Charitable giving is a meaningful way for you to support a cause or organization close to your heart and give back to your community. If charitable giving is of interest to you, there are a few ways you can add it to your planning for the future. For example, establishing philanthropic goals and a system for charitable giving can be an important part of your estate plan.
Donating Assets to Charity
Most people are likely familiar with donating through cash or the transfer of tangible assets. Donation centers are in every state where you can give anything from household items, to clothing, to your car. With a cash donation, you can claim a tax deduction equal to the amount of cash you donated. Similarly, with a tangible asset, you may be entitled to a tax deduction equal to the value of the asset. That’s why it is always important to retain a record or receipt of your contribution.
You can also give assets by donating retirement accounts and life insurance policies. When you choose to give through assets like these, your benefits are twofold. In addition to your charitable tax deduction, your estate will not have to recognize the gifted income, giving you a break on estate taxes as well. For this reason, some people choose to donate assets that would normally have a tax liability and leave accounts that are tax-deferred to their beneficiaries. For these type of gifts, we want you to talk with us prior to giving them away so that we can help you gift them in the best manner possible.
Donor-Advised Funds
Another option is to give a nonrefundable amount to the organization of your choice via a donor-advised fund (DAF). DAF gifts are usually given to the organization, or organizations, of your choice by the administrator of the fund. The fund can also be created so that it will continue to run even after you pass away. This is a popular option because you can immediately receive the maximum tax benefit for your contributions. However, the funds tend to have a more complicated tax structure so we highly recommend that you work closely with your advisors when establishing and funding a DAF.
Charitable Trusts
There are two types of charitable trusts to consider when considering giving this way.
The first is a Charitable Lead Trust (CLT). CLTs are established by transferring assets into the trust, and then donating a stream of income from the assets each year to charity. If there is any money left at the end of the period you set to donate, the balance can be dispersed to other beneficiaries. You benefit because your gift tax deduction is immediate and based on the value of the income stream to the charity. However, the downside to consider is that CLTs require annual administrative management.
The other is a Charitable Remainder Trust (CRT). CRTs are similar to CLTs, but with one big difference – beneficiaries and donors are paid before the charitable beneficiary. With a CRT, you benefit because it gives you and your beneficiaries income and allows you to diversify your investments. At the termination of the income interest, the remaining amount goes to charity. Yet, CRTs have the same downside as CLTs, annual administrative management.
If you are interested in doing a charitable trust, again please make sure to reach out to us so that we can guide you appropriately.
A few charitable-giving resources to get you started!
Here are some resources that we’ve found helpful for our clients:
- Foundation for MetroWest (Our region’s Community Foundation): https://www.foundationmw.org/
- Insight into Our Region with Impact MetroWest: https://www.impactmw.org/
- Community Foundation Locator (Outside the MetroWest area): https://cof.org/page/community-foundation-locator
- For information about giving outside the local area, check out: https://www.fidelitycharitable.org/
Wondering what organizations you can support with your gift? Check out our client-generated list of charities.
Schedule An Appointment To Discuss Your Charitable Giving Objectives And How To Address Them!
If you’re unsure of the best option for you and your philanthropic goals, we’re here to help. You can schedule a time to talk with Tiff here. This is a complimentary meeting that will be dedicated to talking with you about your charitable goals. We look forward to helping you plan your charitable giving!
