LEGACY PLANNING: PLANNED GIVING

As we approach the festive holidays and the end of the year, now is a good time to consider our charitable intentions and how to turn them into a win-win for your and your chosen charities. Planned Giving integrates your vision of philanthropic giving with your financial and estate planning goals. The total package allows you to enjoy tax and financial advantages and give to charity – a win-win. Let’s examine how Planned Giving works.

Meet with a qualified advisor to discuss your personal financial and estate planning goals for you and your family. Your advisor should include a qualified attorney, financial advisor and/or accountant, or a combination thereof. Once your priorities are established, you and your advisor can explore your charitable wishes. They assist you to evaluate possible gifts to charity that may be financially advantageous because they create a current stream of income and/or immediate income tax advantages. Planned Giving can be structured in a various ways.

The simplest way is to make an outright charitable gift, no strings attached, either now or at death. An example is leaving a fixed sum of money in your will or trust outright to charity. Alternatively, the gift could be a present gift of a future interest; that is, you retain the present enjoyment and income created by the gifted asset. The charity subsequently receives the remainder, typically after you die. An example is leaving your residence to a charity subject to your keeping a retained life estate.

Alternatively, your gift could involve a current transfer of an asset in exchange for an annuity income stream for your life or a term of years, called “Gift Annuities”. Gift Annuities give you these benefits: (1) a current income tax deduction for the gifted portion of the asset’s value; (2) a current stream of income; and (3) the deferral of income tax on the annuity’s taxable income over your lifetime.

More complex structures involve charitable trusts, where you, the charity, and perhaps your family are beneficiaries. Charitable trusts come in two varieties: Charitable Remainder Trusts (“CRTs”) and Charitable Lead Trusts (“CLTs”).

A CRT is typically used when the non charitable purpose is to sell appreciated property and to defer payment of capital gains taxes. CRT’s pay income to you either as a fixed amount – called Charitable Remainder Annuity Trusts (“CRAT’s”) – or as a fixed percentage of the trust’s total value each year – called Charitable Remainder Uni Trusts (“CRUT’s”). At the end (usually upon your death), a CRT distributes whatever remains to your chosen charity; this must be at least 5% of the trust’s initial value. Choosing between a CRAT or CRUT involves consideration of various factors: type of assets contributed, when the contributed assets will be sold, your age, your tax bracket and your overall finances.

A “CLT” is used when the non charitable purpose is to make a testamentary gift to family beneficiaries of appreciating assets. The “CLT” transfers the remaining trust assets to the family after paying an upfront income stream to the charity, of at least 5% of the value contributed. CLT’s, however, are the reverse of CRT’s in that the up-front distributions go to the charity. CLT’s usually involve donors who have very large estates subject to federal Estate Tax. Like CRT’s, CLT’s pay income to the charity either as a annuity or as fixed percentage of the trust asset’s value.

These tools are some of the major planning devices available to you. Others exist. The point is that opportunities exist for you to achieve a desirable outcome for you and your family while still giving philanthropically.

Editor’s Note: Dennis A. Fordham is an attorney licensed to practice law in California and New York. He concentrates his practice in the areas of estate planning and aspects of elder law. His office is at 55 1st Street, Lakeport, California. He can be reached by e-mail at dennis@dennisfordhamlaw.com or by phone at 707-263-3235.