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Beyond the Annual Appeal: Supporting Not-for-Profit Charities

MP900398817You don’t have to be a millionaire to be a philanthropist, but before you make donations, consider these options for giving.

The average person uses straightforward cash, checks or credit cards to help support charities that are important to them. But there are other ways to give, says SF Gate in “5 Ways You Can Donate to Charity,” including several that benefit the donor as well as the organization.

  1. Cash. This is the usual way that most people donate to charities. You simply write a check to the charity, and it puts the money to work for its good cause. Prior to a cash donation, ask the charity to give you a copy of its 501(c)(3) determination letter, which shows that the charity is a tax-exempt organization in good standing with the IRS. This allows you to deduct your gift on your federal income tax return, usually up to 50% of your adjusted gross income for public charities and 30% to 50% for private foundations.
  2. Appreciated assets. Donating an appreciated piece of property or asset is similar to a cash gift. Many individuals will give appreciated stock to charities. The charity can then easily sell the stock and use the proceeds like a cash donation. However, in the event you’re considering donating a work of art or some other asset that might be tough to sell, speak with the charity first. If it can’t sell the item and use the cash, it might not be inclined to accept the gift. You can deduct your donations of appreciated assets or gifts of capital gains up to 30% of your AGI.
  3. Donor-advised funds. To lessen record-keeping headaches, some individuals use donor-advised funds. A DAF lets you make gifts to a public charity, receive an immediate tax benefit, and then make grants to that charity or others in the future. The administrator of the fund will ensure that the charities are tax-exempt and in good standing with the IRS. They will send checks on your behalf and will retain records of the grants you’ve made. With a DAF, you can donate a lump sum or make contributions throughout the year. The DAF itself qualifies as a tax-exempt organization. After you’ve funded the account, you can do any of the following:
  • Grant your entire contribution to a selected charity or charities;
  • Invest the contribution and let it to grow for future grants to charities; or
  • Do a combination of the two, granting part to charity now and letting the remainder grow.

A gift to a DAF is irrevocable, so you can’t take the money out of the fund and use it for something else. If you prefer, a DAF lets you make your gift anonymously.

  1. Charitable gift annuities. These are more complex and require more planning, but can be a terrific way to grow your donation to a charity. With a CGA, the charity is the management company; any profits that the investment earns will go to the charity. Donors receive an income tax deduction on the gift, plus some of the donation back through annuity payments. However, it is important to note that creating a CGA will tie up a large portion of your money. It can also be expensive to terminate the annuity before the end of its term.
  2. Charitable remainder trust. A CRT lets a donor give assets through an initial donation to the trust. The trust then makes annual distributions to a beneficiary, typically the donor or grantor. When the term ends, the remainder in the trust goes to the selected charity. CRTs can give you more security than charitable gift annuities, since they make the donation only at the end of the term. CRTs also have some tax benefits due to the income tax deduction and because the trust itself won’t be taxed for income. However, it is important to remember that the beneficiary who gets the annual distributions will pay tax on that income. CRTs are also used in more complex estate plans as a way to avoid estate taxes. This trust offers a full estate tax deduction, if it’s created at the grantor’s death.

Whether your gift is under $1,000 or more than $5 million, an experienced estate planning attorney will be able to provide guidance about the best method of making a donation that will make sense for you from a tax and estate planning perspective.

Reference: SF Gate (December 8, 2016) “5 Ways You Can Donate to Charity”