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  Deferred Giving

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As baby boomers move into retirement years and begin inheriting the accumulated wealth of their parents, we are seeing more and more charities approach our clients about "deferred giving." 

 A deferred or "planned" gift represents a present commitment to make a gift at some point in the future - usually at a later stage in life or pursuant to your will.

Of course, the charities are selling you on the tax benefits of planned giving.  Gifts made pursuant to your will reduce the amount of tax your estate will eventually owe.

Obviously, contributions made over your lifetime will result in an itemized deduction on your tax return during the year of the gift.  In this article, we give you a quick review of the various types of options you may have presented to you by a charity.

Charitable Remainder Annuity Trust

With a charitable remainder annuity trust, you can transfer assets into a trust that pays out an established amount each year to yourself or your children (or other non-charitable beneficiaries) over the life or lives of the beneficiaries (or some other fixed term) and the remaining assets are distributed to your selected charity.  This type of trust is very popular with both the charities and their contributors.  The contributor or his or her beneficiaries receives the current income from the contributed assets for a specified period of time and the remainder goes to the charity.  The contributor gains an immediate tax deduction for the value of the remainder interest that goes to charity upon termination while keeping the income interest. 

Charitable Remainder Unitrust

The charitable remainder unitrust is identical to the charitable remainder trust except that the income paid out to the non-charitable beneficiaries is either the actual income of the trust's assets or a percentage thereof.  With the charitable remainder trust, the income is a set amount determined when the trust is established.

Charitable Income Or Lead Annuity Trust

The charitable income trust is almost the reverse of the charitable annuity trust.  Again, you would transfer assets to a trust.  However, with the charitable income trust, the set amount paid out during the life of the trust goes to the charity (or charities) and the remainder at the termination of the trust would go to you, your estate or your beneficiaries.  Instead of obtaining a deduction for the value of the assets you pay into the trust, your deduction would come from the income payments made to the charity.  You may still be liable for tax on the income earned by the trust.

Charitable Income Or Lead Unitrust

Again, the only difference between this trust and the annuity trust above is that the trust pays the either its actual income or a percentage of the income (or asset value) to the charity instead of a set amount.  Just as with the annuity trust above, the charity receives the income over a specified time period and you or your heirs receive the remainder.

Charitable Gift Annuity

Using a charitable gift annuity, you would donate property to a charity and enter into a contract whereby the charity agrees to pay you or another non-charitable beneficiary a fixed amount for life.  In this type of contract arrangement, your charitable deduction would be the value of your donated property less the calculated present value of your annuity.

Pooled Income Fund

This arrangement works much like a mutual fund that is controlled by the charity.  You donate money into the pooled fund and the charity pays you or a designated beneficiary a share of the income generated by the fund for life.  The remainder upon your (or your beneficiary's) death is then distributed to the charity.  Your income tax deduction would be obtained in the year you made the donation and based upon the value of the remainder interest.

Life Insurance

This strategy involves naming your favorite charity as the beneficiary of a life insurance policy.  There are some limitations involved, but the contribution of the policy and any future premiums paid may be tax deductible.

Please be aware that there are many variables and pitfalls to deferred giving.  Many charities come equipped with "boiler-plate" trusts and strategies that may not always be in your best interests.  If you are considering such an arrangement with a charitable organization, it might be wise for you to first sit down with us so that we can examine your present situation and determine how such an arrangement might fit in with your current estate plans.  

 

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