With a properly planned gift, you could rearrange your investment portfolio without paying capital gains tax on appreciated property or you could also possibly get an income tax deduction.
However, to get the tax advantages related with planned giving, your gift must be made to an eligible organization. To meet the criterion, a charitable organization must have been created in the United States, strictly be a non-profit business, and not be involved in politics.
You can contribute almost anything to a qualified organization. The deduction limits are more limited for gifts other than cash, but you are free to give almost any property that has worth.
In addition to making an out-and-out donation, there are a number of other gifting methods you can use. You can give life insurance which may allow you to bestow a sizeable future gift at a comparatively reasonable cost. Of course this type of gifting can be complex, but it’s a viable option.
Another choice you have would be creating a charitable remainder trust. This type of trust may allow you, or your beneficiaries, to receive payment of a specific amount annually, and at the end of the trust, the designated charity the gets the remaining assets.
When using a charitable remainder trust, the trustee can sell the gifted investments and reinvest the proceeds to generate income, possibly without incurring a capital gains tax liability. This means that a well planned gift could permit you to realign your investment portfolio, create more diversification, and even possibly increase your cash flow. You may also get a current income tax deduction on the value of the remainder interest that will go to charity in the future.
An additional trust option would be a charitable lead trust. This strategy allows you to give the income generated to a charitable organization. At the end of the trust period, the remaining assets are paid to you or your beneficiaries. If planned properly, a charitable lead trust can let you can pass an appreciated asset to your beneficiaries with little or no estate taxes.
So, a charitable contribution set up in a trust may permit you to receive a current income tax deduction. But once you’ve given the gift, you can’t try to get it back, or start selling assets and then keep the proceeds. On the other hand, you can change the charity that will in time receive your gift.
Whichever gifting strategy you choose, planned giving can be very worthwhile. Not only do you get to help a worthy cause, but you can potentially get some favorable tax benefits too.
Just remember that you should speak with your tax and/or legal advisors about your particular situation before using a gifting strategy.
— Chip Gordy, MBA, CRPC is a
Financial Advisor with Coastal Wealth Management, LLC, 10441 Racetrack Rd, Unit 1, Berlin, Md., 21811 and specializes in Wealth and Retirement Planning. He can be reached at 410-208-4545 or firstname.lastname@example.org. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Coastal Wealth Management LLC & Cambridge are not affiliated.