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Articles: Three ways to leave gifts to charity

Giving to a charity through your estate can create a lasting legacy, yet this concept is not limited to the super-rich and famous.   There are several possible tax-wise ways to accomplish your goals.

How can you do it?  Consider these three basic techniques:

  1. Direct gifts:   The easiest way to donate through an estate is to make an outright gift by will.  Direct gifts do not provide any income tax benefits, but they reduce the size of your taxable estate.   Upon death, the estate-tax exemption can shel- ter up to $5 million of assets bequeathed to non-spouse benefi- ciaries from estate tax (indexed to

    $5.25 million for decedents dying in 2013 and $5.34 million in 2014).  In addition, the estate of a surviving spouse may utilize the unused por- tion of a deceased spouse's exemption under a "portability" provision.  The direct gift technique gives your estate even more flexibility.

  2. Retirement  plan  assets:  Donating assets in a retire- ment plan account is another relatively simple way to give assets to a charity.  All you have to do is to designate each charitable recipient as a beneficiary on your plan docu- ments.  Because charitable organizations are exempt from income and estate taxes, the charity receives the full value of the amount transferred. Keep other assets for your heirs. 

  3. Split-interest gifts:   The third technique is more compli- cated than the other two. With a split-interest gift, you open up a trust and fund it with a lifetime gift. As a result, you are entitled to a charitable deduction at the time of the transfer. This enables you to retain some rights to the assets. Nevertheless, you still reduce the size of your taxable estate and avoid potential capital gains tax on assets transferred to the trust.

    Split-interest gifts can take several forms.  Here are a few variations on the theme:

~ With a charitable remainder trust (CRT), you transfer assets to a trust and name an income   beneficiary,   such   as yourself   or   your   spouse,   to receive either a fixed payment or percentage payment for the trust term  (subject  to  certain limits). The beneficiary pays tax on the income received from the CRT. When  the  trust  expires,  the assets go to a designated chari- ty or charities. As the donor, you are entitled to a tax deduction in the year of the transfer.

~ A charitable lead trust (CLT) takes the reverse track from a CRT.  In this case, the charity is the one receiving annual income from the trust while the remainder goes to your heirs at the end of the trust term. Note that a CLT may be prefer- able to a CRT if you do not need current income. Again, the donor is entitled to a current tax deduction for a charitable contribution.

~ Finally, a pooled income fund  (PIF) is a trust maintained by a charity. In effect, it is like a CRT, with the charity admin- istering the trust.  As with a CRT, the donor may receive annual income, with the remainder going to charity.  PIF contributions qualify for a current tax deduction.

Which of these three techniques, if any, is best for you?  It depends on your personal circumstances.  Be sure to talk matters over with your family before you determine a course of action.


This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.

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