The IRS loves a cheerful giver
After creating security for their spouses and children, many people want to make a lasting difference with charitable gifts. They want to do good after having done well. We work with clients and development officers to design appropriate planned giving programs.
Here are a few of the more popular planned giving techniques:
Gifts of appreciated assets
If you’re considering selling appreciated stocks or other assets and giving the proceeds to charity, think about giving the asset, itself. You won’t pay a capital gain tax on the sale and the charity will receive the full value. The deduction limits for these gifts is lower than that for cash gifts, but you might be able to the “non-deductible” portion of the gift in a later year.
Un-needed life insurance policies
Do you have a life insurance policy that you no longer need? Perhaps one that your parents bought when you were a child. Possibly one that you bought to fund your children’s education. You might want to give the policy to charity. It’s painless and you will receive an income tax deduction.
“Remainder interests” in residences
Suppose that you are planning to leave your house to charity in your will. If you’re sure that you’re not going to change your mind, why not give it to charity now and provide that you, or you and your spouse, retain the right to live in the house. You will get an income tax deduction for the value of your house reduced by the value of your retained occupancy right.
Charitable remainder trusts
Lawyers speak of “split interest trusts.” These are trusts that benefit one or more people for a specified time and then “switch over” to provide for one or more other beneficiaries. For example, you create a trust for you and your spouse. After your lifetimes, the trust assets pass to one or more charities. You and your spouse have a “present interest” in the trust. The charities have a “remainder” interest and the trust is called a “Charitable Remainder Trust.”
These trusts are quite helpful to people who want to increase their income, diversify their portfolios, avoid current tax on capital gains, and benefit charity. For a more detailed discussion of Charitable Remainder Trusts, please click here.
Charitable lead trusts
Suppose we turn a Charitable Remainder Trust upside down. We provide for distributions to one or more charities for a period of time. Then the trust assets go to members of your family. Because the charitable interest “comes first,” these trusts are called “Charitable Lead Trusts.”
Lead Trusts are primarily for families with substantial resources who can afford to give up the use of assets for a long time.
Here’s an example of one that we recently did. Our client left $2.5 Million to a trust that will pay out approximately $215,000 to charity for fifteen years, after which the assets will be paid to the client’s children. We deducted the entire amount of the trust for estate tax purposes, exactly as if the client had left the $2.5 Million directly to charity. If the trust produces a total return of 8.5% over the 15 years, the children will receive over $2 Million, tax free. As long as the trust produced over $3.2%, there would be a “tax free gift” at the end.
Gifts of development rights
The tax code offers incentives to people to preserve open space, farm land or historical buildings. You give the right to develop the property to a qualified charity and retain all other rights. You can use the property for any purpose except development. Your children can inherit it. You can sell it. You will get a tax deduction for the value of the development rights. This is a win-win. The land will remain in its natural state and you will have a tax benefit.
This is a simple overview of a few sophisticated charitable giving strategies. If you are interested in exploring tax wise giving, you might want to first speak with the development officer of your favorite charity. We would be pleased to work with you on a planned giving program that makes both tax and “people” sense.