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Boulder Daily Camera
Making Money Matter
Enid Ablowitz

 

Giving with Strings Attached

Suppose you could make a significant charitable gift and at the same time achieve some of your personal financial goals.  You’d probably wonder, “what’s the catch?”  Well, in a word, it is complexity. But, if you investigate the sophisticated charitable instruments designed to take full advantage of the incentives embedded in the tax code, you’ll find strategies for giving that can also provide you or your loved ones with income, or transfer ownership of assets to your beneficiaries, with significant tax savings.

The first strategy is designed to create an income stream.  Various charitable vehicles can accomplish this including pooled income funds, charitable gift annuities and charitable remainder annuity trusts.  They all provide a fixed return based on the initial gift value.  The interest rate can be based on market conditions and/or the age of the donor or the donor’s beneficiary(ies).  Often, people who have underperforming equities will enjoy new-found cash-flow by unlocking the value of these assets.  They make a gift to a qualified non-profit and receive an income for life or for a term of years. Donors who have assets with large capital gains exposure can enjoy tax savings that involves both receiving a charitable income tax deduction and also by deferring or avoiding capital gains tax.  For some with significant estates, this strategy can also remove the assets from their estate, possibly saving additional taxes.

A variation is the charitable remainder unitrust which provides an income stream based on a percent of the net fair market value of the trust assets, determined annually.  This allows the donor to benefit from increases in market value which increases the income stream.  However, it also takes on the risk of market losses and possible decreases in the income stream.  Donors can unlock the value of underperforming assets in their portfolio, but because of the nature of the instrument and the many variations in the forms of the trusts, a wider variety of assets can be used, such as real estate.  The payout depends on liquidity and market value of the assets held in the trust.  The charitable remainder unitrust is a very powerful tool in gift planning.  It can help donors:  diversify, generate funds for retirement, create targeted income streams for college tuitions, or provide support for elderly parents or adult children with special needs. The tax benefits again may include a potential charitable income tax deduction, the ability to defer or avoid capital gains tax, and possible estate tax savings.

But what if you have sufficient income?  Did you know that you can give a charity the income from an asset now, transfer the asset to your heirs in the future, and shelter the appreciation from estate and gift tax? The gift planning instrument is called a charitable lead trust.  There is no charitable income tax deduction for the donor and there may be some gift taxes to be paid, but your gift planner can structure the gift to minimize and perhaps even eliminate your gift and estate tax exposure.  The charity gets the income from the trust for a period of years, after which the assets are returned to the donor’s heirs.  These trusts can also be structured to return assets to the donor.

Let’s suppose, for example, that you own rental properties that are debt-free (no mortgage) and they generate significant net annual income which you determine you don’t need.  You also want to get out from under the yoke of the management responsibility.  Let’s also assume that this is not the right time to sell the properties, or that you are interested in giving a particular piece of property to your children.   By putting the properties into a charitable lead trust, you could direct the distribution of the income to your favorite charity while preserving the assets to transfer to your heirs outside your estate.  Charitable lead trusts must be structured and managed very carefully to accomplish the donors’ goals, but they can be a robust tool for those donors who have charitable intent and potential for estate tax liability.

Imagine being able to add a zero to your current charitable giving. Investigate complexity.  It might be worth it.

Enid Ablowitz is the Vice President for Advancement at the University of Colorado Foundation, Inc., and Director of Advancement for the Coleman Institute for Cognitive Disabilities.  She has been working as a donor advocate for more than a dozen years.  Her book, Making Money Matter:  Eight Steps to Thoughtful Giving was recently published.  For information on how to obtain a copy, contact her at enidablowitz@hotmail.com.

You may contact Enid Ablowitz by email at enidablowitz@hotmail.com

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