MAKE A GIFT IN YOUR WILL OR TRUST

Planned giving programs do not need to be overly complicated but they do require intentional planning to be successful. There are several giving vehicles designed to help you continue to support the causes you care about most for years to come. Below is a description of a few ways to extend your philanthropy beyond your lifetime and invest in the future of the programs meaningful to you.

Bequests and Estate Gifts

You may make charitable gifts through your estate – for example, by bequeathing a specific asset or gifting a percentage of your estate. This is the most frequently used giving vehicle. To make a charitable bequest, you can simply allocate a portion of your estate to a charity in your legal will. Also, you may consider naming your favorite charity as beneficiary of your retirement account assets, life insurance policy, or other pay-on-death account.

IRA Beneficiary

Not all assets owned are treated the same when passed to heirs. In fact, a unique feature of traditional IRAs is that heirs pay income taxes on the inherited assets at their own income tax rate at the time of withdrawal. This unique tax feature is why public charities can be ideal beneficiaries of IRA assets. Public charities do not pay income tax on IRA income, which means every penny of the donation can be directed to support your charitable goals.

IRA Qualified Charitable Distribution (QCD) 

IRA holders over the age of 70 1/2 can begin making donations straight from their traditional or inherited IRA to a charity of their choice. This tax-smart strategy is called a qualified charitable distribution (QCD), also known as a charitable IRA rollover. The QCD allows you to instruct an IRA administrator to send up to $105,000 per year to one or more qualifying charities (excluding donor-advised funds). The IRA assets go directly to charity, so you don’t have to report QCDs as taxable income and therefore don’t owe any taxes on the QCD. QCDs can also satisfy some or all of your annual required minimum distribution (RMD). Many taxpayers no longer itemize and this strategy allows them to get a tax benefit for making charitable donations even if they don’t itemize. Some donors find that QCDs provide greater tax savings than cash donations for which charitable tax deductions are claimed as it reduces your adjusted gross income. Due to the higher standard deduction QCD gifts are on the rise. You may also direct a one-time, $53,000 QCD to a charitable remainder trust (CRT) or charitable gift annuity (CGA).

Charitable Remainder Trust (CRT) 

If you have appreciated assets, you can convert these assets into income with a charitable remainder trust. A CRT is a gift of cash or other property to an irrevocable trust. The donor receives an income stream from the trust for a specified number of years and/or for life and the named charity receives the remaining trust assets at the end of the trust term. The donor receives an immediate income tax charitable deduction when the CRT is funded based on the present value of the assets that will eventually go to the named charity. Charitable remainder trusts can help donors reduce taxes, defer capital gains and eliminate estate taxes all while supporting the cause they care about most for years to come.

Charitable Lead Trust (CLT) 

Charitable lead trusts are the reverse of the charitable remainder trust – that is, the charities get paid first. A charitable lead trust is an irrevocable trust that makes at least annual payments to designated charities for a set period of time. After that period, the trust ends and the balance passes to designated non-charitable beneficiaries, such as family members or others. Depending on how the trust is structured, the donor enjoys a current income, gift, or estate tax deduction on the donated assets.

Charitable Gift Annuity (CGA) 

For donors seeking a payment stream, a charitable gift annuity may be a great option. A CGA is a contract under which a qualified public charity, in return for an irrevocable transfer of cash or other property, agrees to make lifetime payments to the annuitant(s). Unlike a CRT, part of the CGA gift may be used immediately by the charity with the remainder of the gift invested in an account to provide for the annuitant’s payment stream. Donors who itemize deductions can claim a charitable deduction for a portion of the original gift. 

Donor Advised Fund (DAF) 

A donor-advised fund acts as a charitable giving account for donors and their family. Donors can contribute an array of private or public assets that extend beyond cash including stock, private equity, real estate, fine art and collectibles, and cryptocurrency to name a few. Due to their simplicity and flexibility, DAFs are among the fastest-growing charitable giving vehicles in the U.S. Donors simply donate assets (as an irrevocable gift) to the DAF and are eligible for an immediate tax deduction at the time the gift is made. There are no contribution limits on how much donors may contribute to a DAF. While deciding which charity to support, the charitable assets can grow in the DAF account tax-free. Donors can decide when to request grants be made to the charities of their choice and grants can be made anonymously. Donors can recommend family members or other individuals as successors on the DAF account in order to easily pass your commitment to philanthropy on to the next generation in a flexible way. Or you can recommend charities as beneficiaries of final grants of the account balance.

When establishing a planned giving program, it is critical to communicate your intentions with your lawyer as well as your family and designated charities.

There are numerous tax benefits associated with charitable giving. Donors should consult with a tax advisor to confirm which social impact strategy will provide the expected results with respect to the donor’s individual circumstance. While tax considerations are an important factor in your choice of vehicle, consider other factors such as the complexity of your giving and possible administrative burden.