Non-Profit Corporation
Why we use the non profit corporation for our clients.
When we discovered the non-profit corporation as a component of an estate plan for a wealthy client, we
were ecstatic! Less restrictive than a private foundation, it was precisely the charitable receptacle that wanted for our clients. Conventional wisdom tells us that only the “super rich” may play the game of gifting to charities to save
on taxes. Many people think: “These games are played by the Gates’, the Rockefeller’s, the Kennedy’s,
the Ford’s and the Mellon’s, but not people like me.” However, with the advent of the non-profit
corporation, even the wage earner can save tax dollars by gifting to his/her own non-profit corporation
once it’s established.
How the nonprofit corperation works:
A non-profit corporation is established with the name of the family, the name of a deceased family
member the family wishes to honor, or another name of the founding family’s choice.
By setting up your own non-profit corporation, you’ll be able to give money in the name of your family
every year in perpetuity to the causes of your choosing. The ongoing donations will help ensure your
chosen causes will continue to exist and serve the world of your children and grandchildren. And you
and your family members can gain rewarding experience in social entrepreneurship while building a
legacy of meaningful and lasting change in the world.
Imagine if thousands of people in our community supported local schools, churches, parks, hospitals,
medical research, or ecology. It would be like funding a war chest to fight for what is good…forever.
The icing on the cake: your gift to charity saves income, capital gains and estate taxes
for your family!
Structuring your nonprofit corporation:
Example 1: Gifting Charitable Remainders in Homes, Ranches and Farms to Your Non-
Profit Corporation
Let’s say you live in Sun City, Arizona. None of your children want or need your home. You want to
help charities and save on taxes so that you have more money to travel. You can give your non-profit
corporation a deed gifting the “remainder” interest in your home (what is left of your home after both
spouses die).
Your accountant looks at the IRS tax tables and finds that this remainder interest is worth 25% of your
home’s fair market value of $400,000. Eureka! You now have $100,000 in tax deductions! Any
deductions that can’t be used this year will be used as deductions in the next five years. When you die,
your home will be placed in your non-profit corporation to memorialize your name and benefit your
charities in perpetuity.
If you are in the highest tax bracket, with this scenario you’ll have more than $50,000 in tax refunds to
spend on your bucket list!
Example 2: Pre-Paid Tithing with Your Non-Profit Corporation
You are presently giving $10,000 per year to your alma mater, your church, a shelter, or some other
charity. When you donate this cash, you are donating “after-tax dollars”, money on which you already
paid taxes. You hope that next year when you file your tax return you’ll see some of that money returned
to you in tax deductions.
If you instead gave $100,000 in cash, bonds or other income-producing or appreciated property to your
non-profit corporation, the non-profit corporation could continue to invest and earn tax-free cash on
your gift. In fact, the non-profit corporation could even sell the property you donated without incurring
capital gains taxes and invest that money elsewhere.
Assuming an average 10% return, the fund could earn $10,000 (or more) per year in tax-free cash. You,
as the charitable advisor of your non-profit corporation, could then donate your yearly $10,000 to the
charities of your choice…all tax-free.
Best of all, you would receive an up-front tax deduction of $100,000 that could be worth up to
$50,000 cash to you in tax savings. This process of gifting enough income-producing property to
finance your current level of charitable gifting is called Pre-Paid Tithing.
Example 3: The Remainder from Retirement Plans, Deferred Annuities, and Charitable
Remainder Trusts
The non-profit corporation is the ideal contingent beneficiary of the retirement plans in large estates.
When the participant spouses – husband and wife – both die, the loss to double taxes (estate tax and
income tax) could be as high as 80%. If your retirement plan remainder is instead given to your non-
profit corporation, 100% of the leftover funds end up in the non-profit corporation, under the
supervision of your family, when husband and wife die.
A similar problem exists with deferred annuities. When the owner of a deferred annuity dies, there is a
loss to double taxes unless the annuity is given to the non-profit corporation upon the owner’s death.
You may also use your non-profit corporation as the remainder beneficiary of your Charitable
Remainder Trusts. Since the non-profit corporation is treated as a public foundation, all assets left in the
Charitable Remainder Trust are transferred to the non-profit corporation upon the lifetime beneficiary’s
death, and the family manages the funds in perpetuity.
Many families choose to use tax savings to buy Wealth Replacement Life Insurance to finance the
policies in irrevocable trusts for children or grandchildren, to replace the insurance proceeds that are
donated to the non-profit corporation. WOW! This gives the family ownership and control over MORE
wealth than they had at the passing of the older generation!
The non-profit corporation may be used as the contingent beneficiary of a Charitable Remainder Trust
for life insurance purchased for an Irrevocable Life Insurance Trust to replace (tax-free) the money that
was given to the charity, using tax savings to pay for the premiums. We refer to this arrangement as the
“triple-whammy” because (1) you receive retirement funds as long as you and your spouse are living, at
a return of up to 10% per annum on your fund, (2) your family receives tax-free insurance proceeds, and
(3) your non-profit corporation receives funds that your family can donate to the charities that are close
to your heart.
This arrangement requires complex “legal surgery.” Before setting up such an arrangement for you,
we’ll want to schedule a “legal biopsy” to (1) review the legal documents you presently have in place;
(2) meet with you and your advisors in person or on a conference call to diagnose how, and if, to
integrate these structures into the holistic pattern of your entire estate. (No good surgeon will perform an
operation without a very thorough examination of the patient.) We can discuss further the mechanics of
this legal biopsy, and you can expect to receive (1) a legal architecture diagram of your recommended
estate plan, and (2) a coordination letter detailing what legal structures and moves your situation requires
to minimize confiscation taxes, maximize asset protection, and bring your family additional benefits.
The “WIN-WIN-WIN” results from nonprofit corporation: Direct Benefits
Giving to your own non-profit corporation is actually a “win-win-win” situation for you, your charities,
and the government. The funds you put away in your non-profit corporation help solve social problems
that might otherwise have required government money, all without the expense of government
bureaucratic middlemen.
When you make a gift of cash to a non-profit corporation, you are gifting to a public charity, and you
qualify for charitable deductions up to 50% of your “adjusted gross income” (i.e. your taxable income).
For example, if you were going to be taxed on $50,000 of taxable income, after all other lawful
exclusions and deductions, you could gift up to $25,000 to your non-profit corporation and then deduct
the entire donation, thus reducing your taxable income to $25,000.
When you make a charitable gift of appreciated stock or appreciated land on which you would have paid
a capital gains tax (had you sold it), you may deduct this gift of appreciated property up to 30% of your
“adjusted gross income.”
If you exceed the charitable gifting limitations in any single year, however, you may carry these
charitable tax deductions forward into the next five years.
A second example: in late December, the time of year when clients are notified by their CPA of the
(sometimes) gloomy news about their likely “adjusted gross income” for the year, we suggest making
some quick charitable gifts, preferably non-cash gifts of appreciated property, into the non-profit
corporation to gain those additional charitable deductions.
If you instead gave $100,000 in cash, bonds or other income-producing or appreciated property to your non-profit corporation, the non-profit corporation could continue to invest and earn tax-free cash on your gift. In fact, the non-profit corporation could even sell the property you donated without incurring capital gains taxes and invest that money elsewhere.
Assuming an average 10% return, the fund could earn $10,000 (or more) per year in tax-free cash. You, as the charitable advisor of your non-profit corporation, could then donate your yearly $10,000 to the charities of your choice…all tax-free.
Best of all, you would receive an up-front tax deduction of $100,000 that could be worth up to $50,000 cash to you in tax savings. This process of gifting enough income-producing property to finance your current level of charitable gifting is called Pre-Paid Tithing.
Example 3: The Remainder from Retirement Plans, Deferred Annuities, and Charitable Remainder Trusts
The non-profit corporation is the ideal contingent beneficiary of the retirement plans in large estates. When the participant spouses – husband and wife – both die, the loss to double taxes (estate tax and income tax) could be as high as 80%. If your retirement plan remainder is instead given to your non-profit corporation, 100% of the leftover funds end up in the non-profit corporation, under the supervision of your family, when husband and wife die.
A similar problem exists with deferred annuities. When the owner of a deferred annuity dies, there is a loss to double taxes unless the annuity is given to the non-profit corporation upon the owner’s death.
You may also use your non-profit corporation as the remainder beneficiary of your Charitable Remainder Trusts. Since the non-profit corporation is treated as a public foundation, all assets left in the Charitable Remainder Trust are transferred to the non-profit corporation upon the lifetime beneficiary’s death, and the family manages the funds in perpetuity.
Many families choose to use tax savings to buy Wealth Replacement Life Insurance to finance the policies in irrevocable trusts for children or grandchildren, to replace the insurance proceeds that are donated to the non-profit corporation. WOW! This gives the family ownership and control over MORE wealth than they had at the passing of the older generation!
The non-profit corporation may be used as the contingent beneficiary of a Charitable Remainder Trust for life insurance purchased for an Irrevocable Life Insurance Trust to replace (tax-free) the money that was given to the charity, using tax savings to pay for the premiums. We refer to this arrangement as the
“triple-whammy” because (1) you receive retirement funds as long as you and your spouse are living, at a return of up to 10% per annum on your fund, (2) your family receives tax-free insurance proceeds, and (3) your non-profit corporation receives funds that your family can donate to the charities that are close to your heart.
This arrangement requires complex “legal surgery.” Before setting up such an arrangement for you, we’ll want to schedule a “legal biopsy” to (1) review the legal documents you presently have in place; (2) meet with you and your advisors in person or on a conference call to diagnose how, and if, to integrate these structures into the holistic pattern of your entire estate. (No good surgeon will perform an operation without a very thorough examination of the patient.) We can discuss further the mechanics of this legal biopsy, and you can expect to receive (1) a legal architecture diagram of your recommended estate plan, and (2) a coordination letter detailing what legal structures and moves your situation requires to minimize confiscation taxes, maximize asset protection, and bring your family additional benefits.
Giving to your own non-profit corporation is actually a “win-win-win” situation for you, your charities, and the government. The funds you put away in your non-profit corporation help solve social problems that might otherwise have required government money, all without the expense of government bureaucratic middlemen.
When you make a gift of cash to a non-profit corporation, you are gifting to a public charity, and you qualify for charitable deductions up to 50% of your “adjusted gross income” (i.e. your taxable income).
For example, if you were going to be taxed on $50,000 of taxable income, after all other lawful exclusions and deductions, you could gift up to $25,000 to your non-profit corporation and then deduct the entire donation, thus reducing your taxable income to $25,000.
When you make a charitable gift of appreciated stock or appreciated land on which you would have paid a capital gains tax (had you sold it), you may deduct this gift of appreciated property up to 30% of your “adjusted gross income.”
If you exceed the charitable gifting limitations in any single year, however, you may carry these charitable tax deductions forward into the next five years.
A second example: in late December, the time of year when clients are notified by their CPA of the (sometimes) gloomy news about their likely “adjusted gross income” for the year, we suggest making some quick charitable gifts, preferably non-cash gifts of appreciated property, into the non-profit corporation to gain those additional charitable deductions.
Examples of indirect benefits of the nonprofit corporation:
In addition to the wonderful direct benefits our clients see from setting up a non-profit corporation, there are many indirect benefits for families and businesses. Just a sample:
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After donating funds to their church to help build a retreat, a family was given an extended complimentary visit during the summer, to be used by them or to be gifted to a family in need.
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In lieu of sympathy flowers, some clients choose to make donations to the recipient’s favorite charity through their non-profit corporation.
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Sponsorship of high-profile charity or sports events typically results in added exposure for the non-profit corporation through advertisements, banners, names on t-shirts, etc. as well as complimentary tickets that can be gifted to deserving recipients.
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A business college class took on a client’s marketing plan as a class project after the school received a hefty contribution from the client’s non-profit corporation.
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A non-profit corporation contributed large sums to the nearby Catholic high school and in turn received its choice of students for its work-study program.
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A client’s church requires 10% tithing, and the non-profit corporation tithes for the family.
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One client, concerned about the homeless and disadvantaged population living near his business, donated funds from his non-profit corporation to a local church to provide shelter, food and clothing for them.
Additional Resources
We’d like to welcome you home, where our legacy is protecting yours…
Christine Forakis & the Team at Forakis Law Firm, PLC
DISCLAIMER: The content of this memorandum is general in nature and meant to be used for informational purposes only. Due to possible changes in the law and its interpretation, as well as the uniqueness of each individual’s situation, this memorandum should not be relied upon as an expression of legal advice. Before any action is taken by the reader, it is imperative that legal counsel or professional advisors be consulted.