Charitable giving in today’s environment

by Mary Bohmke

 

With the economy in the state it is in, why would anyone consider including a charity in his or her estate plans? During the past two years many people have seen their net worth decline, some to the point that they may have to delay retirement plans. Surely, in this difficult financial environment, the goal must be to preserve and hold onto everything you’ve worked so hard to get.

Would it surprise you, then, to learn that by putting together a thoughtful estate plan that includes a charity (or charities) you may be able to reduce your estate taxes, earn more income during your lifetime and preserve more for your family down the road than you would if you didn’t?

The answer is an emphatic “Yes!” to all of the above. Plus, you get the added benefit of furthering the mission of one or more of your favorite charities. Everybody wins – you, your heirs, and your favorite cause.

Let’s consider some of the most effective tools in helping yourself while you help others.

Charitable Remainder Trusts: Despite the bearish economy we are facing, there are certain types of planned gifts that fare well in today’s environment. For example, establishing a charitable remainder trust (CRT) is appealing to many business owners and other individuals as it allows them to take an asset (stocks or property) that is highly appreciated and place it in the trust without paying capital gains taxes.

An asset is transferred to the tax-exempt CRT, which owns and manages the asset for a specific period of time – for the income beneficiary’s life or not to exceed 20 years. During this time you are paid an income from the trust. At the end of the trust term, the charity gets the remainder of the asset.

A CRT is often an ideal way to supplement retirement plans, help children or grandchildren pay for their educations, or achieve a number of other personal goals.

Bottom line: If the CRT is properly constructed, then the family will derive more money from the asset that is placed in the trust than they would have otherwise. While stock values have declined, many people have property that has increased over the years. Often these appreciated residences or commercial real estate assets may be quite attractive to contribute to a charitable remainder trust. Karin McMichael, an attorney who focuses on estate planning in the Bellingham area, comments that her clients who have established CRT’s have been pleased.

“Clients who create a charitable remainder trust tend to have a vision that extends beyond their immediate circle of family and friends. They want to make a significant contribution to the community, but they appreciate the opportunity to do so in a way that is financially responsible and makes economic sense for themselves and their family. “

Charitable Gift Annuity: Another effective and simple way to give AND receive is through a charitable gift annuity (CGA). A gift annuity is a contract between a charity and a person. These planned giving vehicles offer a fixed payment for life, have an attractive payment rate, and provide an immediate charitable income tax deduction – all while reducing capital gains tax liability on gifts of appreciated assets.

Payments can be deferred (to coincide with retirement, for example) or be set up for immediate payment. If a 70-year-old woman puts $10,000 into a CGA with the American Cancer Society, she will receive an annuity rate of 7.4 percent with a quarterly payment of $185.00 for the remainder of her life. These rates are much higher than those on certificates of deposit. The higher the age of the annuitant, the higher the annuity rate will be – up to 12 percent for a person who is 90.

The benefits provided through a charitable remainder trust or a charitable gift annuity help explain why investors are still giving at high levels. According to the American Association of Fundraising Counsel in Indianapolis, last year nationwide charitable giving reached a record of $212 billion, an increase of 0.5 percent from the year before. Charities throughout the nation benefit from these planned giving programs. As government support for human services declines, charities are expected to deliver more and provide additional services to the communities they serve.

Charitable giving to nonprofits in Bellingham is crucial to assist these organizations in successfully delivering their programs and services to the community.

Despite the bleak market we are in, charitable planned giving provides opportunities for financial gains. Consider working with a knowledgeable and trusted advisor who will help you develop a tailored estate plan that fits your needs while also providing a gift to a charitable organization down the road. In doing so you will reduce your taxes, enjoy other financial benefits, make a positive impact in your community and leave a legacy of your life.