Tuesday, November 20, 2012

Best Practices: Annual Audit

By: Barry G. Allen- President & CEO

The value proposition statement of the Kentucky Baptist Foundation is : “The KBF brings the highest business and Christian ethical standards and methods as a fiduciary of funds and a facilitator of life-changing legacies for Kingdom advancement.”

The KBF’s tagline is this: “steadfast and solid for Kingdom advancement since 1945.”

In keeping with the value proposition and tagline, and consistent with best practices for a not-for-profit corporation, the KBF engages annually an external accounting firm to conduct an audit in accordance with auditing standards generally accepted in the USA. Those standards require the auditors to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by the KBF, as well as evaluating the overall financial statement presentation.

On October 24 the audit committee of the KBF board of directors met with the auditors to receive their “independent auditors’ report.” I am pleased to inform you the KBF received “an unqualified opinion” that the financial statements for the period ended August 31, 2012 presented fairly in all material respects the true financial position of the KBF, and that the changes in its net assets and cash flows were in conformity with accounting principles generally accepted in the USA.

The board of directors will receive a report from the audit committee at the board’s next quarterly meeting in December.

Furthermore, in accordance with the covenant agreement with the Kentucky Baptist Convention, we have provided the KBC’s audit work group with the KBF audit as part of the KBF’s accountability to the constituency it serves.

Oliver Wendell Holmes advised, “Put not your trust in money, but your money in trust.” There is no finer instrument of sacred trust than your Kentucky Baptist Foundation.

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Monday, November 19, 2012

E-Devotional- Week 30

Creative Giving Ideas- Week 4

Life Income Gifts


The churches, associations, institutions and agencies of the Kentucky Baptist Convention and Southern Baptist Convention are making a difference for the Kingdom of God in our state, nation and around the world.  They are worthy of significant and sacrificial support that will enhance and undergird their missions and ministries.

Perhaps you would like to make gifts above what you give out of income as tithes and offerings to provide on-going support to one or more of these causes, but you may be concerned that such gifts could affect your financial security and that of your family.  This lesson provides ideas on how you can make a gift that will ultimately benefit causes that are important to you, while retaining the right to receive an income for life for yourself and/or others.

Scripture Reference:  2 Corinthians 9: 6-15; 1 Timothy 6:17-19.
Please read these passages in your Bible now.

Does Giving Have to Be  “All or Nothing”?
Making gifts for the benefit of your church or other Baptist causes does not have to be an “all or nothing” proposition.  There are a number of giving options that allow you to make a charitable gift either during your lifetime or at death, while retaining the right for you and/or others to receive income for life or a term of years.  Charitable gift annuities and charitable remainder trusts are “life income gift” options.

What is a Charitable Gift Annuity?
A charitable gift annuity is a simple contract between you and the Kentucky Baptist Foundation under which we agree to pay you (or you and one other person) a fixed amount (the “annuity”) each year for your lifetime(s), in exchange for your gift of cash or appreciated stocks, bonds or mutual fund shares.  The payments are backed by the assets of the benefiting organization; they’ll be paid no matter what happens to the investment of your gift.  At death, the remaining balance can be distributed to whatever Baptist causes you specify or used to establish (or add to) a permanent endowment fund in your name the income from which will be divided among the causes you designate.

The payment rate is determined by your age at the time you make the gift; the older you are, the higher the payment rate.  For example, the payment rate for a 60-year-old is 4.4%; for a 70-year-old it is 5.1%; for an 80-year-old it is 6.8%; and for someone age 90 or older it is 9.0%.

The amount of the annuity payments is determined by multiplying the payment rate designated for the person(s) who will receive the payments (the “annuitant”) by the value of what you gift.

What are the Benefits of a Charitable Gift Annuity?
}Income that cannot shrink and that you cannot outlive.  The payments are fixed at the time you make the gift and will never vary, no matter what the actual investment performance of what you give.  They will continue to be paid no matter how long you and/or the other annuitant live.

}A portion of the annuity payment amounts you receive each year is not taxable to you.  This may result in an increase in your cash flow, but not your taxable income.  In these days of lower interest rates and smaller stock dividends, increasing the cash in your pocket, but not your income tax bill may be very appealing.

}An immediate income tax deduction is allowable in the year you make the gift equal to the present value of the charity’s interest.

Here’s an example:  Martha Smith, age 70, makes a gift of $5,000 from a matured Certificate of Deposit (CD) to the Kentucky Baptist Foundation in exchange for a 5.1% charitable gift annuity (5.1% is the payment rate for a person age 70).  Martha will receive $255 per year for the rest of her life---a 155% increase over the $100 per year CD interest she has been earning on this money.  Only $50 of the $255 annuity amount she will receive each year will be taxable income, the remaining $205 is received by Martha tax-free---her taxable income has actually decreased, even though her cash flow has increased.  The value of her charitable contribution for tax deduction purposes is $1,735.

Use our planned giving calculator http://www.kybaptist.planyourlegacy.org/GIFTcharitg.php to calculate the benefits to you of creating a charitable gift annuity for the ultimate benefit of your church or other Baptist causes.

What is a Charitable Remainder Trust?
A charitable remainder trust is an arrangement whereby you, as donor, transfer cash, investments or real estate to an irrevocable trust which you set up to pay you (or you and/or others) a designated income stream for life or a term of years.  At your death, or the end of the term of years, whatever remains in the trust is distributed to the charitable causes you have named in the trust agreement.

There are two options for the income stream you can receive.  If you want to receive a fixed payment that is determined at the time the trust is created and never changes, a Charitable Remainder Annuity Trust is the choice for you.  If you would prefer a payment that varies with the investment performance of the trust assets, a Charitable Remainder Unitrust which pays you an amount each year equal to a designated percentage of the value of the trust assets, as revalued each year, is the option that will meet your objectives.

What are the Benefits of a Charitable Remainder Trust?
}Diversification of assets without incurring capital gains taxes.  You may be faced with the fact that one of your holdings has increased in value to the point that it makes up too large a portion of your estate---to many “eggs” are in one basket---or you may have assets that are highly appreciated but are no longer yielding much income or which have become a nuisance to manage.  If you sell a highly appreciated asset, you will be taxed on the capital gain, thereby leaving you with less than the full value of the asset for future investment/use.  Gifting the appreciated asset to a charitable remainder trust is not treated as a sale, so there is no recognition of gain.  When the charitable remainder trust sells the asset, the trust pays no capital gains taxes because it is tax-exempt.  The result---the full value of the gifted asset(s) remains in the trust to produce the income stream you and/or others will receive.

}Potential increase in your cash flow.  The payout rate you select (the law mandates that the rate be at least 5%) may result in payments to you from the trust of larger amounts than the asset(s) you gift were paying.

}An immediate income tax deduction is allowable in the year the gift is made equal to the present value of the charitable remainder interest.

Here’s an example:  Martha Smith, age 70, and her husband, Sam, age 72, own a vacation home in another state which they bought many years ago for $25,000.  Its current market value is $75,000.  Health issues are limiting their ability to continue to use the vacation home; however, they know that if they sell the property they’ll have $50,000 of capital gains on which they’ll owe capital gains taxes.  If they gift the property to a 5% charitable remainder unitrust, their first year’s income from the trust will be $3,750 (5% x $75,000), they will be entitled to a charitable income tax deduction of $31,780 and they will avoid $7,500 of capital gains taxes.  When the trust sells the real estate, the full amount of the sale proceeds will be retained by the trust, it will not owe any capital gains taxes, because it is tax-exempt.  If the sale proceeds are invested to earn an average annual return of 5.5%, Martha and Sam will receive approximately $68,500 over their 19-year joint life expectancy and there will be approximately $69,000 left to be distributed to the designated Baptist causes at the survivor’s death, if at least one of them lives for the full 19 years.

Use our planned giving calculator http://www.kybaptist.planyourlegacy.org/GIFTcharituni.php to calculate the benefits to you of creating a charitable remainder trust for the ultimate benefit of your church or other Baptist causes.

Prayer Focus: Take time now to pray for God’s guidance as you consider whether a life income gift is the way that you can make a lasting difference in this world for the cause of Jesus Christ.

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Monday, November 12, 2012

E-Devotional- Week 29


 Creative Giving Ideas- Week 3

Appreciated Asset Gifts 

The churches, associations, institutions and agencies of the Kentucky Baptist Convention and Southern Baptist Convention are making a difference for the Kingdom of God in our state, nation and around the world.  They are worthy of significant and sacrificial support that will enhance and undergird their missions and ministries.

Perhaps you would like to make gifts above what you give out of income as tithes and offerings to provide on-going support to one or more of these causes, but you may be concerned that such gifts could affect your financial security and that of your family.  This lesson focuses on using assets that have appreciated in value for making “above and beyond” gifts to support the ministries that are important to you.

Scripture References:  Luke 16:10-12; 1 Timothy 6:9.
Please read these passages in your Bible now.

What are the Benefits of Using Appreciated Assets to Make Charitable Gifts?
Using appreciated assets such as stocks, bonds, mutual fund shares, or real estate to make gifts to charity during your lifetime provides multiple advantages---a charitable income tax deduction based on the current market value of the asset (assuming you have owned it for at least a year) and avoidance of all or a portion of the capital gains tax that would be incurred if you sold the asset.

How Does Giving An Appreciated Asset Compare to Using Cash for My Gift?
Using an appreciated asset to make your gift to charity can result in a lower after-tax cost to make your gift than if you use the same amount of cash to make your gift.  In essence, the amount coming out of your pocket may be less if you use an appreciated asset.

Example:  Martha wants to make a gift of $10,000 to her church’s building program.  She is trying to decide if she should use some stock that she purchased several years ago for $5,000, which has a current market value of $10,000 or her $10,000 certificate of deposit, which matures soon.  The value of her charitable gift, whether she uses the stock or the cash, is $10,000 that will save $1,500 in income taxes (IF she is in the 15% income tax bracket).  If Martha uses the stock to make her gift, she also saves $750 in capital gains taxes that she would incur if she sells the stock (15% of the $5,000 of capital gains that would be incurred if she sold the sold).  Therefore, the after-tax (out of pocket) cost of making the stock gift is only $7,750 vs. $8,500 if she uses the cash.  See the example below.

                                    Gift of Stock               vs.                   Gift of Cash
Value of Gift               $10,000                                               $10,000
Income Tax Savings    ($1,500)                                             ($1,500)
Capital Gains Savings ($  750)                                                   ---

After-Tax Cost           $  7,750                                               $  8,500


Prayer Focus: Take time now to ask God if you should consider making an appreciated asset gift to your church or other Baptist cause.

Next Week:  Life Income Gifts

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Tuesday, November 6, 2012

Estates and Premarital Counseling

By: Barry G. Allen- President & CEO

Jane Bryant Quinn said it well, “You own stuff, you will die, someone will get your stuff.” The Apostle Paul advised, “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever” (1 Timothy 5:8).

Regardless of how much or how little “stuff” a person owns, inherent in the Christian marriage covenant is the duty to God, to each other and to the families of a couple about to be married to have in place a written plan of (1) asset distribution at death and (2) asset management and healthcare decision making should one or both become incapacitated due to an accident or a health condition.

Regretfully, most couples enter into the sacred bond of matrimony without having given any consideration to these vitally important planning issues; this lack of planning at this important point in their lives could result in unintended and devastating consequences.

To help alleviate this, Laurie Valentine, our trust counsel, and I have developed a tool for ministers to use in their premarital counseling ministries. In the development phase, we sought and received the benefit of the wisdom of four experienced Kentucky Baptist pastors each of whom engaged in a premarital counseling ministry in their churches. We incorporated their ideas and suggestions into the tool to keep it as simple but as effective as possible.

We shall be introducing this new tool at the annual meeting of the Kentucky Baptist Convention on November 13 at Immanuel Baptist Church, Lexington. We encourage all ministers who will be at the annual meeting to stop by the Kentucky Baptist Foundation exhibit to view a sample and to place an order for this innovative ministry tool. Kentucky Baptist ministers who will not be attending the KBC annual meeting can call our office toll free and request the tool.

The KBF is making this tool available free of charge to Kentucky Baptist ministers whose ministry includes premarital counseling. We pray with confidence the Lord will bless its use. 

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.

Monday, November 5, 2012

E-Devotional- Week 28

Creative Giving Ideas-Week 2


Giving Out Of Assets Vs. Income 

The churches, associations, institutions and agencies of the Kentucky Baptist Convention and Southern Baptist Convention are making a difference for the Kingdom of God in our state, nation and around the world. They are worthy of significant and sacrificial support that will enhance and undergird their missions and ministries.

Perhaps you would like to make gifts above what you give out of income as tithes and offerings to provide on-going support to one or more of these causes, but you may be concerned that such gifts could affect your financial security and that of your family. This lesson will provide ideas about how you may give out of your assets.

Scripture References: Proverbs 3:9; Luke 16:10-12; 1 Timothy 6:7.

Please read these passages in your Bible now.

How Can I Honor God With My Wealth?

“Wealth” refers to your assets, your estate. Tithes and offering giving is, generally, giving out of your income. Honoring God with your wealth means giving out of your assets, whether it’s to a church building program, Baptist college’s capital campaign, or to establish an endowment fund to benefit state, national and/or international missions. This is giving out of your principal cash, stocks, bonds, mutual fund shares, real estate, life insurance and/or retirement assets.

When Should I Honor God With My Wealth?

Giving out of assets can be done during your lifetime through outright gifts, endowment gifts and life income gifts. Consideration should also be given to giving out of your estate at your death through a bequest in your Will or Trust or a life insurance or retirement account beneficiary designation that sets up a gift of a designated amount or share of your estate to pass to one or more charitable causes at your death.

Is There A Way to Make A Gift That Keeps On Giving?

Many people would like to make a gift that provides on-going support to the cause or causes they want to benefit. This can be accomplished through the creation of an endowment fund. An endowment fund is a permanent, perpetual fund created during your lifetime and/or at your death for the support of one or more charitable causes. Only the earnings of the endowment fund are paid to the causes you designate; the original value of what you place in the endowment fund is never distributed. Endowment fund giving provides the opportunity to make gifts that keep on giving.

Prayer Focus: Take some time now to ask for God’s guidance in how you can honor God with your wealth and extend your Christian witness.

Next Week: Appreciated Asset Gifts 

For more information, please call us at (502) 489-3533 or toll free in KY at 1-(866) 489-3533

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.