Make a gift and keep it: donating to charity

Americans are givers, and increasingly so; according to Giving USA 2014, corporations, foundations and individuals donated more than $330 billion in 2013. Adjusted for inflation, that is 3 percent up from 2012 and a 12 percent increase over 2009, the year the recession officially ended. More than 70 cents out of every dollar donated came from individuals, i.e. from people like you and me. Religious and educational charities benefitted most.

Those are the numbers. When it comes to people’s motivations for giving I firmly believe that we donate to do good. At the same time, it would be foolish not to acknowledge that charitable giving often comes with tax savings. In estate planning, the easiest way to name a charity as one of your beneficiaries is through your will. You simply (but unambiguously!) state the name and location of the institution you wish to leave assets to, specify the amount of your gift and any restrictions, and you’re all set.

The testament route has a couple of advantages: First, because last wills are revocable, you can easily replace your original beneficiary with another, and you can change the amount of your donation or the restrictions you have placed upon it; second, assets left to a tax-exempt charitable institution will not be counted as part of your estate when you die, which means that neither estate nor gift taxes will come due.

If you are ready for a more committed form of giving that comes with better tax savings, you will want to consider a charitable trust, a private foundation or a charitable gift annuity. With all of these you make an irrevocable gift during your lifetime rather than a bequest, and your donation results in an immediate income tax deduction.

I will talk more about charitable trusts and private foundations in my next and other posts; for now, just a couple of words regarding the beauty and risks of charitable gift annuities: Simply put, they allow you to make a gift and keep it, all while saving taxes. More specifically, you donate to your favorite cause, and in turn the institution distributes regular payments to you or any other person you specify for as long as you live. The amount of the distributions depends on the size of your gift and your life expectancy when you donate, but your annual return will probably lie somewhere between four and five percent. For the charity, the goal is to be left with about 50 percent of your gift after you die. For this portion you can take an immediate income tax deduction.

The downside to the gift annuity route? The charities have possession of your funds and make investment decisions with them. Thus, if your charity goes away or dies, you could lose the very income you were counting on. You can mitigate or even eliminate these concerns through other philanthropic vehicles such as the charitable remainder trusts that I’ll be talking about next time. Certainly, with charitable gift annuities it pays to pick your charity wisely.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.