Charitable Giving Options
1. Charitable bequest (gift) in your will or trust. This continues to be the most popular way for a person to retain assets if the person needs them; but if there are assets left at death, as there usually are, some of them will go to a favorite charity. If you want to pursue this, think of what portion of your estate or trust will be appropriate to leave to charity after you have made provision for your loved ones. Then work with your selected charities and your attorney to add language to your will or trust to make a gift at the time of your death. Some people state the gift in a specific dollar amount while, others prefer to state it as a percentage of the remaining estate. The one thing I strongly suggest is working closely with your charity on using the exact charity name you want it to go to. Many people have heard the stories of the litigation between competing humane societies. I also caution you against putting strings on it, such as dedicating the funds to some specific purpose or program within the charitable organization. Things change too much over time, and such restrictions can cause problems. You have to pick an organization you can trust and then just trust their judgment to apply the money where it will do the most good.
While this is the best option for conserving your assets for your own use during life, the only tax benefit is that there is a deduction from your estate tax, if any, for the amount given to charity when you die. This is an estate tax deduction, not an income tax deduction. (By the way, the future of the U.S. estate tax is highly unpredictable. It is currently scheduled to be repealed for one year, 2010, and to then come back the following year. Several attempts were made in 2005 to make the repeal permanent, but all failed.)
2. A charitable remainder trust. This relatively unknown type of trust can be a good vehicle for keeping the income from an investment going to you now but leaving the investment principal to charity after a period of years or at your death. You get a current income tax deduction for the actuarial value (estimated value) of the amount which will ultimately go to charity. So, by definition your current income tax deduction will be less than 100 percent of what you put in trust now. It also gives an estate tax deduction at the time of death similar to what I discussed under No.1 earlier.
3. A charitable gift annuity. This is fairly similar to the charitable remainder trust already mentioned. In this case you make the current gift to the charity and they promise to pay you an annuity for life or a period of years. Again, you get a current tax deduction for the actuarial value of the net gift to charity and it is again less than 100 percent of the amount you give. You also get the same estate tax benefits discussed earlier. I caution you to only consider the gift annuity with a large, well-established charity since it contains a certain IOU element.
This has been a highly summarized review of three charitable giving options with a view to seeing that you have enough to live on during your life. Best wishes.
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Thanks to Attorney Everett Zack for his assistance with this article.
Forrest Lewis is a CPA practicing in East Lansing, Michigan.
Planned Gifts Committee
Ingham Regional Healthcare Foundation