2014-05-08 / Top News


Estate planning and charitable giving

Most people are familiar with the benefits of making lifetime donations to charitable causes and organizations. In addition to outright gifts during your lifetime, there are additional estateplanning techniques that can be used to achieve significant tax benefits while furthering your philanthropic goals.

Bequest in your will or trust. One way to fulfill your philanthropic goals is to provide for a particular charitable cause or organization in your estate plan. The amount going to charity can be stated as a fixed dollar amount or as a percentage of the remaining assets. If you are inclined to support a particular cause, but prefer not to restrict your bequest to a specific organization, you can name a community foundation to further your interests in a particular area. Generally speaking, charitable bequests in your will or trust result in an income or estate tax deduction for your estate or trust.

Direct gift of appreciated assets. Before making a lifetime gift of cash to a charitable organization, consider donating appreciated stock or other appreciated long-term capital assets. Subject to certain limitations, you receive an income tax charitable deduction equal to the fair market value of the asset and do not recognize gain on the donation or sale of the asset. The charitable organization can sell the appreciated asset without recognizing capital gain on the sale.

Individual retirement accounts. Traditional IRAs and other retirement accounts are generally tax-deferred holdings that grow income tax free. Income tax is paid as you withdraw from the account over your life expectancy. Often, the IRA is not fully withdrawn during the owner’s lifetime, and it is left to a beneficiary at the owner’s passing. If the IRA is left to an individual (not to a charitable organization), the individual will pay income tax as she or he takes money out of the account (and may also be subject to estate tax). On the other hand, if you name a charitable organization as the beneficiary of your IRA, the charitable organization receives the account and with no income or estate tax levied on the assets held in the IRA. In years past, lifetime rollovers of retirement accounts were a great way to make charitable gifts from pre-tax money. This option expired at the beginning of the year, although it is possible that Congress may re-introduce this opportunity.

Charitable remainder annuity trust. A CRAT can be thought of as a fixed annuity — usually expressed as a percentage of the fair market value of the property that was initially deposited in the trust. Again, the payout can be made over your life, the lives of additional beneficiaries, or a term of years. At the end of the annuity term, the remaining assets in the trust pass to a charitable organization. You receive an income tax charitable deduction in the year of its creation, based on the estimated value of the remainder that will eventually go to the charitable organization.

Charitable remainder unitrust. A CRUT can be thought of as a variable annuity. You make an irrevocable transfer of assets into the trust and the trust pays you a percentage of the value of the trust assets recalculated each year. Therefore, the amount that you receive can go up or down depending on the value of the assets in the Trust. At the end of the trust term, the remaining assets will pass to the charitable organization you have chosen. Again, you receive an income tax charitable deduction in the year the trust is created equal to the estimated value of the assets that will pass to the charitable organization.

Charitable lead annuity trust. A CLAT approaches the whole idea of charitable giving from a different point of view. In a CLAT, the charity receives income for a certain term or for your life. At the end of that term, or at the end of your life, the assets in the trust then pass on to your beneficiaries. As the donor, you receive an income tax deduction in the year that you create the CLAT for the amount that is estimated as going to the charity over the annuity term. However, during the term of the CLAT, you pay income tax on the amount of income going to the charity even though you are not receiving it, but instead the charity is receiving it. ¦

— The Charlotte Community Foundation unites individuals, families, businesses and organizations with causes they care about by creating permanent charitable funds to help the community meet the challenges of the future. A part of the community for more than 20 years, CCF is focused exclusively on Charlotte County. For more information, visit www.CharlotteCommunity- Foundation.org or call 637- 0077.

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