Winston Churchill once said, “We make a living by what we get, but we make a life by what we give.” Charitable giving allows one the opportunity to support philanthropic organizations, assist in revitalizing communities, potentially receive income and estate tax savings, and bring others along to further propel the efforts of charitable organizations. However, no matter how large or small the gift of an individual may be, there is one common denominator regarding charitable giving: All Gifts to Charity Make a Difference!
Methods of Giving
A “gift” is defined as voluntarily transferring property, and all property rights thereto, to another without compensation. Gifts are not limited to cash or check but may also consist of stock, real estate, art, motor vehicles, etc. Additionally, just as there are numerous gift vehicles, there are many ways one can give to charities (often referred to as Section 501(c)(3) tax exempt organizations). Some examples of those gifts are as follows:
- Outright Gifts
- Testamentary Bequests
- Beneficiary Designations
- Charitable Remainder Annuity Trusts (CRAT)
The simplest and easiest way to make a charitable donation is to make an outright gift to a tax exempt organization. An outright gift requires little time or effort, and an income tax deduction is often available to the donor for the year the gift is completed. Testamentary bequests allow donors to make provisions in their wills and trusts to benefit certain charities. In general, a “bequest giver” meets the following criteria:
- Would rather make a gift after their lifetime;
- Does not currently need an income tax deduction;
- Does not have an available asset to donate at the current time;
- May need an Estate Tax deduction; or
- Enjoys the flexibility to change their mind at a later date.
Another effective way for a donor to make a charitable deduction is through beneficiary designations in life insurance policies, IRAs, 401(k)s, etc. Beneficiary designations allow a donor to name a charity as primary or contingent beneficiary pursuant to a plan. This method is very convenient and the donor may specify a percentage of the account or policy to designate to a charity.
Charitable Remainder Annuity Trust (CRAT)
For certain individuals who desire a steady income stream while benefitting from an income tax deduction, a CRAT provides a valuable gifting tool. To establish a CRAT, an individual gives a gift of cash or property to an irrevocable trust and simultaneously designates an individual or individuals to receive streams of income for life while naming a charity as the remainder beneficiary of the trust. Upon the death of the designated individual, the remaining property passes outright to the tax exempt organization. A CRAT allows the donor to receive a current income tax deduction while making a philanthropic difference.
Taxes – Do Not Be Afraid, Charities Can Help!
Aside from the warm and fuzzy feeling one receives from making a charitable donation, a donation to a tax exempt organization results in possible income tax and estate tax deductions. For every $1 an individual gives to charity, that person’s adjusted gross income is decreased by 50%. In addition, most gifts of tangible personal property produce an income tax deduction as well. There are also ways to decrease one’s estate tax liability by making provisions for tax exempt organizations.
Charitable giving is an extremely important aspect of the world in which we live, and as stated previously, all gifts make a difference. Just remember, no gift is too small and you do not have to be Warren Buffett to provide charitable benefits!
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.
Published by Christopher D. Foster on September 23, 2016