Charitable Planning

Charitable Planning Can Be a Terrific Estate Planning Tool!

If you’d like to skip right to the educational video, please click here or on the image below.

What many people do not understand is that charitable giving can be client (donor) focused not charity focused.

Would you like to use a wealth-building tool with the following characteristics?

1. Increase your discretionary or “spendable” income.
2. Reduce — or even eliminate –
   • income taxes
   • capital gains taxes
   • estate taxes
3. Provide a tax-free inheritance for your heirs.
4. Leave a lasting family and social legacy.

Got your interest?

You may or may not have considered charitable giving as part of how you distribute your wealth. Whether you have or not, charitable giving can give your wealth and estate plan a serious boost.  There are many different charitable plans, but one we wanted to focus on is the simple but beneficial Charitable Gift Annuity.

1) The Charitable Gift Annuity (CGA)  “Triple Threat”
CGAs provide a “triple threat” of benefits in the following ways:

2) Guaranteed Benefit Income Protection
A CGA provides for beneficiaries a guaranteed lifetime income (that can be immediate or deferred)

1. Substantial Tax Benefits

There are three ways that setting up a CGA can be kind to your taxes.

First, when transitioning the ownership of a highly appreciated capital asset (marketable securities, real estate, business interests, etc.) to a charity in exchange for a CGA, you do not realize a lump sum capital gain.

Second, a substantial immediate income tax deduction is given, with any surplus deduction allowed to be carried over up to five additional years. The exact details will depend upon your tax situation.

Third, by moving an asset to a CGA, it removes the asset from the your taxable estate, which can greatly reduce potential estate taxes.

3) Charitable Benefit
Not only is there a direct charitable benefit, often a CGA can be set up so that the charitable funds are directed by your heirs.

This has a two-fold benefit. Not only does this help to teach your heirs about charitable giving, but it also, quite possibly, insures that your values are continued. 

Grinch’s Strategy (aka “Wealth Replacement”)

This is a strategy even the Grinch could love.

Wealth replacement is a fancy term for buying life insurance with some or all of the income stream that would flow to you from the CGA. The theory is that you could give away a $500,000+ asset to a charity, get a current income tax deduction, and use the stream of income from the charity to purchase a $500,000+ life insurance policy. The life insurance policy would be purchased inside an Irrevocable Life Insurance Trust (ILIT). This way, the death benefit will pass income- and estate-tax-free to the heirs.

Sound Good?

Charitable giving sounds simple—just give your property or money away, receive a deduction, and provide wealth replacement for your heirs via a death benefit, and everyone is happy. The reality is that setting up a charitable giving program is similar to buying life insurance. If you use the wrong advisor, the chances are significant you will be setting up a plan that is in your advisor’s best interest instead of doing what is best for you and the charity you are trying to benefit.