Yes, it’s true! Being charitable can actually pay off! But first some ground rules…what exactly constitutes a charitable gift? Simply put, it’s a gratuitous transfer of something to a charitable organization. By something, we mean some type of item, not your time or personal service. The type of item(s) you wish to donate is only limited by your imagination – it could be cash, or stocks, or even your collection of Pez dispensers from the 1970s. The choice is up to you as is your motivation to donate as the IRS does not ask about your motivation.
Tax Benefits – Since almost all charities depend on contributions, tax legislation has tried to encourage charitable giving because it’s good social policy. As a result, though, charitable giving has become interconnected with the tax laws, which have grown more and more complex. For instance:
- You receive the tax deduction in the year you make the gift
- Federal gift tax does not apply to charitable gifts
- Charitable gifts serve to reduce your taxable estate, thus reducing your potential estate tax liability
Charitable giving offers the greatest tax benefit in estate taxes. For example, over the next 30 years, an estimated $8 trillion of assets will pass from one generation to the next, resulting in the assessment of significant estate taxes. Charitable giving is a great solution to minimize those estate taxes. They can also help to fulfill your estate planning objectives as there is no limit to the amount that you can donate to charity. You can even transfer your entire estate to charity, tax free. Gifts to charity allow you to:
- Distribute your property tax free
- Potentially put the amount subject to estate taxes into a lower bracket
Options for donating include:
- An outright gift where the charity takes possession of the gift immediately.
- A split interest gift in trust. Here the gift is split between a charity and a noncharitable beneficiary.
- Charitable Remainder Annuity Trust (CRAT)
- Charitable Remainder Unitrust (CRUT)
- Pooled Income Fund
- Charitable Lead Trust
- Bargain Sale
- Private Foundation
- Community Foundation
- Donor-Advised Fund
For detailed information on all the above types of charitable donations, meet with your wealth manager who will walk you through the details of each and advise you on which is best for your estate.
Sources: Broadridge Investment Management Solutions
Stone Oak Wealth is regulated by the SEC as a registered investment adviser. Please see visit Legal Disclosures for additional advertising disclosures.