CHERNE LAW P.C.
Protecting Your Future
Whether you want to give now or give from your estate when you pass away,
we can help you structure the gift to receive the greatest benefit for you and the charity.
There are many different types of gifts. Some of the most common are Instant Gifts; Gifts at Death/Bequests; Retirement Account Gifts; Charitable Gift Annuity; Charitable Trusts; and Bargain Sales.
1. Instant Gift.
This is when a donor wants to give a gift now. How you give it and what asset you use can have big tax consequences. Make sure you receive consultation before making an instant gift.
Here’s a simple illustration:
(Please remember every situation is unique and each individuals tax bracket is different. So this example does not necessarily represent your situation.)
2. Bequests or At-Death Gifts.
A bequest is property given through a Will.
Donors can also give to charities at death through their living trust.
These gifts usually take the following forms:
1. Giving a Specific Asset;
2. Giving a Specific Amount;
3. Giving a Specific Percentage;
4. Giving a Contingent gift. (For example, I give my car to my son, but if he does not survive me, then to XYZ Charity.)
Bequests and At-Death Gifts can also have tax consequences for your estate and loved ones, especially when dealing with retirement funds. We can help you navigate the best way to give an At-Death Gift.
3. Qualified Accounts / Retirement Accounts
Most people have retirement accounts, either through their job or a personal IRA. These accounts allow you to avoid income tax until the money is withdrawn. When you pass away, any individual receiving money from your retirement accounts will have to pay income tax. But a charity receiving money from your retirement account does not. So, a great way to give to charity is through your retirement account, IRA, or 401k. This can help avoid both estate tax and income tax.
4. Charitable Gift Annuity
A Charitable Gift Annuity is a contract between the donor and the charity where the donor agrees to donate an asset/money, and the charity agrees to pay the donor a fixed amount every year until the donor passes away. The Charity then receives whatever is left.
The payout amount and deduction is based on IRS calculations/formulas. Here is an example:
(Please remember every situation is unique and the calculations and formulas change based on IRS guidance and updates. So this example does not necessarily represent what you would receive.)
This example assumes the charity invests the funds and earns at least a 5.8% return.
Some of the benefits of Charitable Gift Annuities
* Current Charitable Deduction
* Fixed Payments for Life
* Part of Payment is Tax Free
* No Current Capital Gains Tax
* Future Capital Gains Tax on only part of the amount
* Spreads Capital Gains Tax over Life
5. Charitable Trusts
There are two main types of charitable Trusts:
a. Charitable Remainder Trusts – These trusts pay the donor a fixed percentage or fixed dollar amount every year during the donor’s life, and the remainder goes to charity. These trusts can give the donor income tax savings, capital gains tax savings, and estate tax savings.
Unlike Charitable Gift Annuities, Charitable Remainder Trusts allow the donor to pick the annual income amount within certain limitations.
b. Charitable Lead Trusts. These trusts are the opposite of Charitable Remainder Trusts. They make payments to the Charity for a set term of years or for the life of the donor. After the donor dies or the term expires, the remainder would be given to the donor’s beneficiaries.
Charitable Lead Trusts are most common for people who aren’t using an asset, but want the asset to stay in the family. For example, a couple might have a rental property that they want to stay in the family, but they don’t need the income from it. They can put the property in a Charitable Lead Trust to give the rental income to charity during their lives, and then when they pass the property would go to their children.
6. Bargain Sale
This is when a donor sells an asset to charity for a reduced price, thus getting a charitable deduction and tax savings.
Here’s an example:
A generous person will prosper; whoever
refreshes others will be refreshed.
– Ancient Proverb