Smooth Ride: A Donor's Guide to Charitable Giving
March 4, 2019 - Have you ever purchased a new car? Shopping for the right vehicle can be tedious and time-consuming – you might even walk away from the experience feeling utterly frustrated.
Imagine if you had a trusted friend or family member, with expert negotiation skills, working on your behalf. Not only would they find you a great car at a great price, but they would make the process go from bad to blissful.
Navigating planned giving can be just as confusing as buying the perfect vehicle. However, when you bring in trusted and talented experts, you can grow your assets for good to benefit causes that are meaningful to you and take advantage of the tax benefits. Experienced in gift education, development and administration, our team of trust and legal professionals will make gifting to charitable organizations feel like a smooth ride.
Donors, like yourself, may have the heart and means to give, but lack the specific knowledge to understand which option would benefit them the most. Below you will find a short summary of some different ways to make a gift to charity. Some you may have heard about before, and some may be brand new!
According to recent studies, 90 percent of charitable gifts are contributions of cash, but cash represents only a small percentage of what Americans own. Let’s look at some other types of assets that might be used to make charitable gifts.
- Non-Cash Assets
Noncash assets include items such as retirement plans, real estate, tangible personal property, life insurance or virtual currency. We don’t always think of these assets as being appropriate for charitable gifts, but they provide various giving opportunities to donors and hold the potential to increase giving while maximizing tax benefits. When noncash assets are contributed to a charitable organization, often the full fair market value of the asset is tax deductible and capital gains tax can be avoided.
- Retirement Assets
Retirement assets, 401(k)s and 403(b)s for example, often account for a significant portion of an individual’s net worth. Unfortunately, these plans do not typically receive good tax treatment upon the owner’s death. In certain cases, these assets can be taxed more than once. By designating retirement assets to charity with this giving vehicle, you can avoid tax implications by bypassing estate and income taxes. Designating your retirement assets to charity means 100 percent of the proceeds can be used to help a cause important to you.
- Gifts of Property while Retaining Life Estate
Donors who make a gift of a personal residence or farm while retaining a life estate are entitled to receive an income tax charitable deduction while keeping the use of the property for the duration of their lifetimes. A donor would transfer their property to HighGround Advisors for the benefit of a charitable cause of their choosing, and the transfer documents would state that the donor retains a life estate in the gifted property. In other words, a donor has the right to continue to use the property throughout their lifetime, and maintains the responsibilities of an owner, including payments for insurance, taxes and maintenance of the property. A donor who makes this type of gift would be entitled to an income tax charitable deduction for the present value of the property that charity will receive at the end of the donor’s lifetime.
In addition to looking at non-traditional assets as potential charitable gifts, some donors may want to consider planned gifts as a part of their overall giving goals. In many cases, a planned gift vehicle will allow individuals to make current gifts to charity while retaining certain benefits from those assets during life. Here are a few examples.
- Charitable Remainder Trusts
A charitable remainder trust (CRT) allows individuals to make a gift to one or more charitable organizations while also retaining an income stream from the gifted property for either the duration of their life or a set term of years. A CRT can be funded with many different types of assets, and donors are entitled to take an income tax charitable deduction in the year they make the gift. The deduction is for the present value of the remainder interest in the gifted property.
CRTs allow donors to retain an income interest of a fixed percentage, no less than five percent, of the trust assets. Depending on the type of CRT, the percentage is either applied to the initial market value of the assets, resulting in a fixed payment amount, or it is applied to the value of the trust assets annually, resulting in a variable payment each year. There are several variations for how payments can be made from this type of trust, making it a gift vehicle that can be tailored to different circumstances.
- Revocable Trust
Unique in its properties, this giving vehicle is a giving arrangement that contains a provision stating it may be altered or canceled by the grantor. A revocable trust can be established to distribute income to the grantor during life, and transfer the trust assets to the charitable beneficiaries upon his or her death. This option appeals to donors because they are able to access the trust assets in the event they have a financial need, and they retain the right to amend or revoke the trust during their lifetime.
- Qualified Charitable Gift Annuities
Individuals can make a contribution to a charitable organization under a contractual agreement known as a qualified charitable gift annuity. The donor is guaranteed a fixed amount, an annuity, for life and also receives a current income tax charitable deduction. The annuity amount is calculated based upon the age of the income beneficiary or beneficiaries.
Charitable gift annuities are regulated at the state level, which means laws and regulations governing the issuance of this giving vehicle varies from state to state. HighGround Advisors provides donors with state-specific information to ensure compliance with state laws prior to issuing a charitable gift annuity.
- Charitable Lead Trusts
Utilizing this giving vehicle provides an immediate income stream to a charitable organization of the donor’s choosing. When the trust’s term concludes, the trust assets will be returned to the donor or their family members. To complete this type of gift, a donor transfers assets to a charitable lead trust that names one or more charitable organizations to receive an income stream for either a term of years or a lifetime. Lead trusts can be funded with many different types of assets and, depending on the remainder beneficiary, donors receive either a gift or income tax charitable deduction.
There are lots of different ways for individuals to set aside assets for charitable causes for generations to come.
- Gifts by Will
Keep it simple! A will is a straightforward method for donors to continue a legacy of stewardship by naming a charitable organization to receive certain assets upon their death. HighGround Advisors does not draft wills for donors who wish to contribute to our nonprofit clients as it would constitute a conflict of interest. However, our staff will work with donors' attorneys to provide comprehensive language regarding the charitable gifts they wish to make.
- Private Family Foundations
Established with a family’s assets and run under their instruction, a private family foundation provides an avenue for a family to facilitate charitable gifts. This giving vehicle provides an opportunity to set assets aside for charitable causes, receive income tax and estate tax benefits, while also involving future generations in charitable giving. This option requires more administration and oversight to ensure continuing compliance with Federal laws. Consult with your advisors to see if this option is right for your family. HighGround is available to partner with private foundations to provide administrative and investment services.
Now that planned giving has been mapped out for you, we hope you find donating to charitable causes a smooth ride. If you hit any bumps along the way, reach out to our trust and legal team.