Planned Giving

Considering a Charitable Gift

Charities across the country are in need of donations. Whether for the advancement of medicine and science like STOP! or one’s alma mater, it is important to know the types of gifts that can be made, and how they can potentially help you. Those who are charitably inclined know they can help, but it can also be beneficial to your tax situation. Although STOP! does not offer tax advice, we can be a resource to ensure both you and the charity maximize the benefits of your donation.

Reasons for Making a Charitable Gift

Many persons make gifts or bequests to charitable organizations for a number of reasons. Some of the more common motivations would include the following.

• Compassion for those in need
• Religious and spiritual commitment
• Perpetuation of one’s beliefs, values and ideals
• Support for the arts, sciences, medicine and education
• A desire to share one’s good fortune with others

Whatever the reasons, U.S. tax law is designed to encourage these gifts.

Different Types of Charitable Gifts

Some donors prefer to make outright gifts of cash or other valuable assets such as highly appreciated stocks, real estate or other investments to their favorite charities.

Other individuals, although they would like to make an outright gift, depend on the income from their assets for their daily needs. Often, such donors decide to wait until death to transfer assets to a charity, through a will, a trust, or life insurance beneficiary.

However, there are methods that allow a donor to make a gift now, while still retaining an income for life. The most popular of these methods are listed below.

• Charitable remainder annuity trust
• Charitable remainder unitrust
• Pooled income fund
• Charitable gift annuity

Another gifting technique assigns an income interest to the charity for a period of years (or the lifetime of a person), after which the remainder passes to the donor’s heirs. Gifts made in this manner involve what are known a charitable lead trusts.

Potential Financial Benefits of Charitable Gifts

• Can provide an income tax deduction
• In many cases can reduce or delay payment of capital gains tax
• May increase personal after-tax cash flow
• May increase the amount passing to one’s heirs

Charitable Giving Techniques

Gifts to charity during lifetime or at death will reduce the size of the gross taxable estate. An additional benefit of lifetime gifts is that an income tax deduction is available within certain percentage limitations.

Split-Interest Gifts

If the estate owner is not willing or able to contribute the entire asset during lifetime, he or she may consider a split-interest, deferred gift.

The ownership interests in an asset can be split or divided into two parts, stream of income payable for one or more lifetimes or a term of years (the income interest) and the principal remaining after the income term (the remainder interest). In a split-interest gift, one portion is given in trust for the charity and the other portion is retained.

Charitable Remainder Plans

When the estate owner retains the right to the income but transfers his or her rights in the remainder to a trust, it is called a charitable remainder trust.

To qualify for an income tax deduction the trust must be a unitrust, an annuity trust, a pooled income fund or a charitable gift annuity.

• Charitable remainder unitrust: In this type of trust the donor usually retains a right to a fixed percentage of the fair market value of the trust assets, re-valued annually. If the value of the assets increases, so does the annual payout and vice versa. See IRC Sec. 664(d)(2).

• Charitable remainder annuity trust: This trust is similar to the unitrust but instead pays a fixed dollar amount year after year. The increases or decreases in the value of the trust do not affect the payments. See IRC Sec. 664(d)(1).

• Pooled income fund: Assets are transferred to a common investment fund maintained by the charity. Each donor receives annually a share of the income from the fund, in proportion to the contribution made. These annual payments continue for the lifetimes of the donor and spouse. At death, the corpus of the donor‘s gift, together with any capital gains, passes to the charity. Payments will increase or decrease with the investment performance of the fund. See IRC Sec. 642(c)(5).

• Charitable gift annuity: The donor transfers the asset directly to the charity in exchange for the charity’s agreement to pay a fixed lifetime annuity.

The amount of the income tax deduction is dependent upon the percentage of the income interest and the period over which it will be paid (usually the life of the donor and his or her spouse). This is determined from the mortality tables published by the government.

Charitable Income Trusts

The charitable income or lead trust is the reverse of the charitable remainder trust.

The income interest is assigned to the charity, usually for a period of years, and then the remainder generally passes to the donor’s heirs. The amount of the estate tax deduction and the amount left for the heirs will depend upon the number of years and percentage of the annual payments and the investment results of the trustee.

These are a few of the more popular techniques used to donate to charities like STOP!. Each personal financial situation is unique and should be reviewed individually. If you are interested in learning more about Planned Giving strategies, STOP! can help. Our executive board consists of some of the areas top CPA’s and financial planners who specialize in Planned Giving. Please email us at info@stopchildrenscancer.org and someone will contact you to schedule a personal analysis.