My Legacy Planner Insights
Other Giving Options
Perhaps the most overlooked opportunity for charitable giving, is Gifts of Assets. Most people focus on doing their giving "from their checkbook", which is fine.
But the average American has about 9% of their net worth in Cash and 91% in Assets. These assets can be simple, such as home equity or life insurance or an IRA. But for other families, assets might include a family business, rental property, land, artwork and so on.
Considering a gift using assets can save a donor Long Term Capital Gains Tax and still benefit your favorite non profit. But in addition, gifting a piece of non income producing land, for example, to a charitable trust, can increase your retirement income in addition to providing a future gift to charity.
In our quest to serve non profits with excellence, Fulcrum has selected Renaissance Inc as one of our strategic relationships, bringing the very best to the table as we serve nonprofits nationwide. Renaissance is the largest charitable trust administration company in America serving individual donors, charities and financial institutions since 1987. The case studies on the right will give you an idea of various ways you can benefit your charities using gifts of assets. Gifting from the 91% just makes sense.
Donor Advised Funds
A donor advised fund (DAF) is a charitable giving tool created for the purpose of managing charitable donations on behalf of an individual or family. A DAF "feels" like your very own Family Foundation, but is much more easy-to-establish, has lower costs, and yet is very flexible for making gifts on your time frame and to your charities. In addition, there are tax advantages to contributing gifts of appreciated stock and other assets to a DAF prior to sale.
General Overview of Treatment of Assets
If you need an additional source of reliable income now or in the future, you may be a candidate for a charitable gift annuity. Consider the results achieved by Charles: Charles, age 75, was discouraged about the low interest rates being paid on his certificate of deposits (CDs), and about the volatility of his other investments. One $50,000 CD was about to roll over. His bank was offering 3% interest for three years. Charles wasn't very excited about the CD, but he wanted to be conservative with this money. Charles was very excited to learn that with a charitable gift annuity (CGA) he could more than double his current income, receive an attractive guaranteed fixed income for life, receive additional income tax benefits, and make a future gift to his favorite charity. With the assistance of a representative of his favorite charity and a little help from his professional advisors, Charles implemented a simple CGA agreement. The plan was perfect for Charles because he wanted to leave a portion of his estate to charity anyway. With a portion of the extra income and tax savings, Charles was able to increase his current lifetime gifts to his children, grandchildren and his favorite charities.
Publicly Traded Stock and Mutual Funds
Some individuals own publicly traded stock and mutual funds that are producing low dividends, and which may be highly appreciated. Holding the securities may be undesirable because of the need to diversify. Selling such assets may not be attractive because of capital gain taxes. Highly appreciated low dividend publicly traded stocks and some mutual funds are ideal for charitable gift purposes. For individuals seeking to make current outright gifts they can receive a current deduction for the fair market value of the assets, and avoid the recognition of capital gain income. For individuals seeking current income, charitable gift annuities or other "life income" gifts can provide substantial financial and tax benefits, as well as future benefits to charity. Some individuals own publicly traded stocks or funds which have declined in value. It may be advantageous for such securities to be sold, and a portion of the proceeds gifted to charity. In addition to tax savings from a charitable deduction, the sale of securities that have declined in value will produce a realized loss that can offset other taxable income.
Closely Held Stock
Individuals who own stock in a closely held business will eventually find themselves seeking to sell the business to a third party, or pass the business down to the next generation. In some cases the value and the viability of the business will be threatened by the magnitude of various income taxes, capital gain tax and estate taxes that will impact the value of the stock sale and transfer. Experienced counsel is needed when dealing with closely held stock, but with good planning it is generally possible to enhance the value of what is retained for the investors lifetime, increase what passes to the next generation, dramatically reduce taxes, and dramatically increase benefits to charity.
IRAs and other Retirement Plan Assets
IRAs and other qualified retirement plan assets can work extremely well for individuals during wealth accumulation and retirement. Unfortunately these same assets can be the very ineffective assets to pass down to family. A spouse can generally leave an IRA to a surviving spouse without any tax consequences, but when IRA or similar assets pass from a parent to a child, or to another heir, the burden of taxes can be shocking. It is not uncommon for 1/3 to 1/2 of the assets to be lost to taxes at the death of the parents, and in some cases taxes consume 75% of the value. For individuals who would like to leave a portion of their estate to charity, IRAs and other retirement assets can pass 100% tax free to charity. For individuals who would like to pass the maximum amount possible to their children, it may be possible to pass IRAs and other retirement assets to a life income plan that provides income to the children for life, with a residual gift to charity when the children pass away. Because of the tax savings in such an arrangement, family and charity may receive more than would be possible without special planning.
Some individuals own life insurance that is no longer needed for the purpose that it was originally acquired. In this situation the gift of a life insurance policy to charity, and the gift of funds needed to make any ongoing premiums could provide immediate tax benefits to the individual and create the potential for them to make a very significant future gift to charity. In some cases it may be more effective to give charity other assets and arrange the life insurance to provide a tax efficient benefit to family.
Farmland or Investment Real Estate
Farmland or other investment property may be producing a low income to the owner, and in some cases the property will be highly appreciated. Keeping the property may be unattractive due to the low income, and selling may be unattractive due to the taxes that would be due upon sale. With careful planning farmland and other investment property can be gifted outright to charity, or transferred to a life income plan that may increase financial benefits and produce charitable benefits. Another arrangement known as a "bargain sale" may make it possible to create family and charitable benefits, while minimizing taxes.
General Bequest of Assets
Some individuals, regardless of the size of their estate, seek to leave a portion of their estate to charity, possibly using a simple bequest in their will or in their trust arrangements. Often with thoughtful planning it is possible to identify the assets that would be best suited for family members to inherit, and at the same time identify the assets that would be best suited for passing to charity.