Almost everyone aspires to leave the world a better place, and for some, that means developing a more structured approach to their charitable giving strategy.
The 2022 report by Giving USA shows that Americans gave $485 billion to charity, and nearly $330 million was from individuals. Put another way, that’s a little more than $2,500 for each household.¹,²
When giving to charitable organizations, some people elect to make cash donations either on a one-off basis or as an annual gift. Others, however, understand that supporting an organization can be incorporated into their overall financial strategy and look for ways to make more structured contributions over time.
” For this son of mine was dead and is alive again; he was lost and is found. ‘So they began to celebrate.” Luke 15:24
“If you are charitably minded, charitable remainder trusts, gift annuities or donor-advised funds may allow you to provide funds to your church, missionaries, and other organizations without taking away from your family,” writes Mick Owens in his popular book, The Diamond of Life, The Five P’s of Success and Significance.
“For those of you who already are receiving a required minimum distribution, consideration should be given to paying the required minimum distribution (RMD) directly to your church or to the charity of your choice,” he continued. “That way, the RMD won’t be reported on your personal tax return. Due to the increase in the standard deduction, many people no longer get the benefit of a charitable contribution. We can help.”
“One important consideration to keep in mind is that you don’t have to wait until you are retired to create a gifting strategy”, Mick added. You can start this process at any time, which may mean more people can be helped by your generosity.
In the accompanying table, we’ve summarized the advantages and disadvantages of six gifting strategies. If one or two sound interesting, we can provide you with more detailed information about what to consider before moving forward.
May be deductible from income taxes.
No retained interest in gift after donation.
Charitable Lead Trust
Allows you to transfer property to your heirs while managing your estate tax.
Little to no potential income tax benefits.
Pooled Income Fund
* Potential income tax deduction. * Variable income stream. * Managed by the charity you selected.
– Donor cannot be the trustee. – Not all charitable organizations are eligible.
Charitable Remainder Trust
* Potential income tax deduction. * May help you manage capital gains on appreciated property.
Your income will decline if the value of your trust declines.
Charitable Remainder Annuity Trust
* Potential income tax deduction. * May help you manage capital gains on appreciated property. * Designed to generate a fixed income stream.
Income is fixed, regardless of your need or inflation.
Gift of Insurance
* Potential income tax deduction. * Can enable donor to make a large future gift at potentially low current cost.
May require annual premiums.
Charitable giving strategies can involve tax considerations, so we encourage you to consult with your tax professional for advice on your specific situation. Alternatively, our planning department can conduct a tax analysis to review the pros and cons of diverse charitable strategies.
When considering adding a trust to your charitable strategy, it’s important to remember that trusts involve a complex set of tax rules and regulations. Before moving forward, we encourage you to work with professionals (our firm, your attorney, and/or your CPA) who understand trusts and who are familiar with the financial strategy that we have curated for you.
Some donor advised funds are considered mutual funds, and are sold only by prospectus. The prospectus will provide information on charges, risks, expenses, and investment objectives and should be reviewed carefully before you invest or send money.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and mount of insurance purchased. Before buying, be sure to have an understanding of the policy charges and fees. If a policy is surrendered prematurely, you may pay surrender charges and have income tax implications. It’s important to determine whether you are insurable before considering a charitable giving strategy that involves life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments with an annuity, any contract guarantees are dependent on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59 1/2, a 10% federal income tax penalty may apply (unless an exception applies).