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Charitable Planning

How can I effectively benefit the community and charitable organizations I support? What strategies can I implement that would be beneficial to my family as well as my community? What tax benefits could I realize through this type of planning?

Our Charitable Planning Advisors can help you navigate these objectives.

Strategies You May Want to Consider:

Charitable Remainder Trust

This strategy also turns appreciated securities into income; however, in this case you retain more investment risk and responsibility and have less protection against longevity risk than you would with a gift annuity.

To implement this strategy, you transfer appreciated securities to a trust, either offered through a charity or that you self-manage within a trust created for you by your attorney. You get a potential charitable deduction in the year of the transfer equal to the amount that will remain for charity, as estimated according to IRS prescribed calculations based on an assumed factor for your longevity. Required withdrawals are taken each year, computed according to a detailed IRS income-layering calculation. You can choose to have either annuity trust income (calculated as a fixed dollar amount) or unitrust income (equal to a fixed percentage of the portfolio's value each year). Funds remaining at your death go to your chosen charities.

This strategy is particularly appropriate when interest rates are high. As with the charitable gift annuity, it works particularly well when you want to trim appreciated securities from your portfolio without realizing capital gains and/or in years when you have a particular need for a large charitable deduction, e.g. if you sell your business or some real estate for a large taxable gain.

Think of this strategy as turning appreciated securities into personal income when you are comfortable retaining investment and longevity risk.

Charitable Lead Trust

This strategy, most famously used by Jackie Onassis, exchanges a large current donation for income that goes to a charity during your lifetime and that gives the funds remaining at your death to your heirs. It works particularly well when interest rates are low.

The strategy works best if you anticipate having a taxable estate and if you already have ample cash flow for your own daily needs, and also have a keen interest in lifetime charitable giving and heirs to whom you would like to leave wealth. The process includes transferring wealth (think appreciated securities!) to a trust whose mandatory distributions during the term of the trust go to your chosen charities, and any funds in the trust remaining at your death go to your heirs.

Think of this strategy as a way of managing estate taxes in low interest rate environments if you have a keen interest in – and the financial ability to make – large lifetime charitable gifts.

Donor Advised Trust

By donating to a donor advised trust you separate tax planning from charitable gift decisions. You donate cash (or appreciated securities!) to an account held at a brokerage firm or with a charity that functions like an escrow account for your charitable gifts. You get the potential charitable deduction in the year the wealth is donated to the donor advised trust and then can subsequently advise the fund to disperse gifts to the charities of your choice at your preferred pace. (Remember that donations to a donor advised trust are irrevocable and that gifts can only be made to IRS approved charities.)

Think of this strategy as a way of shifting charitable deductions into the year most beneficial for your tax planning.

Charitable Gift Annuity

Charitable gift annuities can turn appreciated securities into lifetime income. In return for a large irrevocable gift to a charity, you get a large charitable deduction in the year of the gift plus a lifetime stream of taxable income. The charitable deduction is equal to the net present value of funds estimated to remain for the charity at your death, as calculated by IRS formulas with an assumed factor for your longevity. Income is usually fixed in amount and so does not offer inflation-protection. Close attention to the credit worthiness of the charity is important since you are relying on the charity to provide income for the rest of your life. If you are concerned about preserving wealth for heirs, consider pairing this strategy with permanent life insurance held in an irrevocable life insurance trust. This strategy works best when interest rates are high.

Think of this strategy as a low-administrative, hassle-free way of turning appreciated securities into lifetime, fixed income with a charity you trust to be financially viable over the long-term, when interest rates are high –and when you are feeling particularly healthy.