This is a guest post by Michael Duff, Director of Estate & Gift Planning for the American Cancer Society.
Charitable giving is a great option to consider for your estate plan. Charitable estate planning helps you combine your desire to give to charity with your overall financial, tax, and estate planning goals. Many of you are likely familiar with a bequest, the most common form of charitable giving (where you indicate a specific amount or a percentage of your estate/trust to go to charity). However, there are many different options to consider based on your personal and financial goals. This post outlines a few alternative charitable giving possibilities to consider when planning your estate.
Charitable Remainder Trust
A Charitable Remainder Unitrust (CRUT) is a gift where property is transferred into a trust and pays annual distributions from its principal until the trust terminates, at which point the remainder amount transfers to the charity. The property transferred into the trust is invested during the life of the trust. This graphic below from the American Cancer Society website illustrates the function of a CRUT:
This option provides an immediate tax deduction to the donor for the charitable gift, as well as annual distributions from the trust. A CRUT is a great option to consider for those who have highly appreciated assets that might be subject to capital gains tax (stocks, real estate, etc.), as a CRUT will help you avoid these taxes.
Benefits of a CRUT:
Receive income for life or a term of years in return for your gift
Receive an immediate income tax deduction for a portion of your contribution
Pay no upfront capital gains tax on appreciated assets you donate
You can make additional gifts to the trust as your circumstances allow, for additional income and tax benefits
Items to consider:
A CRUT is an irrevocable gift to the charity
The level of investment for a CRUT. The typical size that we see at the American Cancer Society for this type of gift is $200,000 or more.
Charitable Gift Annuity
Another gift option is a Charitable Gift Annuity (CGA), where you transfer cash or securities to the charity, which in return pays a fixed income to you or a selected beneficiary for life. The remaining balance passes to the charity when the contract ends at the death of the last beneficiary. This option is good for those who might be interested in supplemental income at a higher return than a low-earning security or CD. CGAs can also be done at a lower investment, with many charities requiring a minimum of $5,000 to $10,000 (ex. American Cancer Society has a $5,000 minimum). Many charities have a CGA program, and you can connect with them to learn more about their program and request a rate illustration.
Benefits of a CGA:
Receive dependable, fixed income for life in return for your gift
In many cases, increase the yield you are currently receiving from stocks or CDs
Receive an immediate income tax deduction for a portion of your gift
A portion of your annuity payment will be tax-free
Items to consider:
Beneficiaries must be at least 60 years of age at the time of the gift
Gift annuity rates are partly determined by the age of the beneficiary
Charities often have minimum donation requirements for a CGA
Younger donors may find planning benefits in a deferred gift annuity
Other Creative Gifting Options
There are many other creative ways to do charitable giving with your assets, including gifts of appreciated securities, a retained life estate, a donor advised fund, or gifts of personal property. I will quickly outline each of these gifts below.
Gifts of Appreciated Securities
You transfer appreciated stocks, bonds or mutual fund shares you have owned for one year or more to the charity and receive an immediate income-tax deduction.
Retained Life Estate
One of my personal favorite types of gifts; you transfer your property to charity and continue to live in the property for life or a specified term of years, and continue to be responsible for all taxes and upkeep. The property then passes to the charity when your life estate ends. You get immediate income tax deduction for a portion of the appraised property value and get to use the property for the rest of your life.
Donor Advised Fund
An increasingly popular option in recent years, a donor advised fund (DAF) is an irrevocable gift to a public charity sponsoring your account of cash, securities, or other property. You invest your fund and distributions to charities of your choice are made at your recommendation. This option allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend specific charitable donations to be made from the DAF.
Gifts of personal property
You transfer valuable paintings, antiques, or other personal property to the charity for the charity to use or sell and in return receive an income tax deduction on the appraised value and pay no capital gains tax.
There are numerous creative ways to incorporate charitable giving as part of your estate plans. Some of these options have benefits to you or your beneficiaries during your lifetime, and ultimately can help you with your financial goals. I would recommend taking time to consider your ultimate goals for your estate plan, as well as the goals for your legacy. Then, share these goals with your attorney and financial teams. They can help you narrow down the best options to consider. I also recommend that if you have a charity in mind to include in your estate plans, reach out to them to find out the options they have available to you.
Your legacy is important and can have meaningful and lasting impact in your community, so take the time to understand all of the charitable giving possibilities available to you.
If you are in need of legal advice regarding estate planning and administration, Gove Law Office is here to answer your questions. Please contact Attorney Michael Gove at email@example.com or 413-583-5196.