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Charitable Planning

The process of exploring the many benefits of giving and to maximize the impact it has on financial and personal goals. This, of course, involves ways to help you fulfill any philanthropic goals you might have and maximize the effectiveness of your charitable intent.

Reasons for Charitable Planning

  • Charitable Intent – Planning for future charitable gifts helps to more effectively reach the original intent of the gifts.
  • Maximize Value – Ideally, charitable gifts will be significantly greater in value with proper guidance and planning.

Types of Charitable Gifts

  • Outright cash gifts – Direct gifts of cash to qualified charities are deductible for income tax purposes and can reduce the value of your estate for estate tax purposes.
  • Gifts of appreciated assets – Donating assets such as stocks to charities helps avoid any capital gains tax you would incur if you instead sold the assets and then donated the proceeds.
  • Donor-advised funds – Funds are pooled investments owned and controlled by a sponsoring organization. The donor makes an irrevocable donation to the fund and receives an immediate tax deduction. The fund invests the money and allows for the donor to recommend specific donations. This strategy typically has lower costs and less administrative responsibility than running a private foundation.
  • Private foundations – Charitable-minded investors who want maximum control over their gifting set up private foundations. This strategy allows the investor control over the investment of assets and any grants or gifts but also is much more expensive and regulated than other charitable options.
  • Charitable trusts – Allows investors to support their favorite charities while generating other benefits such as tax deductions, avoiding capital gains tax and lowering the value of your estate for estate tax purposes.

Types of Charitable Trusts

  • Charitable Remainder Trusts (CRT) – A beneficiary named by the donor receives the income interest for life or a stated number of years, after which the remainder interest is donated to a specified charity. This is a perfect solution for a donor who wants to donate property during their lifetime and receive an immediate tax deduction yet still reserving future income for themselves, family or loved ones.
  • Charitable Lead (Income) Trusts – The opposite of a CRT in that the charity receives the income interest for a stated period of time with the remainder interest after the stated period going to a beneficiary named by the donor.

Common Features of Charitable Trusts

  • During Life – Creating charitable trusts during lifetime provides the donor with tax benefits and are especially effective during a person’s highest income earning years.
  • Irrevocable – Once a charitable trust is created and becomes operational, the donor cannot regain ownership of the property given to the beneficiary named.
  • Tax-exempt Charities – Gifts must be made to a tax-exempt charity approved by the IRS in order to provide the desired tax benefits.
  • Split-interest gift – Assets donated are split into two parts: the income interest that is produced by the asset and the remainder interest which is the principal remaining after the income interest is paid. This results in a current income tax deduction, assuming the taxpayer itemizes.

The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We does not provide legal or tax advice. We cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Always consult an attorney or tax professional regarding your specific legal or tax situation. Investors should be aware that investing based upon a strategy or strategies does not assure a profit or guarantee against loss.