Charitable Giving

Do you enjoy giving to charity, but worry that if you give to charity in your Will or Trust, that doing so may cause you not to provide for your family in the way you would like? The beauty of Estate Planning is that it allows you to choose from a variety of options to tailor your plan to your wishes and particular situation.

By planning ahead, you can take advantage of the benefits of incorporating charitable giving into your estate plan while also ensuring a legacy for your family. For example, estate planning that contains charitable giving may help you save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income to your family.

One of the most common tools is the Charitable Remainder Trust (CRT). The CRT provides the beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity you have chosen. You receive a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.

The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income for a set period of years, with the remainder interest transferring to your heirs upon his or her death.

With several ways to incorporate charitable giving into your estate plan, it is important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits.

You may have heard the Benjamin Franklin quote, “In this world nothing can be said to be certain, except death and taxes.”  While death and taxes may be certain, the amount you may pay in taxes is not.  With some strategy and proper planning, you can leverage your assets to pass on a greater financial legacy to your loved ones.  This article will discuss a few of the ways that you can minimize your taxable estate.

The IRS will want to review your estate at death to see if you owe them that one final tax: the federal estate tax.  Whether there will be any tax to pay depends on the size of your estate and how your estate plan works.  There are many effective strategies that can be implemented to reduce or eliminate death taxes, but you must start the planning process early in order to implement many of these plans.

One way that you can minimize your taxable estate is through the use of certain trusts, such as life insurance trusts, gifting trusts or charitable trusts.  These trusts can also give your beneficiaries the additional benefits of asset and divorce protection.  You can also decrease your taxable estate by making outright gifts during your lifetime.  These gifts will have to stay within a certain amount per year, per person based on the current law ($14,000 per year, per person in 2015) in order not to count against your lifetime exemption amounts.  Using trusts or a gifting strategy will protect your estate and maximize the amount you can give to your loved ones, rather than being counted towards the taxable amount in your estate.   

There are many different tools that can be used to effectively minimize your taxable estate.  One key thing to keep in mind is to be sure to consult an attorney and financial professional to make sure your matters are handled properly and that you are using the best strategy for your particular situation.

Charitable Giving

Many people give to charity during their lives, but unfortunately too few Americans take advantage of the benefits of incorporating charitable giving into their estate plans. By planning ahead, you can save on income and estate taxes, provide a meaningful contribution to the charity of your choice, and even guarantee a steady stream of income throughout your lifetime.

Those who do plan to leave a gift to charity upon their death typically do so by making a simple bequest in a will. However, there are a variety of estate planning tools designed to maximize the benefits of a gift to both the charity and the donor. Donors and their heirs may be better served by incorporating deferred gifts or split-interest gifts, which afford both estate tax and income tax deductions, although for less than the full value of the asset donated.

One of the most common tools is the Charitable Remainder Trust (CRT), which provides the donor or other designated beneficiary the ability to receive income for his or her lifetime, or for a set period of years. At death, or the conclusion of the set period, the “remainder interest” held in the trust is transferred to the charity. The CRT affords the donor a tax deduction based on the calculated remainder interest that will be left to charity. This remainder interest is calculated according to the terms of the trust and the Applicable Federal Rate published monthly by the IRS.

The Charitable Lead Trust (CLT) follows the same basic principle, in reverse. With a CLT, the charity receives the income during the donor’s lifetime, with the remainder interest transferring to the donor’s heirs upon his or her death.

To qualify for tax benefits, both CRTs and CLTs must be established as:

• A Charitable Remainder Annuity Trust (CRAT) or a Charitable Lead Annuity Trust (CLAT), wherein the income is established at the beginning, as a fixed amount, with no option to make further additions to the trust; or
• A unitrust which recalculates income as a pre-set percentage of trust assets on an annual basis; which would be either a Charitable Remainder Unitrust (CRUT) or a Charitable Remainder Annuity Trust (CRAT).

Another variation is the Net Income Charitable Remainder Unitrust, which provides more flexible payment options for the donor. One advantage to this type of trust is that a shortfall in income one year can be made up the following year.

The Charitable Gift Annuity (CGA) enables the donor to buy an annuity, directly from the charity, which provides guaranteed fixed payments over the donor’s lifetime. As with all annuities, the amount of income provided depends on the donor’s age when the annuity is purchased. The CGA gives donors an immediate income tax deduction, the value of which can be carried forward for up to five years to maximize tax savings.

With several ways to incorporate charitable giving into your estate plan, it’s important that you carefully consider the benefits and consequences, taking into account your assets, income and desired tax benefits. A qualified estate planning attorney and financial advisor can help you determine the best arrangement which will most benefit you and your charity of choice.