CHARITABLE GIVING

Charitable Giving is the act of giving money or other items of value to charitable organizations (such as a church, alma mater, or at-risk youth program) without expecting anything in return.

Many individuals use charitable trusts to leave all or a portion of their estate to charity when they die, both for philanthropic purposes and for certain tax benefits.  If you have an estate large enough that estate taxes may be due after your death, you have the option to create potentially significant voluntary social capital (which you or your designees can control) through lifetime planning. If you fail to plan, you may end up creating potentially significant involuntary social capital (via estate taxes).

Charitable trusts may be set up during a donor's life or as a part of a trust or will at death. There are two basic types of US charitable trusts.

  • LEAD TRUST, wherein the charity is paid first, and the remainder, after trust termination, goes to beneficiaries, such as heirs or back to the donor.
  • REMAINDER TRUST, wherein the charity is paid last after termination of the trust, after other beneficiaries have received payments. Payments may be by fixed amount, by annuity trust, or by a percentage of principle.


PLANNED GIVING

Planned giving may be defined as a method of supporting non-profits and charities that enables philanthropic individuals or donors to make larger gifts than they could make from their income. While some planned gifts provide a life-long income to the donor, others use estate and tax planning techniques to provide for charity and other heirs in ways that maximize the gift and/or minimize its impact on the donor's estate.

Thus, by definition, a planned gift is any major gift, made in lifetime or at death as part of a donor’s overall financial and/or estate planning.

Whether a donor uses cash, appreciated securities/stock, real estate, artwork, partnership interests, personal property, life insurance, a retirement plan, etc., the benefits of funding a planned gift can make this type of charitable giving very attractive to both donor and charity.

WHAT ARE THE TAX BENEFITS OF PLANNED GIFTS?

  • Donors can contribute appreciated property, like securities or real estate, receive a charitable deduction for the full market value of the asset, avoid capital gains tax on the transfer, and receive tax-advantaged income
  • Donors who establish a lifetime-income gift receive a tax deduction for the current full, fair market value of the assets contributed, less the present value of the income interest retained; if they fund their gift with appreciated property they also avoid capital gains tax on the transfer.
  • Gifts payable to charity upon the donor’s death, like a bequest or a beneficiary designation in a life insurance policy or retirement account, do not generate a lifetime income tax deduction for the donor, but they do reduce the gross taxable value of the estate as they are exempt from estate tax.