While your household probably makes charitable contributions each year, you may not know that with a little planning you can arrange to receive direct financial benefits from your donations. The concept of “giving away your asset and keeping the income” can help you and your favorite charity. It could be compared to giving away your apple tree and still getting all the apples you want as long as you live. Benefits can include an income for life for you and/or your spouse and a charitable income tax deduction, as well as the good feeling that comes from making a gift in support of your favorite organization. Your donation to a charitable group can help make your community a better place to live, whether it helps at-risk children, needy seniors, or victims of a disease. Wouldn’t you like the proceeds from your estate to benefit a non-profit group in your community instead of going to pay the IRS?
The Nevada Planned Giving Roundtable, a council of the National Committee on Planned Giving, recently launched a campaign called Leave a Legacy™, which aims to increase public awareness of the advantages of planned giving. Here is a brief overview of some of the options available to you:
Charitable Gift Annuity—A gift option generally for donors over age 70.
A gift annuity is a contract between a donor and a charitable organization. The donor gives the organization a sum of money (usually cash or appreciated securities), and they agree to pay the donor a set income for life, based on the donor’s age. For example, a donor age 75 who makes a gift of $10,000 receives an 8.2% return, or $820 a year in income, plus a charitable income tax deduction of $4,619. And, a portion of the annual income is tax-free.
Charitable Remainder Trust—A gift option generally for donors under age 70 or for donors who want to make a gift with appreciated securities or appreciated real estate.
A charitable remainder trust provides a donor with an income as well as a charitable income tax deduction. The donor selects the payout rate, usually between 5% and 7%. The higher the payout rate, the lower the charitable income tax deduction. The trust gives the donor, and perhaps the donor’s spouse, an income every year for life. If the trust is funded with appreciated property (stocks or land), the donor will avoid capital gains taxes, currently at a maximum rate of 20%.
For example, Mr. and Mrs. Donor, ages 65 and 63, decide to move out of the stock market and into a charitable remainder trust. They create a charitable remainder unitrust for $500,000, funded with appreciated securities that they bought years ago for $25,000. They choose to receive an annual income stream of 6% of the value of the trust every year for their lifetimes. Their first year’s income would be $30,000. In addition, they save $95,000 in capital gains taxes, which they would have paid if they had sold the securities. They also receive a charitable income tax deduction of $140,870.
Deferred Gift Annuity—A gift option for donors age 25 to 70.
A deferred gift annuity is similar to an IRA. A donor makes a gift to his favorite charity and receives an immediate charitable income tax deduction slightly less than the amount of the donation. The donor also receives an income for life at a later date, often at retirement, when the donor is likely to be in a lower tax bracket. In this way, a donor can make a gift to charity, receive a significant tax deduction today, and provide for the future with retirement income.
For example, if a donor age 40 makes a $25,000 gift through a deferred gift annuity, the donor receives a 26.8% yield, or $6,700 per year, beginning at age 65. The donor also receives a charitable income tax deduction of $18,396 in the year of the gift.
For these and all other charitable gifts, if the donor cannot use the charitable income tax deduction entirely in the first year, the deduction can be carried forward for five additional years. If you’d like to know more about these types of life income gifts, please contact the Leave a Legacy ™ Hotline at 702-892-9734. They can provide you with a personal financial analysis of your potential life income gift options, all completely confidential.