Many of us want to give back, imagining a lasting legacy of generosity and good works. So we write checks when we’re moved to do so, volunteer from time to time and make donations during the holidays – all worthwhile endeavors.
But creating a truly lasting legacy starts with making giving an active part of your financial plan, rather than a sporadic decision or “someday” proposition as part of your estate. Developing a thoughtful approach to more meaningful gifts allows you to amplify the benefit to the causes you donate to and your tax standing, and if done correctly, gives you a chance to see your generosity in action during your lifetime.
Reap What You Sow
Understanding your options – and the advantages of each – can help you effectively advance your favorite cause while you’re around to witness the effects of strategic giving. You may be surprised by how many options you have.
Donor-Advised Fund – In effect, this is a de facto family foundation with no legal expenses or administrative and tax reporting requirements. A new fund can be established with a contribution of as little as $10,000 in cash, marketable securities or mutual fund shares. Subsequent contributions can be made in amounts of $500 or more.
Charitable Remainder Trust (CRT) – CRTs can either be Charitable Remainder Annuity Trusts or Charitable Remainder Unitrusts. The CRT will either pay a fixed annuity amount or a fixed percentage of the value of the trust assets to one or more individuals for their lifetimes or for a term of years. When the trust ends, the remaining property passes to one or more qualified charities.
Charitable Lead Trust (CLT) – The CLT is the reverse of the CRT. With a CLT, the charity receives either a fixed annuity payment (Charitable Lead Annuity Trust) or a unitrust payment (Charitable Lead Unitrust) for a term of years. When the trust ends, the remaining property passes to the donor or other named beneficiaries.
Charitable Gift Annuity – A contract in which a donor contributes cash or marketable securities to a charity in exchange for the charity’s promise to pay a fixed annuity to one or more individuals for life. The older the contributor, the higher the annuity payment will be. You can establish yourself or others as annuitants. In return, the charity sends a fixed annual payout to your designated recipients.
Qualified Charitable Distribution – This tax rule was just made permanent and allows traditional IRA owners over age 70 1/2 to donate their required minimum distributions (RMDs) to qualified charitable organizations.
3 Tax Advantages of Giving:
Several goals can be achieved through planned giving: contributing to a charity, minimizing tax exposure, receiving income and facilitating an efficient transfer of your estate. Be sure to consult your financial advisor and tax professional before implementing planned giving alternatives, as they carry complex tax implications.
Seek counsel from your financial advisor about when and what type of giving is right for you. Ask:
* There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of capital.