While recent economic factors such as fluctuating stock markets and low interest rates may be causing more anxiety than usual into the financial and charitable planning processes, there are charitable giving strategies that help minimize these issues by providing current tax deductions and/or a substantial stream of income that is safe and reliable.
Here is some insight into these strategies:
Accelerate charitable gifts
Many donors choose to defer their largest gifts until the end of their lifetimes, often citing fears they will outlive their resources, die before providing for loved ones or suffer serious illness or other economic misfortune. The result is that assets often are left invested in appreciated stock or CDs that produce little income. Fortunately, several charitable planning tools exist that make the acceleration of such a gift not only possible but actually benefit the donor.
Charitable remainder trusts and charitable gift annuities, despite having some important differences, work in the same way: the donor irrevocably transfers assets to charity in exchange for guaranteed income payments. The amount will never change and the payments will continue for the donor’s life. An attorney, financial adviser or charity’s gift planning officer can explain the differences between these trusts and annuities.
Other common assets that don’t produce income are the donor’s home and other real property, such as art. If you ultimately plan to gift your home or other real property to charity, you can retain full use and enjoyment of the property for life. At the same time, you will realize present-day tax savings by making a gift of the remainder interest in the property. Upon your death, the property will transfer to the charity.
The deferred charitable gift annuity
Many midcareer donors find themselves maxing out qualified retirement plan contributions while still paying large tax bills on income they don’t need today. A popular solution to this is a deferred charitable gift annuity, which is a gift annuity that delays receipt of payments until the date of your choosing (presumably when you retire). In short, you get an income tax deduction when you most need it (now) while delaying income until a time when you will need it more and pay less taxes on it.
Select the right asset
Finally, in order to maximize the tax benefits of charitable giving vehicles like charitable gift annuities and charitable remainder trusts, it is important to carefully consider which assets you use to make the gift. Appreciated assets such as marketable securities and real estate, which would otherwise generate capital gains taxes if sold by the donor, make especially smart gifts.
Contact your financial planner, attorney and charitable gift planner for more details on whether one of these strategies might be right for you.
Dave Stokely is the associate director of principal gifts at the Cleveland Museum of Art. He also advises donors on planned giving strategies. He earned his law degree from The Ohio State University and has experience as an estate planning attorney and administering personal and charitable trusts.