By Jeanette M. Lombardi, Esq.
It can be more advantageous to donate during your life (rather than at death) because doing so offers both income tax and estate tax benefits. Additionally, choosing the right assets to donate can expand available tax benefits. For example, a gift of appreciated securities now, during your life, will help eliminate capital gain recognition and generates an income tax deduction. Charitable gifts can be made directly to a selected charity, foundation or donor-advised fund. A donor-advised fund provides an immediate income tax deduction along with the flexibility to later identify the charities or causes you wish to support. Below are two strategies that may facilitate additional and larger donations.
Charitable Lead Trust (“CLT”). A CLT is beneficial for those who wish to support a charity with income derived from assets they currently do not need but, ultimately, want to pass those assets to their heirs. The non- charitable beneficiary receives the principal and appreciation at the end of the term of years, free of transfer taxes. The transfer of the assets to the CLT will generate a gift tax equal to the present value of the remainder interest passing to the non-charity remainder persons and no income tax deduction is available. However, depending on the value of the annuity or unitrust interest and the term of years, it is possible to significantly reduce or eliminate the gift taxes incurred on the gift. The assets transferred to a charitable lead trust are not includible in the donor’s estate at death because the transfer is to an irrevocable trust and there is no retained interest by the donor.
Charitable Remainder Trust (“CRT”). A CRT provides the payment of an income stream to the donor or donor’s spouse. This strategy provides for an increase in the current income stream of the lifetime beneficiary while providing a charitable deduction for the gift to the CRT. At the end of the term of years, that income stream ceases and the remainder in the trust is paid to a charity chosen by the donor. With a CRT, you have the potential to take a partial income tax charitable deduction when you fund the trust, which is based on a calculation on the remainder distribution to the charitable beneficiary, which may be a public charity or private foundation. With a CRT, the contribution of highly appreciated assets is best because the assets are sold within the charitable trust and avoid capital gains.
The above are for illustration purposes. There are many other strategies available for charitable gifting. Discuss your philanthropic and wealth management goals with your trusted professional today. Discover how charitable giving can be a win-win for you and your community.
Bond, Schoeneck & King PLLC has prepared this communication to present only general information. This is not intended as legal advice, nor should you consider it as such. You should not act, or decline to act, based upon the contents. While we try to make sure that the information is complete and accurate, laws can change quickly. You should always formally engage a lawyer of your choosing before taking actions which have legal consequences.
Bond, Schoeneck & King PLLC has prepared this communication to present only general information. This is not intended as legal advice, nor should you consider it as such. You should not act, or decline to act, based upon the contents. While we try to make sure that the information is complete and accurate, laws can change quickly. You should always formally engage a lawyer of your choosing before taking actions which have legal consequences
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