currently receive $5,400 per year, providing them a three percent return on the value of their stock.

The Guntzes decide to create a charitable remainder trust and gift their stock to the trust. The trust will pay them seven percent of the value of the trust for the remainder of their lives. They will receive $12,600 annually, and at their passing, the balance of the trust will be forwarded to EMM for use in its ministries.

In addition to the increased income, the Guntzes receive a $56,000 charitable deduction that they can use to offset their taxable income this year. They may carry any part of the deduction they are unable to use this year over for the next five years, until they deduct the entire amount. Additionally, they are able to avoid the capital gains tax of $29,000 that would have been due had they sold the stock for $180,000.

By using a charitable remainder trust, the Guntzes are able to:
• increase their annual income from their property from $5,400 to $12,600. (See note below.)
• avoid capital gains tax of $29,000 on the sale of the property.
• receive a charitable deduction of $56,000 that can reduce their taxable income in this year and in future years.
• experience the joy and satisfaction of knowing they have made a significant impact on the ministry of EMM.

Note: In some situations, the donors place this additional income in a wealth replacement trust. In the above example, the Guntzes would use all or a portion of the additional $7,200 income to fund a wealth replacement trust. The wealth replacement trust would purchase a $180,000 life insurance policy, naming the three children as beneficiaries. At the Guntzes’ passing, the $180,000 policy would pay $60,000 to each of their children, while EMM would still receive the balance of the charitable remainder trust.

These are just a few examples of how you can use gifts of stock to further God’s kingdom and help you meet your financial goals. If you have additional questions about stocks, or if you would like to discuss in detail how a gift of stock may be appropriate for your situation, please feel free to contact EMM’s director of financial resources at 717 898-2251.

Other financial planning resources available from Eastern Mennonite Missions: Charitable gift annuities; Charitable remainder trusts; Gifts of real estate; and Gifts of retirement funds.

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Examples based on rates adopted on 5/12/03 by the American Council on Gift Annuities. Please contact Eastern Mennonite Missions’ director of financial resources for current rates. Examples are fictitious and do not refer to actual transactions.

Eastern Mennonite Missions is not engaged in rendering legal or tax advisory services. For legal or tax advice, please consult your own professional advisor.

Other ways to give

Bequests
A bequest is the simplest planned gift, given after your death through a directive in your will. It can be in the form of real estate, retirement funds, or stock.


Charitable Gift annuities
A charitable gift annuity allows you to make a contribution to EMM in exchange for a fixed flow of income for the rest of your life. more >>


Charitable remainder trusts
A charitable remainder trust allows you to make a contribution to EMM, with flexible options for how you want EMM to manage the trust’s assets. You may name yourself, or anyone else you choose, as the beneficiary. more >>


Life insurance and retirement plans
These assets offer various opportunities for benefiting your family and EMM’s family. The rules regarding gifts of retirement funds continue to change. To discuss the options available, contact Don Brubaker at 717 898-2251.