In an effort to help demystify the world of planned giving, the Land Trust has provided some answers to common planned giving questions, but first, what is planned giving? It is a method of supporting non-profits and charities that enables individuals to make larger gifts than they could make from their income. In contrast your annual gift to an non-profit may be budgeted for, but not necessarily planned. Often planned gifts are referred to as such because they require more planning, negotiation and counsel than many other gifts.
Here Land Trust member and attorney John Sorlie has provided some answers to common planned giving questions.
What tax advantages are available when considering planned giving?
- There is a charitable deduction from the estate tax, so every dollar given to charity upon your death reduces the size of your estate and avoids estate taxes on the dollars given away.
- If done during your lifetime, you’ll receive an income tax deduction in the year the gift is given, and to the extent the deduction cannot be fully utilized, it can be carried forward for up to five years. Lifetime charitable giving also reduces the size of your estate so would accomplish the same estate tax objectives as charitable giving at death.
Should I give to a charity while alive or only at my death?
Lifetime giving can be very rewarding because you can see the benefits of the gift while you are alive. Also, if you have a history of being involved in a charity while you are alive, the charity will be aware of your particular charitable inclinations and you can better direct where the funds should be used. It’s more difficult for the charity to make those decisions if a gift is left at death and the charity has no history with the person donating. Lifetime gifts are not always financially possible for everyone, and you should consider a lifetime gifting plan only if you have sufficient assets to support yourself for the remainder of your life. It’s beneficial to review your financial situation with a trusted advisor before making significant lifetime gifts.
What are some of the common methods of planned giving?
There are a variety of ways to make a planned charitable gift. The most common forms are:
- Direct gifts such as gifts of stock, cash, or real estate to a charity.
- Lifetime gifts that reserve a benefit to the donor. These include gift annuities and charitable remainder trusts where the donor receives an income stream after the gift is made.
- Gift of a qualified plan such as IRA or 401(k) account. These accounts hold pretax money so if left to a family member upon your death, the family member will be obligated to pay income tax on the amounts withdrawn from the account. In addition, the entire account is included as part of your estate for estate tax purposes. If given to a charity, the account passes to the charity free of income tax. In addition, it will qualify for the charitable deduction for the estate tax. So, the tax that would be due if these accounts are left to a family member could be avoided if left to a charity.
- Through a private foundation or donor advised fund. These are gifts made through a fund or foundation established by the donor, who then makes annual or testamentary gifts through this organization. This is a good way to involve children and grandchildren in the donation process to help instill a culture of charitable giving within the family.
From: John D. Sorlie
Estate planning attorney
Bryan, Lovlien & Jarvis, PC