The Benefits of Planned Charitable Gifts
by Brennan Cox
Charitable gifts provide an opportunity for individuals to support a charitable organization. The Internal Revenue Service defines a charitable gift as “a donation or gift to, or for the use of, a qualified organization… without getting, or expecting to get, anything of equal value.” When calculating income taxes, most gifts of money and other property are considered tax deductible for federal income tax purposes. Those who support such organizations understand that giving is about more than a tax deduction – and everyone understands the benefits of paying fewer taxes every year.
However, not many people realize the benefits of including charitable gifts in their estate plan. Gifts made through one’s estate plan, will or trust, are deductible without limit in the computation of the federal estate (and state death) tax. Such gifts may be made in any form, whether it be an outright gift of money or even stocks, bonds and real estate, just to name a few. By giving property that has increased in value, one may be able to avoid paying the taxes that have accumulated by this increase.
A recent trend has been to gift life insurance policies or even transfer the payouts from a retirement plan to a charitable organization. By deeding an entire policy and making yearly payments of the premium, an individual can combine the benefits of yearly deductible charitable gifts with a single legacy endowment to the charity. Similarly, one can avoid estate and income taxes on retirement plans payments. The advantage of naming a charity as the primary beneficiary is that the retirement plan interests will not be subject to estate or income taxes, which can reduce such savings by as much as 75%.
Charitable contributions can also take on a form that can shelter taxpayers from certain taxes during their lives. Individuals can choose to establish Charitable Remainder Trust. This trust allows individuals to leave assets to a charity and receive income and tax benefits at the same time. They can then receive income from the trust for a specified period of time, after which all remaining assets are transferred to the charity.
Similarly, a trust can be established that provides income to a charitable organization while still allowing the assets to passed on. With the Charitable Lead Trust, assets are put into a trust to provide income to a charity on a monthly, quarterly or annual basis. After the creator of the trust passes away, the assets are distributed to those the creator designates.
Individuals can continue to support organizations they believe in and receive not just a personal benefit, but a financial benefit, with the right estate planning. It is important to be aware of all available options. For further information, contact Pam Ottersbach, the director of the Red Feather Society, Metro United Way’s planned giving program – at 292-6138 – or your estate planning attorney.
Brennan Cox is an attorney with Lynch, Cox, Gilman & Goodman, P.S.C., in Louisville, Kentucky with a practice focusing on matters of estate planning and taxation.
Mr. Cox is a graduate of the Brandeis School of Law at the University of Louisville and will soon complete his LL.M. in Taxation from the University of Alabama.