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Planning
Today for Today's LifeStyle.
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Americans are known as a charitable
people. In 2000, charitable giving represented 2.0 percent of our overall
Gross Domestic Product (GDP) and our total charitable contributions
exceeded $203 billion. Remarkably, individual Americans actually increased
their giving by an estimated 4.9 percent over the previous year, despite
the political turmoil and economic downturn in 2000. * Generally speaking,
there are three fundamental gifting strategies: Giving Now,
Giving Later and Giving & Receiving.
Giving
Now
Traditionally, Giving
Now is the most common method of charitable giving. You simply deliver
cash, stocks, life insurance, real estate deeds or other qualifying assets
to the charity itself. Such direct gifts are deductible on your income tax
return for the year in which the contribution is made. If the gift value
exceeds your maximum allowable deduction for that year, then you may
deduct the excess over the next five years. Giving Now allows you
to see how your gift is used by the charity. For example, did your gift
support a burgeoning administrative budget or did it impact the charitable
objective you originally intended?
In short, if you are giving while you are living,
then you know where it is going. On the other hand, once you have made
an outright gift…it is gone. You may derive absolutely no further
benefit from the income produced by the asset given, nor may you redirect
your gift to another charity should the original charity change its
course.
Giving
Later
For some people, Giving Now
makes sense for a certain level of current financial commitment to their
charitable causes. However, given their financial and non-financial
circumstances, they want to wait until death to leave a more substantial
gift. While Giving Later means giving up potentially valuable
income tax deductions now in exchange for a charitable estate tax
deduction at your death, this approach allows you to derive lifetime
benefits from your Giving Later assets while assessing how wisely
your charities use your Giving Now assets. Unlike Giving Now,
Giving Later often requires prior planning in your legal
instruments, such as specific provisions under your Last Will &
Testament or Revocable Living Trust. In any event, once an outright
charitable bequest is made following your death, the bequest may not be
redirected should the charity change course in the future.
Giving
& Receiving
The Internal Revenue Code (IRC) recognizes that it may be attractive for certain taxpayers to
have
their cake and eat it too! A popular legal technique in such an
approach is the Charitable Remainder Trust (CRT), also known as a split-interest
gift under IRC §664. Through a CRT, you may increase your current
income, enjoy current income tax deductions and change the ultimate
charitable beneficiary right up to the time of your death.
Here is how it works. First, you contribute an
asset to the CRT. [Note: Appreciated assets (i.e. assets that would be
subject to capital gains taxation if you were to sell them yourself) are commonly contributed because
they tend to be low-income producers and have a low income tax basis.]
Second, the CRT sells the asset without capital gains taxation and then
reinvests the proceeds in an income-producing portfolio that grows, income
tax free, inside the CRT. Third, you (and your spouse) receive a lifetime
income plus valuable income tax deductions for up to six years. Fourth, if
the ultimate charitable beneficiary changes for the worse during your
lifetime, then you may replace them with another charity by reference in
your Last Will & Testament. Moreover, if your ultimate charitable
beneficiary is your own Donor-Advised Fund (DAF), then you may
appoint your heirs or others to further advise your DAF regarding its
future charitable beneficiaries in keeping with your predetermined
guidelines. Such an approach may allow you to transfer your legacy of
charitable giving to your generations yet unborn. Summary
If you are like
most Americans, charitable giving is important to you. While there is no
one-size-fits-all-approach to charitable giving, you may want to consider
exploring your options regarding when, how and what to give before making
any major contributions.
*Giving USA 2001, AAFRC Trust for Philanthropy, www.aafrc.org
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