Three Ways to Give to Charity
Philanthropy now means more than just writing checks
Many Americans leave money to charities in their will — but you needn’t wait to die before giving aid to a charity.
Today’s tax laws offer you many ways to support charities while giving you benefits you might not have expected — such as tax deductions and extra income from the assets you’ve donated. Here are a few ideas you might not have considered.
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Donor-advised funds. Perhaps you want to make a donation so you can get a tax deduction this year but you haven’t yet identified which charity to support. Or perhaps you like the idea of setting up a foundation but want to avoid the hassle and costs of doing so.
In either case, a donor-advised fund might be for you. With these programs, you donate cash, stocks, bonds and other securities to a managed fund specifically set up for this purpose.
Unlike most professionally managed funds, these are designated as charitable organizations and thus entitle you to a tax deduction when you invest. Gifts can be as little as $10,000.
Once you invest (which is an irrevocable donation, by the way), you maintain control over how the money is invested.
The money remains invested until you decide when some or all of it is to be distributed to a charity. The money can be distributed over time and to multiple charities. You can even give to different charities each year.
There are little to no start-up or administrative costs, and you get a larger tax deduction than when you donate to a foundation.
(Donors can deduct up to 50% of adjusted gross income for cash contributions and up to 30% for appreciated securities; foundation deductions are limited to 30% and 20%, respectively. Deductions in excess of your adjusted gross income can be carried over for up to five years.)
Donor-advised funds are not legally bound to follow your recommendations (although as a matter of practice they generally do). Also, they will charge fees for their services (which are paid from the funds you’ve donated).
Charitable gift annuities. You donate assets to a single charity. These assets then become the irrevocable property of the charity, and the money becomes part of the charity’s general fund. In exchange for your donation, you receive monthly income for life; when you die, the payments stop and the charity keeps the remaining money.
Part of your donation is tax-deductible, and part of the income you receive is tax-free. Be sure to speak with a tax advisor to understand the implications of your gift.
Charitable remainder trusts. You establish a trust and name a charity as its beneficiary. You then fund the trust with some of your assets, such as stocks, bonds or real estate. You get a tax deduction in the year you make the gift, because your decision is irrevocable.
Next, the trust converts the assets it has received into income-producing ones, if they aren’t already. (If you donated land, for example, you might have the trust sell the property and buy bonds.)
The trust must distribute at least 5% of its initial value each year. You decide who gets the income, how much they get and for how long — and you can name yourself if you want. Assuming you take the income for as long as you or your spouse live, the charity will receive whatever’s left at the second death.
Of course, whatever assets you give to the trust won’t go to your kids as an inheritance. If that bothers you, you can instruct the trust to buy an insurance policy on you and your spouse equal to the size of your gift, naming your children (or whomever) as beneficiaries.
Premiums will be paid from the income produced by the trust’s assets, and upon your (or your spouse’s) death, the children will receive the insurance proceeds.
And because they will be receiving their inheritance from insurance, not your estate, the cash passes to them free of income taxes, estate taxes and probate.
A CRT lets you donate to charity while retaining income and preserving inheritances. It requires careful coordination with legal, tax and financial advisers.
In fact, each of these ideas involves a lot of fine print. LINK
This information is provided for your contemplation and as a knowledge base ONLY. Please contact and consult with your licensed, trustworthy professional financial and tax advisers for help with implementing any of these ideas. The Recaps Team thanks you for your loyal readership