Grady Financial

Charitable Giving

Everyone has their own reason for gifting their assets or a portion of their income to charitable organizations.  Some find comfort in helping others who are less fortunate, while others simply want to share their good fortune.  Many of the institutions of art, sciences and education are supported in large part by those who want to give something back in appreciation for their contributions to the community or the individuals themselves. 

Presently, the tax code offers incentives for gifting of one’s assets or incomes. Tax deductions are given for current contributions and, for estate owners, charitable gifts can reduce the size of the estate to help minimize estate taxes.

Often times, an individual will designate a charitable beneficiary in their will to benefit the organization after the individual dies.  By using charitable gifting techniques, a donor may be able to benefit the charity while living without having to sacrifice the income that an asset can generate.  Understanding how properly structured charitable gifts can provide current benefits for both the donor and the charity could be important for the charitably inclined.

Donor-advised Funds

A donor-advised fund is a segregated fund maintained by a qualified public charity, which is created when a donor makes a gift of cash or assets to achieve philanthropic and tax reduction goals. This gift allows the donor to receive an immediate income tax deduction, avoid the capital gains tax on appreciated assets, and have the ability to make grant recommendations to charities at any time. The ability to make grant recommendations will continue for the life of the donor and the next generation can be appointed to make the recommendations for the rest of their lives.

Benefits

  • Leave a legacy
  • Immediate income tax charitable deduction
  • Organize philanthropy
  • Pass on personal charitable values
  • Contribute a wide range of assets
  • Avoid capital gains
  • Build an endowment
  • Recommend anonymous grants

Appropriate for Individuals Who

  • Want to simplify their charitable planning
  • Wish to support multiple worthy charities
  • Want to recommend an investment advisor to manage the assets in the donor-advised fund
  • Want a cost-effective alternative to a private foundation
  • Wish to remain anonymous

More information on donor-advised funds can be found on our White Papers and Articles page or on our Wealth Strategies Webinars page.

Charitable Remainder Trust

A remainder trust enables the donor to transfer an asset while retaining the right to the income it generates. The asset becomes the “remainder” which is owned by the charity.  Remainder trusts, if properly structured, can qualify for a current tax deduction.  There are three types of remainder trusts:

Unitrust: A unitrust the income the donor receives is based on a percentage of the current fair market valuation of a trust asset. Each year, as the asset is valued, the income is adjusted based on the new valuation.

Annuity Trust: Instead of a percentage of the asset value, the donor is paid a fixed amount annually.

Pooled Income Fund: Donors can pool their donated assets in a fund that is operated by the charitable organization. The donors then receive a proportionate share of income from the fund that is paid throughout their lifetime.  Payments can vary each year based on the valuation of the underlying assets in the fund.

Charitable Lead Trust

Also known as an Income Trust this vehicle transfers the income rights to the charitable organization. Generally, the income rights are assigned for a specified period of time after which the remainder passes to the donor. 

Charitable planning involves tax issues that should be discussed with a qualified tax or financial professional.

For more information on charitable planning, please contact us today.

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