The act of charitable giving benefits not only a worthy cause but also you—if you choose the right strategy. Learn more about a few common strategies, including tax benefits and charitable trusts below.
Giving basics
You're free to give almost any type of property to whatever organization you choose. But in order to obtain the tax benefits associated with charitable giving, contributions need to be made to qualifying tax-exempt organizations that have been organized in the United States and meet certain criteria. In addition to common charitable organizations that operate exclusively for religious, charitable, scientific or educational purposes, you may give to veterans' posts, certain fraternal orders, volunteer fire departments and civil defense organizations, but not to politically active groups.
The income tax deduction for your charitable gift will be determined in part by the type of property you give and the type of charity receiving it.
With an outright gift, you might receive an immediate income tax deduction that could equal the value of your gift, up to certain limits. You can carry forward any gift amount that exceeds these limits for up to five years. Noncash gifts are more restrictive.
In addition to outright gifts, planned giving offers a way to make larger gifts than you might otherwise be able to do. For example, by donating highly appreciated assets (such as stocks) during your lifetime, you may be able to help reduce or avoid paying capital gains taxes, thus potentially enhancing the value of your gift to the charitable organization and increasing your tax savings.
More gifting strategies
The gift of a life insurance policy you no longer need enables you to donate more than you might currently have available and could result in a larger future gift to the charitable organization. If the charity is named as owner and beneficiary of the policy, you may receive an income tax deduction for the lesser of the value of the policy or your basis in it.
With a charitable lead trust, you place money or income-producing assets in the trust. The charitable organization receives regular payments from the trust for the duration of the trust. At the end of the trust period, the remaining assets are paid to you or to your designated benefiary(ies). This can help reduce (or possibly even eliminate), estate taxes on appreciated assets that would eventually transfer to your beneficiaries.
With a charitable remainder trust, you donate property to the trust. You receive regular payments from it for a specific number of years or your lifetime. You are generally taxed on distributions to you from the trust. At the end of the trust period, the remaining assets are paid to the charitable organization. You may qualify for a current income tax deduction on the estimated present value of the remainder interest that will eventually go to charity. Even though you cannot take your gift back once it's in the trust, you can change the charity that will eventually receive the trust assets.
Giving strategically can benefit both you and the charitable organization you choose—and could potentially benefit your heirs. A properly planned gift might enable you to realign your investment portfolio, help diversify your holdings, increase your cash flow and help leave a greater legacy.
Whatever gifting strategy you choose, planned giving can be very rewarding. It's wonderful to see your gift at work and to receive tax benefits as well.
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This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.