The 2019 changes to the tax code raised the standard deduction and put a cap on property tax deductions, resulting in devaluing charitable gifts. Here are six examples of remaining planned gifts that can provide tax deductions without putting a crimp in your standard of living:
Give the remainder interest in your home to charity. The best kind of gift is one that does not change your lifestyle one iota. Simply change your deed to designate the remainder interest in your home to go to charity to receive an income tax charitable deduction of 30*— 80 percent of the appraised value of your home. You can continue to live in your home, rent it out (or paint it purple) for your lifetime.
*Approximately 30 percent deduction for a couple both aged 60. Eighty percent deduction for an 85-year-old donor.
Convert a CD to a Charitable Gift Annuity. Instead of moving your CD around every year to receive 1 to 3 percent in interest, transfer that CD to your favorite charity in return for a charitable gift annuity and receive *5 to 9.5 percent payments annually for the rest of your life. Moreover, you can receive a substantial income tax charitable deduction once you make the transfer. Additionally, the contribution of cash will provide you with the majority of your income being treated as tax-free. If you transfer appreciated stock, rather than cash, this is a great way to receive an annuity based on the high value of the stock without incurring an immediate capital gains tax hit.
*5 percent aged 64. Up to 9.5 percent aged 90 and above.
Use a long-term pledge through a charitable lead trust to charity to remove assets from your taxable estate for estate tax purposes. If you plan to make a gift through a long-term pledge to a charity, set aside an amount in a charitable lead trust to make these payments. After the term of the pledge, the remaining funds that were set aside can be released to your children without any gift or estate tax implications. You can alternatively use this technique to lump forward the majority of your pledge into an income tax deduction in the current year, rather than wait to deduct the pledge each year as you make the gift. These techniques are called Grantor Retained Charitable Lead Trusts and Non-grantor Retained Charitable Lead Trusts.
Sell appreciated real estate without paying immediate capital gains taxes by using a Charitable Remainder Trust. Codified in the 1986 Tax Act, by transferring real property into a charitable remainder trust (CRT), the CRT can sell the property without incurring capital gains tax. The proceeds from the sale (which are held in the CRT) can be paid out to you in the form of an annuity for your lifetime. Because a charity is the remainder beneficiary, the principal in the CRT can grow tax-free and you can receive a substantial income tax charitable deduction in the year that you fund the CRT.
IRA rollovers are still as good as gold. Donors aged 70.5 and older can still reduce their taxable income from gifts to charity (regardless if they itemize their tax deductions) if they have an IRA and directly transfer funds from the IRA to the charity. The gifted funds satisfy that year’s Required Minimum Distribution from the IRA to you, thus reducing your adjusted gross income. These type of gifts, often referred to as an IRA Rollover, provide you with income tax savings regardless of whether you have sufficient tax deductions to itemize your deductions. IRA rollover gifts lower your adjusted gross income, which lowers your taxable floor for other deductions (such as medical expenses and taxation of social security payments).
Give stock, not cash (probably). If you plan to make a gift to charity (and Number 5 does not apply to you), you should consider giving appreciated stock to the charity. You will receive an income tax charitable deduction based on the fair market value of the stock the day the charity receives the stock. Furthermore, you will never pay capital gains tax on the appreciation of the stock. The charity, as a nonprofit, can sell the stock and avoid income taxation. Furthermore, if you want to hold the stock again, you can again buy the amount of stock you just gave and have a new, higher cost basis.
Hal Abrams, J.D., LL.M., is vice president of development at Clark College Foundation. After practicing estate planning as an attorney in San Francisco, Abrams worked exclusively in gift planning with City of Hope, University of California Berkeley and University of Oregon. He has served on the boards of the Northern California Planned Giving Council and Northwest Planned Giving Roundtable. Abrams maintains his expertise in gift planning having assuming broader fundraising responsibilities at the University of Oregon Athletic Department, Lewis & Clark College and Clark College Foundation.