Tools for Making Gifts
Just as there are many assets in
addition to cash for gifting, there are several tools available for making a gift. Each of these has
its own unique purpose and advantages, and will fit differently with your financial estate planning,
family, and community goals. Tools for making gifts include:
The simplest and most common form of a planned gift is a bequest made through your Last Will and Testament,
granting a sum of money or other assets to an individual or charitable organization upon your death.
Bequests have become an important part of the American philanthropic tradition because they enable
individuals to make significant gifts that they may not have been able to make in their lifetimes.
This type of gift may also reduce the estate obligation by reducing the size of the estate.
Making a bequest does not reduce your
current assets. Rather, it dictates asset distribution after your death. At any time during your
life, you may cancel a bequest, change the beneficiary, or modify gift amounts.
Because of current tax laws, planned giving can serve as a tool for maximizing the impact of
gifting to your financial goals and charitable vision. Benefits of planned gifts can include
avoiding capital gains taxes, receiving tax deductions, seeing your results of your philanthropy,
and having an income stream for the rest of your life. Common planned giving methods are described
Charitable Gift Annuity.
The Charitable Remainder Trust (CRT) pays
income to a non-charitable beneficiary, typically the donor, with the remaining assets passing on
to the designated charity upon the death of the recipient of the income (or the conclusion of the
designated time period). There are two types of charitable remainder trusts: charitable remainder
unitrust, where the income beneficiary receives a variable income stream computed annually and
based on a set percentage of the annual value of the trust, and charitable remainder annuity trust,
where the income beneficiary receives a fixed dollar payment annually, defined either as a percentage
of the original value of the trust or as a stated dollar amount. The major benefits of this form
of giving are a gift to a charity, a charitable income tax deduction for the year the trust is
formed, bypass of the capital gains tax, increased income, and a decrease or possible elimination
of estate taxes.
Charitable Remainder Trust.
If you would like to make a charitable
donation of an appreciated asset but it does not fit in your financial plan to gift the entire
property, you may sell the asset to a charity for an agreed-upon amount that is less than the
asset’s full fair market value. This transaction will be part gift and part sale, and you are
entitled to a charitable deduction based on the difference between the sale price and the full
fair market value (in essence, your gift). You incur tax only on the part of the appreciation
attributable to the sale.
Charitable Lead Trust.
A Charitable Lead Trust first pays a regular, fixed amount to charitable recipient for a
specific number of years and then the remainder of the trust passes to heirs. This type
of trust provides a means to transfer part of an estate to family members in the future
while saving substantial estate taxes at the same time. There are two types of charitable
lead trusts: The charitably Lead Annuity Trust (CLAT) that pays out a fixed amount each
year to the charitable beneficiaries and the charitable Lead Unitrust (CLUT) that pay out
a fixed percentage of the trust’s value as revealed each year.
If the Charitable Lead Trust
is a non-grantor trust where the property/remainder ultimately passes on to someone other
than you, you will be entitled to a gift tax charitable deduction (if the trust is established
during your lifetime) or an estate tax deduction (if the trust is established as a part of
your estate). This can be a valuable planning tool for passing property on to future generations
at a substantially reduced gift or estate tax cost. The Charitable Lead Trust is often a
good choice for parents wanting their children to make their own futures and receive inheritances
at a later date in life.
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