Charitable Giving
Similar to tax planning, a well-designed charitable giving plan can help reduce your tax liability, which can compound into higher savings over time. Charitable contributions may create tax deductions, and there are a few different contribution strategies that can enhance the benefits to donors. Additionally, for estate owners, charitable gifts can reduce the size of the estate to help minimize estate taxes. Properly structured charitable gifts can provide current benefits for both the donor and the charity. Charitable planning involves tax issues that should be discussed with a qualified tax or financial professional.
Charitable Remainder Trust: A remainder trust enables the donor to transfer an asset while retaining the right to the income it generates. The asset becomes the “remainder” which is owned by the charity. Remainder trusts, if properly structured, can qualify for a current tax deduction. There are three types of remainder trusts:
- Unitrust: The income the donor receives is based on a percentage of the current fair market valuation of a trust asset. Each year, as the asset is valued, the income is adjusted based on the new valuation.
- Annuity Trust: Instead of a percentage of the asset value, the donor is paid a fixed amount annually.
- Pooled Income Fund: Donors can pool their donated assets in a fund that is operated by the charitable organization. The donors then receive a proportionate share of income from the fund that is paid throughout their lifetime. Payments can vary each year based on the valuation of the underlying assets in the fund.
Charitable Lead Trust: Also known as an Income Trust, this vehicle transfers the income rights to the charitable organization. Generally, the income rights are assigned for a specified period of time after which the remainder passes to the donor.
