Since the Tax Cuts and Jobs Act was implemented, there is an even greater incentive for donors to consider whether their planned giving will have an immediate or future benefit. When structuring your charitable giving plan, speak with your Springfield estate planning lawyer about these five giving options to minimize your tax obligations.
A donor-advised fund is a charitable investment account operated by a 501c3 organization. In this fund, you can contribute cash, appreciated securities, real estate and other types of assets and receive an immediate tax deduction. These assets will then grow tax-free and allows you to make recommendations to a charity of your choice. For this type of fund, you will need a sponsoring organization, that will ultimately make final decisions on how the money is used. While there is an immediate tax benefit, giving you control over how the funds are used may be difficult for some donors.
Charitable Lead Trust
This type of trust provides income payments to a charity over a specified period of time, with the remainder of any monies left in the trust being sent to the donor or donor’s family members. Payments can be cash, appreciated securities, real estate and other types of property. When the remaining payments are sent back to the donor, they will have the ability to make a tax deduction immediately but not on future donations. When they’re sent to a family member, however, taxes can be altogether avoided. However, once assets are transferred into the trust, they cannot be removed – so you must be sure that’s how you’d like the money to be used.
Charitable Remainder Trust
A charitable remainder trust is the opposite of a lead trust – in this type of account, assets are transferred into the trust and an immediate tax deduction is incurred, in addition to income for either a period of time or the rest of your life. In this scenario, you would be receiving income from the trust until you pass away, at which point the charity would begin receiving the payments you were once keeping for yourself.
Charitable Gift Annuity
This type of annuity is a contract between the donor and the charity that provides both an upfront tax deduction and a lifetime stream of income payments for the donor. Many nonprofits and large universities offer these types of arrangements with their donors because it allows them to take a tax deduction while additionally guaranteeing payments for the remainder of their life. Like the charitable remainder trust, the benefactor will only receive the gift once you’ve passed away. The biggest difference between these two types of accounts is that the annuity is much more regulated than the trust.
Qualified Charitable Distribution
For those over 70, a charitable distribution is an overlooked tax loophole that allows you to exclude $100,000 in earnings. The distribution to the charity is taken directly from your IRA and offers a significant tax break with the $100,000 exclusion.