Giving Options

For those who are looking for a good way to donate money to the WTSDA and/or WTSDF, to help ensure the legacy lasts, below is some information to think about.  There are various different ways to give money to charitable causes, and a summary is provided below.

Type of Gift Tax implications Cost Level of input of donor Distribution to charity Charitable legacy options Recognition vs. anonymity Other information
Charitable gift annuity US deduction generally limited and equal to the amount of the contribution minus the present value of payments to be made to the donor during the donor’s lifetime.  Donating appreciated assets may provide additional tax advantages. Low After choosing the organization to receive the donation, the organization controls the assets/decision-making. Limited to one organization At death or the end of the annuity contract, the remaining assets go to a charity of your choice. Depending on the sponsoring organization, you may be able to give the remainder to more than one or varying charities. Can remain anonymous to the public but not to the sponsoring organization. Often established for as little as $10,000.
Charitable remainder trust

–       inter vivos

–       testamentary

Income would be received from the trust during the lifetime of the donor, and the remainder goes to the charity  upon the death of the donor.  The deduction is limited and generally based on the estimated value of the remainder that will ultimately go to the charity. Additional limits may apply if the charity is a private foundation.  Donating appreciated assets can provide additional tax advantages.

The CRT is exempt from tax on its investment income.

Costs vary across trusts. Startup costs to establish can be high and trustee costs can vary greatly depending on the level of services and the amount of assets in the trust. You can choose the amount of income to receive, who the remainder beneficiaries are, and the identity of the trustee.  For greater control, the donor may act as trustee.  Note, the trustee has a fiduciary responsibility to the charity. The charity may be changed over time as long as the deduction for the organization type is less than or equal to the deduction you received for your initial contribution. Choose one or multiple organizations as beneficiaries to your trust. May choose to remain anonymous or be recognized. Often set up at a financial institution.  Requires certain legal expertise (including choosing where to domicile the trust and how to draft the document).  May be attractive when contributions exceed $100,000, although it can be opened with lesser amounts.

Irrevocable trust.

 

May be annuity or unit trusts.

Charitable lead trust

–       inter vivos

–       testamentary

Income is paid to the charity during the lifetime of the donor, and the remainder goes to a chosen beneficiary upon the death of the donor (for an inter vivos CLT; testamentary creates the trust upon death and establishes a set time frame for the life of the trust).  The present value of the total gift to the charity over the life of the trust is subtracted from the amount that is subject to gift and estate tax. Deductibility varies and there are specific requirements for deductibility. Costs vary across trusts. Startup costs to establish can be high and trustee costs can vary greatly depending on the level of services and the amount of assets in the trust. You can choose the amount of income to receive, who the remainder beneficiaries are, and the identity of the trustee.  For greater control, the donor may act as trustee.  Note, the trustee has a fiduciary responsibility to the charity. Once the charity is chosen, it may not be changed (or risk the IRS determining that the gift to the trust is incomplete) Choose one or multiple organizations as beneficiaries to your trust. May choose to remain anonymous or be recognized. These can be established as unit or annuity trusts.

Unlike a CRT, the trust itself is not exempt from federal income tax.

These trusts are irrevocable.

Direct giving

–       restricted

–       unrestricted

Full deduction based on the fair market value.  Certain limits may apply depending on the nature of the assets donated and if the receiving charity is a private foundation. No costs You manage all donation decisions and may work with a charity to determine the timing, type and recognition of a gift. May donate to any nonprofit organization you choose subject to certain deduction limitations. May make gifts annually or upon death. Non, unless you establish a deferred gift plan with a charity of your choice. Choose when and how you and your gift are represented each time you gift; may be challenging to give anonymously.  
Pooled Income Fund Partial tax deduction (immediate) based on donor’s life expectancy and anticipated income stream, but the donor pays the tax on the income that is distributed annual (back) to the donor.  Income taxed as ordinary income to donor.  Value removed from value of the estate of the donor.  Avoidance of probate.  Long-term appreciated securities, donor avoids capital gains but gets deduction based on FMV of the asset. Set up and administration costs vary by provider.  Set up for the organization and then a joinder agreement for each donor – there are costs associated at each level, but many providers charge minimal fees. Selection of the charity to receive the proceeds upon donor’s death.  The trustee selects investments. A 501(c)(3) of the donor’s choice Permits distribution of income to donor or a beneficiary(ies) of donor’s choice, up until date of death of the donor   Income distributes typically quarterly or annually.  Must distribute within 65 days after the close of the taxable year in which the income is generated.  No special treatment for income generated (ordinary income).  Can accept cash, stocks, mutual funds.  Sometimes also other restricted assets, insurance, tangible property (cars, art, etc.)
Donor-advised fund Full deduction based on fair market value: 50% of adjusted growth income for cash gifts and 30% for securities held more than one year. Expenses are minimal (typically less than 1%) and are used to cover organization’s cost to invest assets and administer grants. Recommend investment and grants but there is no direct control over assets. Generally support any 501(c)(3) public charity as long as you do not personally benefit. Can create a personalized succession plan that passes/splits your account and/or gifts remaining assets to charity Choose when and how your name shows each time you recommend a grant May only issue grants to other 501(c)(3) public charities.  This allows assets to be invested in the markets, providing opportunity for tax-free growth.  Minimums vary, although a typical initial contribution to a donor-advised fund is between $5,000 to $25,000.  Most DAFs are not subject to annual spending requirements, although many are required to make at least one grant every few years.
Private foundation Deduction based on fair market value: 30% AGI for cash gifts, 20% for securities held more than one year; not a good vehicle for the donation of appreciated securities other than publically traded securities Start up and maintenance costs are extensive; a private foundation is subject to 1-2% excise tax on annual net investment income. You manage contributions, investing, and grants.  Legal documents are also managed by donor. Support any charitable cause subject to certain tax regulations; some foundations do not allow grants outside their mission. Succession plans can involve future generations, or remaining assets can be granted directly to a public charity Not flexible Startup costs ogetn exceed $15,000.  On going operating, legal and accounting costs can vary.  Required to make a 5% annual distribution of the net investment assets annually and must file a Form 990-PF with the IRS.
Testamentary Gift

–       through last will and testament

–       through a testamentary trust (trust created by a will)

–       a revocable living trust

Gifts to charity at a donor’s death.  No tax benefit, but the value of the gift can be excluded from the donor’s estate for federal tax purposes. Minimal.  It is advisable to have a last will and testament drafted by an (estate planning) attorney but a simple will can be done relatively easily.  If a trust is used, the costs increase and vary depending on the complexity of the trust. Donor maintains complete control right up until death.  Maximum flexibility. May donate to any nonprofit organization you choose.  Gifts may be pecuniary or general.  They may be a percentage of estate assets, a set amount or contingent.  Gifts may be of particular assets. Restricted (i.e., to be used on for particular purposes and if the condition can not be met the bequest is not made).  An endowed gift (one that restricts the use of principal and permits only investment income generated to be used) is also possible. Gifts may be honorary or memorial. Anonymous gifts may also be done. May be achieved through a trust (as noted above) or via a devise through a will.  This section discusses a gift through a will.

 

Other ways to gift:

 

  1. Many corporations today have charitable programs where the company will match an employee’s gift. Verification of the charity’s 501(c)(3) status is often required.  And, there are often limits.  But, this is a great way to turn a $50 gift into a larger one.  All it takes is asking your benefits department if there is a program.
  2. Gift Agreements are an increasingly popular way to set up an endowment. These are contract with the charity to set up a gift.  These agreements are ways to prefect the donors intent and often set out restrictions.  They are also a way to carry out certain of the gift types listed above.
  3. Charitable circles are an additional method, not discussed as I do not believe they would work for the WTSDA/WTSDF.

 

NOTE:  THE INFORMATION HEREIN HAS BEEN PREPARED FOR GENERAL INFORMATIONAL PURPOSES ONLY TO PERMIT YOU TO LEARN GENERALLY ABOUT THE TOPIC DISCUSSED.  THE INFORMATION PRESENTED IS NOT LEGAL OR TAX ADVICE OR OPINION, IS NOT TO BE ACTED OR RELIED ON AS LEGAL OR TAX ADVICE IN ANY PARTICULAR CIRCUMSTANCE OR FACT SITUATION.  THE INFORMATION MAY NOT BE CURRENT AND IS SUBJECT TO CHANGE WITHOUT NOTICE.  AN ATTORNEY OR TAX PROFESSIONAL SHOULD BE CONTACTED FOR ADVICE ON SPECIFIC LEGAL AND TAX ISSUES.

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