If you’re planning your estate and you have philanthropic aims, it’s wise to be informed about the different vehicles available for charitable giving.
As we all know, giving is its own reward. At the same time, you can gain tax benefits by acts of charitable giving. This is especially important for people who have assets that exceed the $5.25 million estate tax exclusion.
One way to give to charitable causes would be to start your own private foundation. While there are administrative costs involved, the majority of foundations in the country don’t employ anyone full-time. And, most of them are funded with less than $1 million, so a foundation may be within your reach.
Donor Advised Funds
Another vehicle of charitable giving is the donor advised fund.
Let’s say you decide that you want to make donations toward the end of a given year, but you don’t have the time to do all the research about who will receive your donations. You do, however, want the tax deduction, and you sincerely want to help a number of different charitable causes.
An efficient way of doing this would be to make a single contribution into a donor advised fund. You get your charitable deduction during the year within which the donation is made.
However, you don’t have to make recommendations with regard to endowments right away. You can take your time and advise the fund on how you want the money distributed later.
With donor advised funds, any contribution of appreciated securities is not going to be subject to capital gains taxation.
Charitable Lead Trusts
If you were to donate appreciable securities into a charitable lead trust, then a non-charitable beneficiary of your choice may wind up receiving assets free of the gift tax.
You convey assets into the trust and you name a charitable beneficiary who receives payouts throughout the term of the trust. When you create the trust you also name a non-charitable beneficiary.
The non-charitable beneficiary assumes ownership of the remainder that may be left in the trust after the term expires. This transfer is subject to the gift tax.
The IRS determines the anticipated interest earnings using the hurdle rate. Only this amount would be subject to the gift tax if it wound up going to the non-charitable beneficiary rather than the charitable beneficiary.
If the securities outperform the hurdle rate a tax-free transfer would be forthcoming.
Charitable Remainder Trusts
With these trusts you or someone that you choose as a beneficiary receives annuity payments throughout the term of the trust. The charitable beneficiary that you select assumes ownership of the remainder upon the conclusion of the term of the trust.
- What You Need to Know about Planning for Elder Care - March 21, 2023
- Can a Trust Be Contested? - March 16, 2023
- Ohio Medicaid Limits for 2023 - March 14, 2023