Although you build your legacy during your lifetime, your legacy may not be fulfilled until your death. Creating your legacy is a way to honor your life and benefit future generations. You may choose to make gifts to charity both during lifetime and upon death.  Although you make your charitable gifts with altruistic goals, charitable gift giving also provides income and estate tax benefits. There are many ways to strategically make charitable gifts. The following are a few examples of the various charitable gift giving strategies.

  1. Lifetime Gifts
    1. Direct Gifts
      You do not need to wait until your death to make direct gifts to charity. In fact, a well –planned program of lifetime gifts to charity may entitle you to an income tax deduction depending on your income level, and may lower your estate taxes by removing the asset and its appreciation from your estate. You can also take advantage of annual exclusion gifting to your family and friends. Each year, you can give an unlimited number of people up to $14,000 each in assets ($28,000 if your spouse joins in the gift) without any tax implications, thus, reducing the assets and their appreciation includable in your estate for estate tax purposes. There is also an unlimited exclusion if you make direct payments to an educational or medical institution for certain tuition (excluding room and board and books) and medical payments (including medical insurance premiums) on behalf of others.
    2. Split-Interest Gifts
      Generally, split interest gifts are made in the format of a split interest trust. Split interest trusts are trusts in which the ownership of the assets is split into two parts—an income interest and a remainder interest. There are two types of split interest trusts: “lead” trusts, in which the charity is paid first, and “remainder” trusts, in which the charity is paid last.

      1. Charitable Remainder Trusts (CRT)
        With a Charitable Remainder Trust, you transfer assets to an irrevocable trust established for a charity. The trust pays you, or you and your spouse, or your designated beneficiary, the income for life, or a period of years. The trust ends at the death of the last income beneficiary, and then the charity receives the remainder of the assets. A charitable remainder trust funded with appreciated low-basis assets allows the trust beneficiary to benefit from the trust’s sale of the assets without paying capital gains tax. Also, replacing the value of the assets given to charity with life insurance payable to your family would allow you to make a tax-advantaged gift to charity while still providing for your family and avoiding capital gains tax.
        Other tax benefits may include a reduction of estate taxes and an immediate income tax deduction.
      2. Charitable Lead Trust (CLT)
        With a Charitable Lead Trust, you transfer assets to and irrevocable trust established for a charity. The trust pays the charity the income for a period of years.  Upon the expiration of the period of years, the remainder of the assets passes to your family.
        The tax benefits may include an income tax deduction for the income to the charity avoidance of capital gains taxes on assets transferred to the trust, and your family will receive the remaining assets in the trust without having to pay estate taxes.
      3. Pooled Income Fund (PIF)
        A Pooled Income Fund allows you to “pool” together assets to create one large gift for charity.  The charity reinvests the assets as a pool. The income is paid to you based upon your share of the pool. Upon your death, the remaining share of the pool passes to the charity.
        The tax benefits may include income and estate tax deductions.
  2. Testamentary Gifts
    1. Outright Gifts in your Last Will and Testament or Trust
      The simplest strategy to make a charitable gift, as part of your estate plan, is through your Last Will and Testament or Trust.  Your Last Will and Testament or Trust can state the specific purpose and use of your charitable gift, such as scholarship funds, college professorships, college fellowships, and medical programs. Although these charitable gifts provide only estate tax deductions, they offer planning flexibility because they are revocable and can be modified during your lifetime.
    2. Retirement Benefits
      In order to make a gift to a charity through your retirement benefits, you can simply change the beneficiary and designate the charity.  Although retirement assets may be subject to federal and state estate and income taxes, charities are tax exempt and therefore, can receive 100% of the retirement asset.
    3. Life insurance
      Gifting a life insurance policy to charity can make a great gift. Generally, in such a strategy, you pay the insurance premiums and the charity is the policy owner and beneficiary, receiving the life insurance proceeds upon your death.  The tax benefits may include income and estate tax deductions.
    4. Private Foundations
      A private family foundation is a tax-advantaged entity that you can create during your lifetime or upon your death for the purpose of direct gifting to charity. A private foundation allows you to make substantial gifts to charity while maintaining ultimate control of how grants are made. When you establish the private foundation, you fund assets into the foundation and select the directors of the foundation. The directors will make the grants to worthy charities.  The tax benefits of a private foundation may include income and estate tax deductions.

You can select from among many charitable gift giving strategies to achieve your philanthropic goals and create your legacy.  It is important for you to explore these strategies as charitable gift giving is also a powerful tax savings tool. We can help you enhance these strategies and develop a well-structured charitable plan of action. Charitable gift giving can be a win-win situation for both you and the charity. To consider which strategy may be best for you, contact Russo Law Group, P.C. today.


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