Saving for the Greater Good: The Benefits of Charitable Planning

It’s human to want to contribute to causes that mean something to us… during our lives, and perhaps after death.

The good news is, when saving for philanthropy is part of your financial planning, there are several options that will benefit charity as well as possibly your own bottom line. When blended into your overall financial planning picture, charitable planning helps to:

• Increase lifetime benefits to the wealth owner
  
• Increase benefits to heirs
• Increase charitable gifts
• Reduce taxes

Charitable planning diversifies assets without creating an immediate tax liability, and provides the grantor both income and control over the funds. It may reduce capital gains, create an income stream for life, and ultimately benefit a charitable cause. What’s more, U.S. tax laws provide significant incentives to individuals who voluntarily support their community and society with charitable gifts.

If you’re going to potentially give to an aid organization (or many), in addition to children or other family, there are also a number of vehicles for the funds you’ve chosen to set aside. All of these avenues have major plusses; it’s simply a matter of what’s best for you and your personal situation.

For example, let’s use Charitable Remainder Trusts (CRTs) to illustrate some of the benefits. A Charitable Remainder Trust (CRT) is a "split interest trust" that is designed to provide income for life (or for a term of years) to one or more income beneficiaries. After the term expires or the income beneficiaries pass away, the trust assets pass to one or more charitable beneficiaries. When you contribute cash or assets to a CRT, you are generally entitled to an income tax charitable deduction.

Therefore, if a woman in her seventies, who owns several stocks worth $100,000 and sees dividends of about $2,000 a year, decides to give these stocks to a charitable remainder annuity trust, she will qualify for a partial income tax deduction of more than $50,000, receive $5,000 a year instead of $2,000, and provide a future gift to a qualified charitable organization.

Here are a few more options:

Charitable Lead Trust – A trust that pays a charity income from a donated asset for a set number of years, after which time the principal goes to the donor’s beneficiaries with reduced estate or gift taxes.

Private Foundation Gifts – Private foundations are charitable organizations that do not qualify as public charities. Often, they’re nonprofits that were established with funds from a single source or specific sources, such as family or corporate money. Although contributions to private foundations technically are tax deductible, many of these nonprofits do not accept donations. Instead, private foundations usually invest their principal funding, and then distribute the income from investments for charitable purposes.

Charitable Gift Annuity – A Charitable Gift Annuity involves a contract between a donor and a charity, whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity. When the donor dies, the charity keeps the gift.

Charitable Gift Fund – Charitable gift funds are vehicles for giving that are established as charitable affiliates of for-profit financial institutions, such as banks and mutual fund companies. These funds are donor-advised funds; therefore, distribution is made to nonprofit organizations at the advice of the donor, with final authority in the board of the charitable affiliate.

By using one of these vehicles, or another option discussed with your financial planner, people in varying life stages may add charitable contributions to their financial picture and create a benefit for themselves and their families at the same time.

It’s a win-win situation that’s as responsible as it is generous.