Do you have to make a multimillion-dollar gift to a charity to receive immediate or future financial benefits? No. If you’re not yet a millionaire or simply a “millionaire next door,” yet want to give, consider the following options, which may bring you immediate or future tax deductions.
These gifts are made via long-term arrangements between donors and recipient charities or non-profits, usually with income resulting for the donor and an eventual transfer of the principal to the charity at the donor’s death.
For example, a charitable remainder trust(CRT) may be structured to provide a beneficiary (i.e., you) with cash flow for a defined number of years, even for life. After the end of the trust term (or your death), the remaining trust principal passes to charity, or in some cases, to a family foundation. You could even name a CRT as the beneﬁciary of your IRA as part of your estate planning strategy. In fact, some charities and universities will now administer a CRT you create for free if the remaining trust principal is designated for that charity or university’s investment or endowment fund. A charitable lead trust(CLT) makes annual charitable gifts on your behalf, for a set number of years; if structured and executed properly, the trust beneficiaries (i.e., your heirs) can eventually receive the leftover trust assets without having to pay estate or gift taxes on them.
If you don’t have enough funds to start one of these, you might opt to invest some of your assets in a pooled income fundoffered by a university or charity. In a pooled income fund, your gifted assets go into a “pool” of assets invested by a fund manager; as a donor, you are assigned “units” in the fund proportionate to your share of the fund’s total assets. In turn, you get a proportionate share of the income of the fund for life, and when your last income beneficiary passes away, the principal of your gift goes to the school or charity.
If you like the idea of a family foundation, but don’t quite have the money and don’t want the bureaucracy, you could consider setting up a donor-advised fund.Essentially, this is a charitable savings account. You make an irrevocable contribution to a third-party fund, realizing an immediate tax deduction for the year of the gift; the fund invests the money in an account you create, where it grows without being taxed. You can request where the charitable donations from the DAF go, and you have a say in how you want the funds in the DAF invested, but the DAF makes the actual donations to non-profits and has the legal control over these matters.
These are charitable gifts in which the donor retains no powers or other controls over the gift once it is made. The gift is irrevocable, or in federal tax terms, “complete.” A lifetime gift of this sort is not included in what the Internal Revenue Service calls your Gross Estate (but taxable gifts are used in calculation of estate tax).
Lifetime gifts also include outright giftsof cash or appreciated property, such as stocks or real estate. Thanks to the 2017 federal tax reforms, you can make outright gifts via cash or check and deduct such donations up to 60% of your income. A gift of appreciated property could bring you an income tax deduction for its fair market value and help you avoid the capital gains tax that would result from the sale of the asset.
Through a partial or whole gift of appreciated property,you can transfer a real estate deed to a school or charity and get around capital gains taxes that may result from a property’s sale. You may receive an immediate charitable income tax deduction for the full fair market value of the gifted property, a deduction which you may apply up to 30% of your adjusted gross income. You could even arrange a retained life estate,in which you transfer the title to your home to a charity or non-profit while retaining the right to live in it as your primary residence for the rest of your life.
Donating a paid-up life insurance policy to a university or charity may allow you an immediate charitable deduction for the value of the gift. You can also name a charity as the beneficiary of an IRA; upon your death, the full value of the account will transfer to the charity without being subject to federal estate or income taxes.
As your income increases, you may face limits on the amounts of charitable gifts you can deduct. Your charitable deductions for any federal tax year cannot be more than 50% of your adjusted gross income. But if you exceed such limits, the I.R.S. lets you carry forward excess contributions for up to five years.
Now is as good a time as any to do so. Your charitable gifting can have real impact even if you don’t have a fortune. Keep in mind that your unique circumstances need to be weighed before making any decision. Please consult your financial advisor, tax professional, or attorney prior to making any move.
A U.S. drug company recently said that it’s in late-stage trials for its coronavirus vaccine and reported that it could be given to Americans as early as the end of the year.1
To some, this may hardly feel like an economy headed for a bright future. But don’t tell that to home builders. Builder confidence in August jumped to an eye-popping 78 in August, according to the Housing Market Index courtesy of the National Association of Home Builders. To put that number in perspective, anything over 50 … Continue reading “Home Builders Confident in Economic Rebound”
When it comes to retirement, some women face obstacles that can make saving for retirement a challenge. Women typically earn less than their male counterparts and often take time out of the workforce to care for children or other family members. Added to the fact that women typically live longer than men, retirement money for … Continue reading “Women Facing and Conquering Retirement Challenges”
Football is back, which means Summer is coming to a close, days will get shorter, and sweaters will soon be in play. This year, there was no pre-season, so professional football started in September, which coincidentally, is a perennial month for stock market volatility.1
Roth IRA Conversion decisions have attracted retirement savers since their introduction in 1998. They offer the potential for tax-free retirement income, provided Internal Revenue Service rules are followed.
Epic Capital provides the following comprehensive financial planning and investment management services: Learn More >