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Estate Planning
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Do you really need a will?
Trusts
Charitable Giving
The laws of intestacy make no provision for charitable giving. Only through a Will or other estate planning document can you provide that a portion of your assets, after you no longer have use for them, will serve a charitable organization which you feel will sustain values and beliefs you cherish.
Your charitable commitments can be rewarded by significant tax advantages. Charitable remainder annuity trusts and unitrusts, and charitable lead annuity and unitrusts all are intended to allow you to accomplish estate planning and charitable giving goals with tax savings. And by designating a charitable remainder trust as a beneficiary of your qualified retirement plan or IRA, you can achieve greater tax leverage on otherwise-taxable income distributions. As a tax-exempt entity, the trust will pay no income tax on receiving the retirement benefits. Your estate will receive a deduction for the actuarial value of the charitable portion of a bequest to a charitable remainder trust.
Charitable giving is a tool we can use to preserve for the community and for future generations the values and principles by which we lead our lives. Charitable giving during your lifetime can reap for you the rewards of tangible tax benefits and the intangible satisfaction of seeing your generosity bear fruit. Your thoughtful and intelligent planning before death allows the object of your charitable impulse to obtain the maximum benefit of your generosity.
Lifetime Charitable Giving Opportunities - Simple Gifts
Simple gifts to charities are deductible from income if you itemize deductions. This basic rule is subject to two limits – one that generally limits itemized deductions for taxpayers with adjusted gross income greater than $166,800, or $83,400 if you are married filing separate returns, the other a specific limit on charitable deductions, to 50% of your adjusted gross income for gifts to “50% limit” organizations such as churches and charitable organizations, and to 30% of your adjusted gross income for gifts to “30% limit” organizations such as veterans organizations and fraternal societies. Keep the charity’s acknowledgement of your gift for your tax records. Gifts of goods should be reported at their fair market value, and you may need an appraisal of the item if you value it at more than $5,000. There are additional rules for gifts of appreciated property, and carryover rules for excess charitable contributions.
Lifetime Giving Opportunities - Charitable Gift Annuities
More and more charitable organizations offer charitable gift annuities, because of the advantages they offer both the charity and the contributor. In a charitable gift annuity you enter into a contract with the charitable organization, under which you contribute property and the charity agrees to pay you a specified annual amount, or “annuity”, for the rest of your life. The annuity can also be paid to you and your spouse, or to other recipients you may designate. The agreement can provide that annuity payments will start this year or at a specified future date. The amount of the annuity is determined as a percentage of the value of the property you have donated, ensuring a meaningful gift to the charity beyond the amounts paid back to you over your lifetime. Most charities determine annuity rates from tables published by the American Council on Gift Annuities. You can take a charitable deduction from income, equal to the difference between the value of your contribution and the actuarial value of the stream of annuity payments back to you. Your gift to the charity qualifies for the gift tax charitable deduction. For purposes of estate tax, the gifted property is not includible in your gross estate. Portions of the annuity payments may be taxable as income or capital gain. Charitable gift annuities work well for gifts as small as $5,000 or $10,000, and can provide older donors with a higher annual return than might be available under a charitable remainder trust. A charitable gift annuity can be a good vehicle for donation of a remainder interest in your home to charity subject to a reservation of the right to remain in the home for the rest of your life. It can also give you the tool to convert shares of stock with low dividend payments into a lifetime income stream.
Lifetime Giving Opportunities - Charitable Trusts
With a Charitable Remainder Trust you can make a gift to charity while reserving income for yourself and other beneficiaries – at the end of the interests of the income beneficiaries, the charity receives the principal gift, or remainder. The income can be in a fixed annual amount, in a charitable remainder annuity trust, or can be a percentage in a charitable remainder unitrust. There are also other variations in the provisions for income distribution, such as the “net income” charitable unitrust, the “net income plus makeup” charitable unitrust (“NIM-CRUT”) and the “flip NIM-CRUT”). In addition to providing a steady income stream for beneficiaries, you can receive a charitable deduction against income for the present value of the charitable remainder, or your estate can receive a charitable deduction against estate tax if your gift takes effect upon your death. Furthermore, if you contribute appreciated assets to the charitable trust the trust can sell the assets without taxable gain, permitting larger income payments and a larger remainder to the charity. The income payments are subject to income tax, and these trusts are generally irrevocable.
With a Charitable Lead Trust you can make gift to charity of an income interest in assets, and provide that the remainder will then go to non-charitable beneficiaries. The income payments to charity can be a fixed annual amount, in a charitable lead annuity trust or “CLAT”, or a percentage in a charitable lead unitrust or “CLUT”. You or your estate receive a charitable deduction for the present value of the stream of annuity payments in a CLAT. In a CLUT, the charitable deduction is derived by subtracting the present value of the remainder interest from the value of the gift to the trust. The main tax advantages in charitable lead trusts come as your estate is reduced by the charitable gift, lowering estate and gift taxes. There is generally no income tax benefit with a charitable lead trust, although it is possible to change that result in certain closely conscribed circumstances. Funding a CLAT with appreciating property can provide significant tax leverage in today’s low-interest rate environment. The present value calculation is performed by referring to discount rates provided by the IRS, known as “Section 7520 rates” or “Applicable Federal Rates”. The lower the discount rate, the larger the deduction -- by combining the effects of a low discount rate, a high annual payment to the charity, and a long enough period for payments to the charity, you may be able to pass almost the full value of the assets free of gift tax to noncharitable remainder beneficiaries.
IRA’s
Because non-Roth IRA distributions are subject to income tax in the hands of a non-charitable recipient, they can provide the most effective means to fund gifts upon your death to charities which pay no income tax. This can also be a means of reducing your gross estate to minimize estate tax. It may be possible for you to name a charitable beneficiary for your retirement account, or to create a charitable remainder trust that would include retirement assets, but the applicable rules are complicated and you should obtain competent advice.
Retirement Benefits
Another Estate Tax Reduction Idea
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