In the first part of this series, we discussed year-end charitable giving and tax strategies that can accomplish both clients’ charitable goals and provide some significant tax benefits.  The focus of that article was immediate gifts given and received that provide current support to charitable organizations.

But what if clients want to be more strategic with timing and how they give? 

Other Tax Strategies: Planned or Deferred Gifts

Planned or deferred gifts play an increasingly important role in providing a foundation for future ongoing support to a charitable institution.  Just ask any university president how much time is spent in seeking planned gifts and you will find that it is a substantial portion of their job.

Simple Tax Strategy

As in current gifts, the simplest way to make a planned gift is a bequest of cash or propertythrough an individual’s estate planning documents, either a Will or a Trust.  The bequest can be a specific dollar amount or a percentage of one’s estate.  The donor continues to own the asset until the time of death or trust termination at which time the Trustee or Personal Representative/Executor fulfills the commitment under the terms of the governing document.

Rather than a bequest in a document, donors should also consider making a charity the sole or partial beneficiary of a life insurance policy such that the charity receives the proceeds of the policy at the time of the insured’s death.  A particularly attractive source of charitable gifting can come from an IRA or other tax-deferred account where the payment to a qualified charity eliminates the ultimate income tax liability that must otherwise be paid when distributions are taken by an individual.

Sophisticated Tax Strategy

An area that should be explored by a potential donor involves more sophisticated techniques that provide for ultimate charitable gifts to an organization while maintaining a current income stream for the donor until their death.  Charitable gift annuities and charitable remainder trusts can enhance the value of a planned gift to one or more favorite institutions while continuing to provide the donor with a flow of income through their remaining lifetime.  There are many variables involved that ultimately affect the amount of the income tax and estate tax deductions available to a donor, including the age of the donor, whether it is for only the donor’s lifetime or also includes the lifetime of a surviving spouse, and the payout rate for the ongoing lifetime income payments.  These annuities and trusts represent the merger of two core concepts – satisfying the desire of donors to support the mission of a favorite charity while providing for continuing financial security for their remaining lifetime.  Your favorite charity will normally be able to provide you with illustrations without cost or obligation that can show you the benefits of establishing a charitable gift annuity or charitable remainder trust including the amount of lifetime income benefits you would be receiving as well as the value of the ultimate gift to the organization.

Tailored Tax Planning

As stated in my previous column, your tax and legal advisors are important partners in making sure that the gifts meet both the intent of the donor and the expectations of the recipient.  A plan can be tailored to meet your specific charitable goals and lifetime income needs.  We welcome the opportunity to explore how planned giving can accomplish multiple goals for you and your family.