How can I plan my charitable giving in a way that benefits both my favorite nonprofit and my estate?
[david apted, vice president/financial adviser, smith moore]
A charitable lead trust (CLT) can be a great way for an individual to leverage his or her generosity, producing tax savings that can be used to provide greater benefits to both their favorite charity and their own family. Tax savings are generated because of the way donation values are calculated and because those values become fixed when the trust is created and funded. It can be an excellent estate planning vehicle if you own assets that are expected to substantially appreciate in value. The trust pays income to a charity for a certain period of years, and then the trust principal passes back to you or your family members. You are considered the owner of CLT assets. All trust income and expenses pass through to you on your personal income tax return, and you can take an immediate deduction for the value of the income stream that passes to the charity.For example, John creates and funds a $2 million CLT. The trust provides for fixed annual payments of $100,000 (or 5 percent ofthe initial $2 million value) to ABC Charity for 20 years. At the end of the 20-year period, the entire trust principal goes outright to John’s children. The charity’s lead interest is valued at $1,635,140, and the remainder interest is valued at $364,860. If the trust assets appreciate in value, John’s children receive any amounts in excess of the remainder interest ($364,860), estate tax-free.
[christine burghoff, director of gift planning, greater st. louis community foundation]
The simple answer? Have a plan. Just as you wouldn’t imagine taking that dream vacation without first setting up accommodations and an itinerary, it’s also essential to carefully plan an approach that enables you to maximize the impact of your charitable dollars, while realizing full benefits for your estate and your heirs. We’ve been helping St. Louisans do this for more than 100 years. We also can make sure your charitable giving directives are adhered to long after you’re gone. An important first step is to identify your charitable giving goals and the organizations or causes that will help you realize them. Then, we recommend sitting down with your planning team—which can include your financial adviser, your attorney and a tax professional—and evaluate how you want to make the gift. Some of your options may include making the gift through your will; using an IRA or a 401(k)—an often overlooked approach that can make a lot of sense from a tax standpoint; or establishing a charitable gift annuity, which provides income during your lifetime, with the balance going to the charity after your death.
By Tony Di Martino
