planting money

One way to fulfill your philanthropic goals is to provide for a particular charitable cause or organization in your estate plan.

Do you want to leave something to charity when you are no longer here? All it takes is some planning ahead of time. The Charlotte County Florida Weekly recently posted an article titled “GIVING: Estate planning and charitable giving“, which considered methods of meeting your philanthropic goals by providing for a charitable cause or organization in your estate plan. You can designate the amount for charity as a fixed dollar amount or as a percentage of the remaining assets.

Another alternative to making a lifetime gift of cash to a charitable organization is to donate appreciated stock or other appreciated long-term capital assets. With some limitations, you receive an income tax charitable deduction equal to the fair market value of the asset and don’t recognize gain on the donation or sale of the asset. What’s more, the charitable organization can sell the appreciated asset without recognizing capital gain on the sale.

Traditional IRAs and other retirement accounts are typically tax-deferred holdings that grow tax free—income tax is paid as you withdraw from the account over your life expectancy. The IRA is frequently not fully withdrawn during the owner’s lifetime, and can be left to a beneficiary at the owner’s passing. If to an individual, he or she will pay income tax as she or he takes money out of the account (and there also may be potential estate taxes due). In contrast, if you name a charitable organization as the beneficiary of your IRA, it receives the account and with no income or estate tax levied on those assets.

A charitable remainder annuity trust (CRAT) is likened to a fixed annuity—here you retain an income based on a percentage of the fair market value of property initially deposited in the trust. Here the payout can be made over your life, the lives of additional beneficiaries, or a specific term of years. At the end of the term, the remaining assets in the trust pass to your charitable beneficiaries. You get an income tax charitable deduction in the year of its creation, based on a formula that estimates the future value of the remainder that will eventually go to the charitable beneficiaries.

A charitable remainder unitrust (CRUT) is akin to a variable annuity. You make an irrevocable transfer of assets into the trust and the trust pays you a percentage of the value of the trust assets recalculated each year. Therefore, the amount you receive can fluctuate based on the value of the trust assets. At the end of the term, the remaining assets will pass to the charitable organization, and you again receive an income tax charitable deduction in the year the trust is created equal to the estimated value of the assets that will pass to the charity.

A charitable lead annuity trust (CLAT) is a bit different. In this type of trust, the charity receives income for a certain term or for your life. At the end of that term, or at the end of your life, the assets in the trust then pass on to your non-charitable beneficiaries. As the donor, you receive an income tax deduction in the year that you create the CLAT for the amount that is estimated as going to the charity over the annuity term, but during the term of the CLAT, you pay income tax on the amount of income going to the charity even though the charity (not you) is receiving it.

All these abbreviations can get confusing quite quickly. Speak to an experienced estate planning attorney and find out what works in your specific situation.

Reference: Charlotte County Florida Weekly (May 8, 2014) “GIVING: Estate planning and charitable giving

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.