A Little Giving Does Add Up

I have been in discussions recently regarding the viability of an organization when there is insufficient amount of giving to support it and its mission. In fact, this is the question currently posed in 2 organizations that I support. Both of the organizations are charitable organizations and rely on the giving of the community and its members.

With the economic situation as it is and the number of millionaires being few and far between, I have come out on the side of continuing to do what you can with the organizations while things do improve. If your mission is about helping and making a difference in the lives of those most vulnerable in the community, then you can't quit. You may have to downsize, readjust or think more creatively but you do not quit. And if you find you must then let others take your place until you get the energy to keep going. Others can be your strength and help you to carry on.

Enough said, I wonder whether you have found yourself in such a place with charitable organizations and I wonder how you coped or whether you coped. Share your comments here or contact us at http://www.ythlaw.com/

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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What is a Qualified Charity?

As I continue to talk about charitable estate planning, it is important to define a qualified charity so that you can make the appropriate choices for your charitable estate planning. A charity which qualifies for charitable gifts is one that is a charitable organization as described in the Internal Revenue Code 501 (c) (3). All nonprofit organizations are defined by the IRS as either "public charities" or "private foundation." Public charities include churches, schools, museum, hospitals, and medical research organizations. All public charities rely on public support. Contributions to a public charity are tax deductible.

Public charities also include community foundations. Community foundations are organized as a permanent collection of endowed funds and charitable donations for the advantage of a defined geographic area. The governing body of a community foundation is made up of representatives of the general community which operate the foundation as a grant-making organizations. The community foundation accept gifts of cash and other tangible and intangible assets. Giving to a community foundation allows you to leverage your contribution with others to help make a greater impact on the recipient of the grant given by the foundation.

Tomorrow's blog will explore the private foundation and how they can be a part of your charitable estate planning. Ask your questions regarding charitable estate planning and I will provide a response for all to benefit.