There are many ways making donations can reduce your taxes, but how do you start a planned giving strategy? Which charities should you support? What type of assets should you donate? These are questions to consider. It’s also important to make sure your donation aligns with your values and fits in with your overall financial picture.
Giving to charity can often begin with something close to your heart. For instance, this year JJ Burns & Company participated in The Leukemia & Lymphoma Society’s (LLS) Light the Night Walk in honor and memory of my late father, James Burns.
He was a police officer and the day he sat down and showed me those blood test results it started a journey that changed my life. Through the darkness, LLS brought light and supported our family and especially my dad. Now we support this organization that touched our lives so personally.
Participating in an event like this is only one way to make a donation. There are many causes to support. Write down what matters to you. Think about things close to your heart you feel are important. Involve the whole family. Make a list, then select three or four ideas to start. Now think about what impact you would like to make for these causes.
Begin with more familiar groups. You can shift or expand your contributions as you become more comfortable with other organizations and as you define your financial goals. Start with charitable information services such as GuideStar.org, the BBB Wise Giving Alliance (Give.org), and CharityNavigator.org. Some allow you to review data, while others provide ratings for charities.
Time and money are not the only ways to make a donation. You can leverage your gift to support the charity and help you for the most tax benefit at the same time. Using our collaborative wealth management approach, we can work with your accountant to help analyze and explain your options.
Spread your donations throughout the year. This gives more time to evaluate the charities—and more time for the organizations to process your paperwork. If you have special requests or require appraisal before transfer, processing will likely be easier and quicker before the end-of-year rush.
Donor Advised Fund (DAF)
Are you just donating cash, or are you also considering stocks and other financial instruments? One way to increase your donation options and help create more tax benefit for yourself is with a donor-advised fund (DAF). A DAF is established at a public charity. You make contributions as often as you like and receive an immediate tax benefit. The gifts can be invested and grow tax-free. Over time, you recommend grants from the DAF account.
Annuities (CLAT & CRAT)
A charitable lead annuity trust, or CLAT, pays a charity a set amount of money over a period of time. At the end of that period, any remaining money is paid to you or your family and are free from gift and estate taxes.
A charitable remainder annuity trust, or CRAT, is the opposite. It pays you and your family a set amount over a period of time. The charitable organization receives the remaining money at the end of the period.
Activating Your Plan
Take all your notes to your financial team. At JJ Burns, we will review your ideas and see how to help you meet your wealth management goals, while also supporting the causes you feel passionate about. By collaborating with all members of your financial circle, we can help you maximize your impact and work toward your greater good.
You’d like to make a major gift, and want to maximize the donation to help both you and the charitable organization. Maybe you own a piece of artwork or an item that would complement a collection. There are ways to make a donation that still allow you to enjoy the piece yourself.
Maybe you want to build or maintain a lasting legacy centered around your family values. You can involve your children and create a generational plan that will outlive you. When considering donations, there may be some options you might not have considered for your planned giving. Your assets can help more than charitable organizations and your taxes— they may also help your heirs now or later.
One of the fastest-growing vehicles for donating to philanthropies is the donor-advised fund or DAF. This is an alternative to a foundation. Typically, you make contributions with appreciated property, like stock shares and receive an immediate tax benefit. You avoid capital gains tax and get a charitable deduction for the value. Over time, you recommend grants from the DAF account.
You can make contributions to the account as often as you like. The gifts to the donor-advised fund can be invested and they grow tax-free while they are in the DAF.
DAFs can be set up and personalized to reflect your interests and values. You can choose the name of your DAF to reflect your intention, such as “The Jones Family Fund for The Learning Disabled.” You can also choose a name that keeps you anonymous.
Want to make it a multigenerational family affair? Your children or family members can be involved as long as they are at least 18. Children or successors of your DAF may learn the importance of getting involved in a charity as well as the virtues of gratitude and humility.
Charity Lead Annuity Trust – “CLAT”
A charitable lead annuity trust or CLAT can give your charity regular donations and provide assets to your heirs. By shifting investment assets into a CLAT, a Trustee whom you choose, can make a series of annuity payments over a number of years to one or more charities. At the end of a fixed time period the remaining assets are distributed to your heirs. The amount you deposit into a CLAT could provide you a significant tax deduction in the current tax year.
An example could be a 20-year CLAT set up from a large stock distribution or business buy-out. You want the annuity payments to benefit a cancer clinic over the next twenty years, after which your heirs receive the remaining assets. The benefits you receive are a significant present value tax deduction on the day the CLAT is funded, minimizing the size of your current estate and facilitating the passage of assets to the next generation.
In times of lower interest rates, CLATs are more popular because the present-value tax benefits tend to be greater. Keep in mind there is flexibility and a fair amount of customization to fit your needs in charitable trust planning.
An ever-popular donation is tangible property. But don’t think there’s only one way to donate, and that the donation ends when you deliver it to the organization.
By working with your financial team and the charity, you can make a mutually-beneficial arrangement. One example could be a piece of artwork, say a painting or sculpture. By working together, you could make the donation but still get to display the piece on certain dates each year at your home.
This “fractional interest” in the property may accommodate your schedule. The time frame can be established in increments. Let’s say you contribute a 75 percent fractional interest in your fully-restored classic luxury car to a motor museum. You could retain custody of the vehicle three months of the year, while they display it for nine months.
Evaluate the Charities
It’s a good idea to do some research when choosing a charity for your donation. Making a site visit to the location can give you a better understanding of their mission. Remember you can direct or restrict your donation to any part of the charity you feel it is important to help. You should also speak with employees, administrators, and other donors. Don’t be afraid to ask questions or get involved.
You can also get an outside view of the charity through a growing number of online organizations. They track a variety of non-profit information, including their IRS filings, revenue and expense data, boards of directors, balance sheets, and annual reports.
Some of the most popular charitable information services are GuideStar.org, the BBB Wise Giving Alliance (Give.org), and CharityNavigator.org. Some of these online guides supply access to data, while others rank charities according to standards listed by each group.
Discuss Your Options
Don’t get frustrated thinking there are limited options for planned giving. There are many ways to make a lasting major gift to the charities of your choice. These donations can help those organizations while also helping you and your heirs.
As with any estate planning techniques mentioned above, it is vital to consult with your wealth management team inclusive of a qualified estate/trust attorney and an accountant.
Contact us to see how you can reach your charitable goals while also receiving tax benefits and creating a lasting legacy.