Top 4 Charitable Giving Strategies

If your charitable giving is limited to cash donations to organizations and causes you love, you may want to take a more strategic approach. Who wouldn’t want to pay less in taxes while at the same time making your charitable giving go further and do more than you ever dreamed!

The TOP 4 Charitable Giving Strategies

#1 Beneficiary Designations

Donors can designate a charitable organization as a beneficiary of their will, retirement plan, individual retirement account (IRA), life insurance policy, annuity, or any other asset that passes by contract, such as a payable on death account. The charity can be the primary beneficiary or one of several beneficiaries. Accounts with named beneficiaries are generally not subject to probate; however, designating a charitable beneficiary under a will is subject to probate. Distributions of retirement assets that would be subject to income tax, such as from a traditional IRA, are also exempt from income tax when passing to a charitable organization.

#2 Charitable Remainder Trust

If you want to make a future gift while retaining the right to income from the assets during your lifetime, you could consider a Charitable Remainder Trust. This is an irrevocable trust funded with either cash or property. You retain the right to an income stream that is either a fixed amount or a fixed percentage, such as with a Charitable Remainder Annuity Trust (CRAT) or Charitable Remainder Unitrust (CRUT). Income is paid for a number of years or for the life of the income beneficiary. When the trust ends, the assets pass to the charitable entity. You may be entitled to a tax deduction when you transfer assets to the trust. Also, by donating highly appreciated property to the trust rather than selling it and donating cash, you avoid incurring capital gain tax on the sale of the property since the trust, not you, owns the property. Keep in mind that such a trust is irrevocable, so you cannot terminate it or change the terms (other than retaining a power to change charitable beneficiaries). Also, the assets in the trust will not be available for your heirs.

#3 Charitable Lead Trust

Like the CRAT or CRUT, the Charitable Lead Trust makes periodic payments for a term of years or for life, but the payments go to a charitable entity rather than to the donor or another individual. When the trust ends, the remaining assets return to you or pass to other noncharitable beneficiaries, such as your children. Depending on how the trust is structured, you may be entitled to an income tax charitable deduction when assets are transferred to the trust.

#4 Donor-Advised Fund

If you would like to make multiple gifts but are tired of the paperwork, consider creating a donor advised fund. This is a charitable fund managed by a community foundation or a charitable entity created by a bank or other organization.

Contributions to a Donor-Advised Fund are tax deductible; however, assets transferred to the fund do not need to be immediately distributed to a charity. You may retain the ability to make recommendations for distributions to charitable beneficiaries; helpful if you want to take a charitable deduction but are not yet sure which charities you want to support.

These charitable giving methods may allow you or your heirs to benefit from your assets while providing needed funds to charity during your lifetime. If any of these options interest you, contact us now to see if which of these planned gift strategies can benefit your overall estate plan.

The Iceberg Theory – What Donors Can’t See Can’t Help Charities

During college I took a literature course from a professor who greatly respected Nobel Prize winning author, Ernest Hemingway.  One characteristic of this great American’s writing style is the Iceberg Theory, also known as the “theory of omission.”  

If a writer stops observing he is finished. But he does not have to observe consciously nor think how it will be useful. Perhaps that would be true at the beginning. But later everything he sees goes into the great reserve of things he knows or has seen. If it is any use to know it, I always try to write on the principle of the iceberg. There is seven-eighths of it underwater for every part that shows. Anything you know you can eliminate and it only strengthens your iceberg. It is the part that doesn’t show. If a writer omits something because he does not know it then there is a hole in the story.
— Ernest Hemingway

What if non-profit organizations kept this iceberg principle in mind when talking to major donors? What if their executive directors and development officers started “observing” their donors—consciously listening for the “part that doesn’t show” – the 7/8 they can’t see or perceive because donors typically reveal only the tips of their icebergs? icebergDonors do not consciously omit information, but they only reveal what is necessary to answer your questions. And isn’t the typical question, “Are you willing to increase your donation amount this year?”

The question is interesting because it ignores the 80% of donor wealth tied to non-cash assets like land and buildings, a business, or holiday home. A typical family earning $100,000 a year gives a little over $2,500 to charity. What wonderful things could happen if donors only knew how to leave a legacy by leveraging their wealth tied up in vacation homes or vacant land!

At the Stewardship Foundation we provide tools and support that advisors and non-profits can use to help their donors realize the charitable intent potential hidden “below the iceberg.”  For example, on our website we post Questions for Donors to help development offices and other financial professionals listen for certain donor concerns that may indicate a willingness to move from “donation” to “legacy.”

The tragic story of the Titanic illustrates the danger for those who ignore the Iceberg Theory’s suggestion that when a writer (think nonprofit or charity or donor) omits something then there is a “hole in the story.” By ignoring the wealth that lies beneath the iceberg, charities and nonprofits may lose the opportunity for sustainability, and donors lose the opportunity to accomplish great things during their lifetime.

If you are a nonprofit or charity and want to learn how you can apply Hemingway’s wisdom to your development efforts, then we’d love to share our knowledge about transformational giving. If you are a donor who has never considered using your “hidden wealth” to make a difference in your community during your lifetime, then we’d love to share our knowledge about planned giving. As a huge Hemingway fan, it would be my pleasure to honor this great American author by helping in some way to plug a few holes and leave our community and causes in a better place because we did.

Unique CLT Opportunity in 2012

Tonight’s first presidential debate signals that the 2012 election is fast approaching.  Regardless of the occupant in the oval office in 2012, tax changes are inevitable. Leon C. LaBrecque addresses many of your concerns in his article, The Perfect Storm: Prospective Expiration of the Bush Tax Cuts. For example, LaBrecque concludes:

“Charitable lead trusts are very attractive for 2012. The ‘Tax Storm’ of 2012 has a wide-reaching and profound effect on individuals, particularly those with charitable intent. The current historically low interest rates provide an unprecedented opportunity for Charitable Lead Trusts, excluded gifts, or low interest rate loans. The possible expiration of the Bush tax cuts make it an imperative for taxpayers with estates larger than $1M to sit down with advisors and make a determined plan of action. If the cuts expire, individuals will have a very narrow window of opportunity to utilize the $5.12M exclusions, the GST exemptions, and the benefits of the current law. This is a year in which pre-planning is crucially important. And, in the off chance that the estate tax is repealed and the income tax rates are permanently lowered to the tax cut rates (in which case we will have a whole new set of problems), the overall family and charity situation has been reviewed and carefully considered.”

As you listen to the debates and decide how you should vote consider your tax situation and explore whether the charitable lead trust is a sound option.  The Stewardship Foundation has developed many charitable lead trusts, charitable remainder trusts and donor advised funds for our clients.  Please contact us so we can assist you to optimize this unique opportunity.