If you are one of the “Baby Boomer” generation, you have probably been giving some thought (actually a lot of thought) to retirement or to a “retirement career”. This planning process might be a good time to give some thought to charitable giving on a more convenient and cost-effective basis. Strategic and personal charitable gifting offers you significant opportunities to reduce current and future tax obligations, generate income,and see the value of your legacy for the people or charities of your choice. Charitable gifting is generally tax deductible and special tax advantages apply to gifting appreciated assets. There are a variety of gifting strategies that can help you lower your tax liability today, as well as to allow you to remove highly appreciated assets and future appreciation from your estate. The following list may help you and your financial advisor determine what is best for your personal situation:
Donor Advised Funds
A donor-advised fund is a flexible tool for charitable giving, operating much like your own personal or family foundation. You can contribute to your fund when it is most convenient and then recommend gifts over time to nonprofit organizations or a choice. You select a fund name and then are able to enjoy making grants to organizations committed to causes you care about. This type fund does not require a large initial investment. You can open a donor-advised fund with as little as $1,000. You can also involve your children to share in a family tradition of giving.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust funded with contributions of cash and/or appreciated assets. If you contribute highly appreciated stock, the trustee may sell the shares tax-free and reinvest the proceeds to create a diversified portfolio. CRT’s can be structured to provide a payment stream to you during your lifetime and to distribute the trust assets to charity at a later date.
Charitable Gift Annuities
A charitable gift annuity is a way for you to receive a guaranteed income for life and an immediate income tax deduction, while at the same time, leaving a legacy to the charitable causes of your choice. When you transfer funds to a gift annuity, you receive a fixed stream of income for life. After paying the lifetime annuity to you – and your spouse, if you choose – the remaining principal is transferred to a named charity or fund to accomplish your specific charitable goals. You can begin to receive income immediately from this annuity, or you can defer it to a later time. The tax advantages of both a current and deferred annuity are two-fold. First, you receive an immediate income tax charitable deduction when you create your annuity. This is based on your age and annuity payout rate. Second, a portion of the payments you receive may be treated either as tax-free return of principal or long-term capital gains. These tax advantages increase the net income you receive.
Charitable Lead Trust
A charitable lead trust allows a donor to support a charity for a specified period of time, and then pass the remainder assets to a non-charitable beneficiary, such as a family member. Once you set up a trust for this purpose, the trust uses those assets to make distributions to a designated charity during your lifetime or for any other specified period of time. At the end of the trust period, the principal reverts either to you or to any designated beneficiaries. This is a wonderful tool if you are in a “peak earning period” with your career and want to support a charity now while at the same time prepare for your retirement.
Many kind donors support VIM through one of the above plans. We are so grateful to those who include us in their plans for retirement and beyond. Let us know if we can answer any questions regarding donations to Volunteers in Medicine. Our special thanks to Berkely Arrants at Merrill Lynch and The Community Foundation of the Lowcountry for their help with this information.