Charitable Giving

Charity may play an important role in many estate plan. Philanthropy can not only give you great personal satisfaction, it can also give you a current income tax deduction, so you can avoid capital gains taxes and reduce the amount of taxes your estate may owe when you die. 

There are several ways to give to charity. You can make gifts during your lifetime or at your death. You can make donations directly, or use a trust. You can name a charity as a beneficiary in your will or designate a charity as beneficiary of your pension plan or life insurance. Or, if your gift is significant, you can create a private fund, community foundation or donor-advised fund. 

That actually gifts 

An outright gift is one that benefits the charity, immediately and exclusively. With an outright grant, you receive immediate income and gift tax credits. 

Tip: Make sure charity is a qualified charity by the IRS. Get a written receipt or keep a bank record (canceled check) for any cash donations, and get a written receipt for any property other than money. 

Will or trust bequests and beneficiary designations

These gifts are made by inserting a provision in your will or trust document or by using a beneficiary designation form. The charitable organization receiving the gift at your death, at which time your property can take the income and property tax relief. 

Charity 

Another way for you to make charitable gifts is to create a charitable trust. You can name the charity as the sole beneficiary, or you can name a non-charitable beneficiary so good to share the beneficial interests (called a partial charitable donation). The most common types of funds used to make partial gifts to charity, the charitable lead trust and the charitable remainder trust. 

Charitable lead trust

A charitable lead trust pays income to a charitable organization for a specified number of years and then the trust principal passes back to you, your family or other heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead interest. 

A charitable lead trust can be an excellent estate planning vehicle, if you own assets that you expect will significantly appreciate in value. If properly established, a charitable lead trust allows you to keep an asset in the family and still enjoy some tax advantages. 

How a Charitable Lead Trust Works

Example: John, who often donates to charity, create and finance a $ 2,000,000 charitable lead trust. The trust provides a fixed annual payments of $ 100,000 (or 5% of the original $ 2000000 value) to ABC Charity for 20 years. By the end of the 20-year period, the entire trust principal to go directly to John's children. Use the IRS tables, the charitable lead interest is assessed at $ 1267630 and the remainder interest is assessed at $ 732,370. Assuming the trust assets appreciate in value, John's children receive an amount in excess of the remaining interest ($ 732.370), unreduced by estate taxes. 

Charitable remainder trust

A charitable remainder trust is mirror image of the charitable lead trust. Trust income is payable to you, your family or other heirs for a period of years, and then the principal going to your favorite charity. 

A charitable remainder trust can be an advantage because it gives you a stream of current income as a desirable feature if there will be enough revenue from other sources. 

Example: Jane, a 80-year-old widow, creates and funds a charitable remainder trust with real estate currently valued at $ 1 million, with a cost basis of $ 250,000. The confidence that fixed quarterly payments must be paid to her for 20 years. By the end of this period, the entire trust principal to go directly to her husband's alma mater. Use the IRS tables, Jane receives $ 50,000 a year, avoiding capital gains tax on $ 750,000, and receives an immediate income tax charitable deduction of $ 1,138,384 that can be carried forward for five years. Moreover Jane removed $ 1 million plus possible future assessment from her gross estate. 

Private Family Foundation 

A private family foundation is a separate legal entity that can endure for many generations after your death. You create the foundation, and then transfer assets to the fund, which in turn makes grants to public charities. You and your descendants have complete control over which charities receive grants. But if you can contribute enough capital to generate funds for grants, the cost and complexity of a private foundation not be worth it. 

Tip: A rule of thumb is that you must be able to donate enough assets to generate at least $ 25,000 a year for grants. 

Community foundation 

If you want your dollars to be spent on improving the quality of life in a particular community, consider giving to a community foundation. Equivalent to a private foundation, community foundation accepts donations from many sources, and monitored by individuals familiar with the community's special needs and professionals skilled at running a charitable organization. 

Donor-advised fund

Similar in some respects to a private foundation, a donor council fund offers an easier way for you to make a significant gift to charity over a long period. A donor-council fund actually refers to an account held in a charitable organization. The charitable organization is a separate legal entity, but your account is not, it's just a part of the charitable organization with the account. When you transfer assets to the account, the charity becomes the legal owner of assets and has ultimate control over them. You can only advise, not direct the charitable organization, how your contribution will be distributed to other charitable