Planning to Give

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Planning to Give

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.

  • Benefit: Contributions can be deducted immediately and you can distribute funds when you’re ready; the account can be invested and grow tax-free* for as long as you want, enabling you to make a difference for years to come. Your family can work together to recommend grants – a way to pass along your values in very real terms.

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.

  • Benefit: CRTs provide longtime or lifelong income to beneficiaries, with the principal being paid to a qualified public charity when the beneficiaries pass. A charitable income tax deduction can be taken in the year the trust is created and can be carried forward for up to five years after the gift is made if the donor is unable to take a complete charitable income tax deduction in the year the trust is created.

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.

  • Benefit: Both types of trusts – CRTs and CLTs – offer ways to ensure income for yourself or your family while doing good for others. There is no limit on the amount that can be donated from your estate.

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.

  • Benefit: The annuities simultaneously provide a charitable donation, an income tax deduction and a guaranteed lifetime income stream. Upon the passing of the last recipient, the balance reverts back to the charity.

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.

  • Benefit: A direct transfer of your RMDs to an eligible charity means that income will be excluded from your adjusted gross income, potentially reducing your taxes.

3 Tax Advantages of Giving:

  • Receive immediate tax deductions
  • Avoid long-term capital gains taxes
  • Reduce future estate taxes

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.

Next Steps

Seek counsel from your financial advisor about when and what type of giving is right for you. Ask:

  • What are my giving goals? Who do I want to help and to what extent?
  • Can I afford to give during my lifetime and still meet my primary financial objectives, or should it be part of my estate plan?
  • What are the most efficient and effective ways to give?

* There is no assurance that any investment strategy will be successful. Investing involves risk including the possible loss of capital.