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Charitable Planning

Charitable giving provides personal satisfaction to the donor along with estate and income tax deductions to reduce taxes. 

From a financial planning perspective, lifetime charitable gifts are generally done to achieve income tax deductions and slow the growth of an estate. At death, if an estate plan is so arranged that the heirs will receive a satisfactory net inheritance, then estate assets can also be left to charities via bequest. Charitable bequests are eligible for an estate tax deduction and must be made by the estate owner in the will. 

Advantages of Charitable Giving 

  • Immediate reduction in estate size 
  • Income tax deduction if made during an individual’s lifetime  
  • Sense of satisfaction for good works 
Special charitable trusts exist that offer all of the above benefits and still provide the donor with income from the gifted asset. 

Many people prefer using charitable gifts to reduce their estate tax liability because they believe their dollars are better spent and allocated by a charity or foundation than a wasteful or inefficient government department. Additionally, and especially with a foundation, the donor can better control which people/causes the money will help. 

Mechanics of Charitable Giving: The three most common charitable planning techniques are the use of Donor Advised Funds (DAF), Charitable Remainder Trusts (CRT), and Charitable Lead Trusts (CLT). There are many ways to design planned giving to maximize your family’s needs and goals. 

Charitable gifts can take three general forms: 

  • Direct gifts to a specified charity (lifetime gifts or bequests)  
  • Charitable foundation created. Heirs can be employed by the foundation to help manage it and imbue a sense of community involvement in the younger generations. Foundations are only appropriate for very large donations. 
  • Special charitable trusts 
Charitable Gifts Using Life Insurance: As an alternative to leaving cash or other estate assets to a charity, many donors find life insurance to be a convenient charitable gift. Charities will purchase a life policy on a donor, and the donor makes annual income tax-deductible gifts each year to the charity to pay for the premiums. This is a popular technique because unlike bequests at death, the annual donation is income tax deductible, and the heirs do not resent losing part of their inheritable estate. Additionally, the fact that relatively small premium dollars can create much larger death benefits also attracts clients. A donor could also own a policy on his/her own life and name the charity as beneficiary. Because the beneficiary could be changed before death, the donor does not receive any income tax deduction on the premiums. For this reason, many people prefer the charity own the policy, and they donate the annual premium each year. 

To set an appointment to discuss your individual situation, please call us at (800) 925-2050 or send us an Email.