PLANNED GIVING

There are a number of charitable giving opportunities which not only benefit the charities of your choice but could provide you with tax benefits for the gift.  Please keep in mind, depending on your particular situation, they may or may not be applicable or appropriate, but should be evaluated with your overall financial plan with the assistance of your financial advisors. 

 

1. Highly appreciated securities – Stocks, mutual funds, or other securities that have substantial appreciation in their value since they were acquired, may be a very tax efficient source for charitable giving.  The usual process is to sell the security, pay the taxes on the gain, donate the proceeds to the charity of your choice and take the deduction of the gift.  Alternatively, the security can be donated to the charity in kind, avoid the taxes on the gain, but take the deduction on the fair market value of the gift. The charity can then liquidate the security usually without the impact of taxation.
    

2. Qualified Charitable Deductions (QCD) of Required Minimum Distributions (RMD) – If you are receiving RMD's which you really don't need for your lifestyle, but are creating additional tax liabilities, you might consider QCD's where the distribution is made directly from your IRA to the charity/s of your choice. There are limitations so seek professional advice before initiating the process.
    

3. Donating your IRA at Death – While non qualified investments like stocks or mutual funds receive a step up in basis on death, if they are held in a qualified plan like an IRA, they are taxable income as received to the named beneficiary (other than a charity).
    

4. Donor Advised Funds (DAF)/Private Foundations (PF) – DAF's are charitable accounts to make donations in the family's name to charities over time.  They provide flexibility in the timing, amount and intent over time.  PF's  are more complicated and administratively expense, but are usually much larger than DAFs with more specifically committed distributions.
    

5. Split Interest Giving – Split interest giving allows the donor to make certain gifts, but retain certain benefits for themselves.  Following are examples of split interest gifts:

• Charitable Remainder Trusts (CRT) – Assets are transferred to a trust, the donor keeps the income stream for a set term.  When the term ends, the remainder of the assets left are donated to the charity.  The tax deduction usually is the current value of the remainder in the trust.

• Charitable Lead Trust (CLT) – The reverse of the CRT.  The charity receives the income stream for a specified term.  At the end of the term, the remainder reverts back to the donor. The tax deduction is usually the annual income stream to the charity.

• Charitable Gift Annuities (CGA) – Assets are gifted to a charity in exchange for a lifetime annuity to the donor.  This usually creates a tax deduction for the value of the gift less the present value of the annuity payments.

• Charitable Lead Annuity Trust (CLAT) – The trust provides an annual annuity stream to the charity for a specific time.  The donor usually receives a tax deduction for the annual donation but retains the remainder of the asset.

  • CAVEAT: These methods could be very sophisticated in their implementation and operation. Make sure your professional advisors are involved in the process.
     

      6.    Life Insurance – There are two primary ways to use life insurance for charitable gifts:    

• The existing policy can be donated to the charity who becomes the owner and beneficiary.  The charity can surrender the policy for its cash surrender value or keep the policy in force until the donor passes and collect the death benefit.  The donor usually receives a charitable deduction of the policy cash surrender value and/or the annual premium if it is continued.

• The other way is to make the charity the beneficiary or partial beneficiary.  The donor's estate usually receives the tax deduction upon the donor's death.  The donor maintains the flexibility of changing beneficiaries during their lifetime.

 

This summary is not intended as legal or tax advice, as circumstances and  tax laws change frequently, but to encourage the potential donor to seek professional advice for consultation and possible implementation for their specific situation.