Our community is fortunate to have so many individuals who make Clark County a better place to live, work and play through their volunteer work and community building. Charitable giving is another way to make a difference.
However, many people do not realize they have a variety of options beyond outright donations.
The following are some of the more prominent charitable giving options:
An outright gift is the most widely known and understood: a direct donation of cash, supplies or other assets to a charitable entity. The advantages of an outright gift are also well known: the gift goes to work right away, results in an income tax deduction to the donor and eliminates capital gains tax on donated appreciated property.
An outright gift also can be made by a bequest in a will or a living trust. A bequest may leave a certain dollar amount, a specific piece of property – such as an IRA or retirement account, stock or real estate – or leave all or a portion of what remains from an estate. Benefits of using such a “testamentary gift” are that the gift is available at the end of the donor’s life and can result in an estate tax deduction for the full value of the bequest.
Another form of gifting known as “life income” gifts commits cash and other assets to a future charitable purpose, while assuring the donor continued income from the donated assets. These tools include gift annuities, charitable remainder trusts and pooled income funds. Under these planning tools, assets are permanently transferred to the charity to be managed for a specific number of years or until the end of a specified individual’s life (i.e. the donor or beneficiary). At the end of this period, the remaining assets are used by the charity according to the donor’s recommendations. In exchange, the donor secures annual income as well as substantial tax and charitable advantages.
A charitable lead trust works in the opposite way as life income gifts. The trust is designed to pay annual income to one or more charitable beneficiaries for a specific number of years or for the lifetime of one or more individuals. At the end of the trust term, the remaining principal is distributed to a noncharitable beneficiary. The advantages are that the gift goes to work right away, minimizes gift and estate taxes, preserves wealth for heirs and may provide donors with income tax relief.
A life insurance policy can also be used to make a future gift to a charity, with a range of tax benefits. A donor can name a charity as a beneficiary, donate a policy that has been paid up, or donate a new policy or a partially paid policy. The life insurance gifting method can allow a donor to make substantial future gifts with minimal current outlay, provide an estate tax deduction, provide income tax deductions under certain circumstances and can replace other donated assets as a legacy for the donor’s heirs.
Finally, another giving option is the establishment of a private foundation. A private foundation is a not-for-profit entity that can be controlled by a person, family or business and is organized exclusively for charitable, educational, religious, scientific and literary purposes. The foundation must be officially recognized by the IRS in order for contributions to be tax deductible. The benefits of a private foundation include creating a family legacy, maintaining control over what the funds are used for, encouraging family involvement and family philanthropic activity and providing current tax deductions for future grants.
These various giving tools reflect a wide range of philanthropic and financial priorities, including taxes, asset control, income and family legacy. These tools can also be used in combination to achieve your giving goals.
Disclaimer: The information in this article does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice.
Lisa Lowe is an attorney in the Vancouver office of regional law firm of Schwabe, Williamson & Wyatt. She can be reached at 360-905-1434 or firstname.lastname@example.org.