Giving to charity plays a valuable role in estate and tax planning. A well-planned donation can also provide a healthy income tax deduction, along with a reduction of estate taxes. Your generous donation could help to maintain financial security, exert control over assets during life and after death and provide for heirs, as explained in a recent article titled “Charitable giving good for heart, 1040” from the Valdosta Daily Times.
To accomplish any of these objectives, you’ll want to work with an experienced estate planning attorney who can help tailor an estate plan to your individual circumstances. Here are some strategies to consider.
Gifts of appreciated property might allow you to avoid capital gains tax owed when the asset is sold and, if planned properly, might allow you to receive an income tax deduction, usually worth the fair market value of the asset.
Removing any assets from your estate reduces the potential estate tax liability.
If you want to make a donation to a charity but you’d like to maintain some control over it, a Charitable Remainder Trust (CRT) might be a good fit. A CRT works best when funded by an appreciated asset, such as real estate or stock in a family owned business.
Once the property is transferred to the CRT, the CRT can sell the appreciated assets it holds without paying capital gains taxes. It then continues to provide income generated by the CRT to the beneficiaries for a period of time, as instructed by the CRT. At the end of this period, the remainder of the CRT is donated to the charity. You avoid capital gains on the assets you donated, an income stream and you also receive a tax deduction.
Another strategy is to use a Charitable Lead Trust or CLT. With a CLT, you give the charity the use of the asset and the right to any income generated for a predetermined time. When the time period ends, the asset reverts to you or is given to whoever you designate in the CLT. Appropriate assets for a CLT could be income-producing stocks and bonds, a valued collection or a painting transferred to a museum for a certain period of time.
You likely receive a current income tax deduction for the value to the charity. However, you receive no other direct benefit during the term. If a CLT is created upon your death, estate tax liability could be reduced.
Early tax planning can help make the most of any charitable giving opportunities and let you take full advantage of any additional benefits. Talk with an experienced estate planning attorney to receive guidance appropriate to your unique situation.
Reference: Valdosta Daily Times (Dec. 4, 2022) “Charitable giving good for heart, 1040”