Over the next few decades, it is estimated that trillions of dollars will be transferred from the parents of baby boomers to their children. Charitable giving will play an enormous role in this transfer of wealth. Charitable giving provides many personal and tax benefits. The top five tips of charitable giving include (1) making sure your charity is a qualified charity (2) taking advantage of your deductions (3) maintaining appropriate records (4) creating a legacy and (5) educating your children.
First, you want to make sure your charity is qualified by the IRS as a charity. The charity should provide you with the documentation if the status as a charity is unclear to you.
Secondly, when you contribute to a qualified charity, you are entitled to an income tax deduction based upon your income and the amount of the contribution. You can also set up charitable trusts that allow you to give stock, real estate or other property to a charity while you continue to benefit from the asset during your lifetime. These trusts are referred to as split interest trusts because the charity and you benefit.
In addition, you must make sure to maintain adequate records. Regardless of the amount of any contribution, you must substantiate that it was made. This can be done by retaining the canceled check, bank record, or any written communication from the charitable organization that shows their name, the date, and the amount of contribution.
Also, your charitable giving could serve as your legacy. If you have a lifetime passion or interest in something, then you could give to a charity that might represent that passion or interest. For example, some people may have been photographers, artists or collectors. You could give your collection to a charitable organization in order to create or preserve your legacy.
Finally, you may choose to set up your own charitable organization. An individual or a family could set up a private foundation to give money to other charities. A private foundation can serve to transfer assets to the next generation. This is accomplished by involving the younger generation in the foundation’s administration, management, and grant making. Children can learn about and engage in philanthropy at an early age.
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Showing posts with label charitable deduction. Show all posts
Showing posts with label charitable deduction. Show all posts
Friday, January 29, 2010
Thursday, September 10, 2009
Charitable Trusts
Charitable Trusts are another way to engage in charitable giving. The types of trusts discussed today have significant tax benefits and include the Charitable Remainder Annuity Trust (CRAT), Charitable Reminder Unitrust (CRUT) and Charitable Leads Trust. The first two trusts, CRAT and CRUT, allow you to provide a remainder interest to a charitable organization while you continue to benefit during your lifetime from the asset to be transferred. These trusts are considered split interest trusts. They have both charitable and non-charitable beneficiaries.
The Charitable Leads Trust is also a split interest trust. However, it is the reverse of the CRAT and CRUT. The Charitable Leads Trust pays income first to the charity for a term of years and then the remainder amount is paid back to you or, if the trust is established after your death, to your beneficiaries. This means that the charity gets paid first and then the non-charitable recipient. Therefore, the charity leads the non-charitable recipient. That is why this particular trust is referred to as a Charitable Leads Trust.
The use of CRAT, CRUT and Charitable Leads Trust offer financial advantages to you during their lifetime. With the CRAT and CRUT, you, as the non-charitable beneficiary, have the right to receive, at least annually, an annuity or unitrust amount for life or for a term of years (not more than 20 years). At the end of the established term, the remaining assets of the trust are paid to or held for the benefit of charity. If the interest is an annuity interest, then the trust is considered a CRAT. When it is established, you choose the payout rate. The higher the payment to you, the lower the charitable deduction will be for tax purposes. If the interest is a unitrust interest, the trust is considered a CRUT. In the CRUT, the assets are revalued every year to determine the payout rate each year.
Whether you use a CRAT, CRUT, or a Charitable Leads Trust, you should choose appreciating assets to give and place in the trust. Since charities are not taxed, this will avoid a capital gain tax when the asset is sold by the charity. Therefore, for appreciating assets like real estate and stock, you get a charitable deduction during your lifetime and the charity avoids a capital gain tax.
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The Charitable Leads Trust is also a split interest trust. However, it is the reverse of the CRAT and CRUT. The Charitable Leads Trust pays income first to the charity for a term of years and then the remainder amount is paid back to you or, if the trust is established after your death, to your beneficiaries. This means that the charity gets paid first and then the non-charitable recipient. Therefore, the charity leads the non-charitable recipient. That is why this particular trust is referred to as a Charitable Leads Trust.
The use of CRAT, CRUT and Charitable Leads Trust offer financial advantages to you during their lifetime. With the CRAT and CRUT, you, as the non-charitable beneficiary, have the right to receive, at least annually, an annuity or unitrust amount for life or for a term of years (not more than 20 years). At the end of the established term, the remaining assets of the trust are paid to or held for the benefit of charity. If the interest is an annuity interest, then the trust is considered a CRAT. When it is established, you choose the payout rate. The higher the payment to you, the lower the charitable deduction will be for tax purposes. If the interest is a unitrust interest, the trust is considered a CRUT. In the CRUT, the assets are revalued every year to determine the payout rate each year.
Whether you use a CRAT, CRUT, or a Charitable Leads Trust, you should choose appreciating assets to give and place in the trust. Since charities are not taxed, this will avoid a capital gain tax when the asset is sold by the charity. Therefore, for appreciating assets like real estate and stock, you get a charitable deduction during your lifetime and the charity avoids a capital gain tax.
Leave your comment here or contact us at http://www.ythlaw.com/
Sunday, June 7, 2009
Rethinking Your Estate Plan - Question 4
The questions posed in the Money Magazine are very insightful. That is why I have been sharing these questions with you in my blog. I hope you are looking at your answers for your next steps.
QUESTION 4. WANT TO GIVE TO CHARITY?
"If you'd like to donate some of your estate, one of the smartest ways is through a traditional IRA. Say you named your niece as the beneficiary of your IRA. She'd owe income tax on withdrawals, and the value of the IRA would be included in your estate for tax purposes.
But if you name a qualified charity instead, it would owe no tax on withdrawals and you could reduce the taxes your estate would pay. (This strategy makes less sense with Roth IRAs; because they're funded with after-tax money, whoever withdraws the dough won't owe income tax on it.) Prefer to give the money now? Through the end of 2009 you can transfer up to $100,000 directly from a traditional IRA to a charity as long as you're 70½ or older. You won't be able to claim a tax deduction for the contribution, but you won't owe income tax on the withdrawal either. Another option you may want to ask your lawyer about: a charitable remainder trust. You put assets into the trust, which then pays you an income for a specified number of years or the rest of your life. After the trust matures, the assets go to the charity you've chosen. (At least 10% of the amount you put into the trust must go to the charity.)
This trust has several advantages. When you fund it, you can take a tax deduction right away based on the present value of the gift that the charity will ultimately receive. You can get a reliable stream of income (you must draw down at least 5% of the trust's value each year). And you can shift into the trust assets that have appreciated quite a bit - such as shares of Exxon Mobil that you've held for decades - and sell them in the trust without incurring capital gains right away. "
Check out some of our archives for more information on charitable estate planning. Leave a comment or contact us at http://www.ythlaw.com/
QUESTION 4. WANT TO GIVE TO CHARITY?
"If you'd like to donate some of your estate, one of the smartest ways is through a traditional IRA. Say you named your niece as the beneficiary of your IRA. She'd owe income tax on withdrawals, and the value of the IRA would be included in your estate for tax purposes.
But if you name a qualified charity instead, it would owe no tax on withdrawals and you could reduce the taxes your estate would pay. (This strategy makes less sense with Roth IRAs; because they're funded with after-tax money, whoever withdraws the dough won't owe income tax on it.) Prefer to give the money now? Through the end of 2009 you can transfer up to $100,000 directly from a traditional IRA to a charity as long as you're 70½ or older. You won't be able to claim a tax deduction for the contribution, but you won't owe income tax on the withdrawal either. Another option you may want to ask your lawyer about: a charitable remainder trust. You put assets into the trust, which then pays you an income for a specified number of years or the rest of your life. After the trust matures, the assets go to the charity you've chosen. (At least 10% of the amount you put into the trust must go to the charity.)
This trust has several advantages. When you fund it, you can take a tax deduction right away based on the present value of the gift that the charity will ultimately receive. You can get a reliable stream of income (you must draw down at least 5% of the trust's value each year). And you can shift into the trust assets that have appreciated quite a bit - such as shares of Exxon Mobil that you've held for decades - and sell them in the trust without incurring capital gains right away. "
Check out some of our archives for more information on charitable estate planning. Leave a comment or contact us at http://www.ythlaw.com/
Monday, April 6, 2009
Charitable Deduction
Charitabel estate planning can benefit you during your lifetime. Charitable deductions are not only available to your estate when you die but you can engage in charitable estate planning while you are living and take advantage of charitable deductions. The amount of the charitable deduction that you may be entitled to take in any one year is limited to a percentage of your adjusted gross income. The percentage is based upon the type of asset contributed and the type of charitable organizations to which your donation is made. Deduction for contributions of cash to public charities is limited to 50% of your adjusted gross income. Deduction for contributions of appreciated capital gain property (i.e. real estate and stock) to public charities is limited to 30% of your adjusted gross income. If your charity is a private foundation, deduction for contributions of cash is 30% and for appreciated capital gain property, the deduction is 20% of your adjusted gross income.
Your tax advisor can also work to help make sure you get the most out of your charitable estate planning. Start with a call to an estate planning attorney today!!
Your tax advisor can also work to help make sure you get the most out of your charitable estate planning. Start with a call to an estate planning attorney today!!
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