Advanced Charitable Giving Strategies - Adviser Investments

Advanced Charitable Giving Strategies

November 26, 2021

A finger press blue Donate button on laptop keyboard.

Charitable giving allows you to have an impact on the world and reduce your taxable income—both are front of mind as the year draws to a close. Of course, not all giving approaches are created equal.

Here are some advanced strategies that can pay dividends to you, your charity and your heirs.

  1. Charitable Bequests. The most direct way to donate is through a charitable bequest—you can donate cash, antiques, artwork or other assets to a charity, school, private foundation or donor-advised fund via your will or a revocable trust. Whatever your donation, your taxable estate will be reduced by the value of the gift. Even better: There’s no limit to the deduction.

Charitable bequests allow you to maintain control of your assets for the duration of your life and only pass them on once your estate is settled. Of course, to avoid any protracted legal wrangling, it’s vital to communicate your intentions clearly to your estate planning attorney, your loved ones and the recipients of these gifts.

  1. Charitable Remainder Trust (CRT). Charitable bequests can reduce your taxable estate, but what if you need the tax deduction now? Enter the CRT, an irrevocable trust that potentially reduces your taxable assets and generates a predefined income stream for the donor or other beneficiaries, with the remainder of the donated assets going to your favorite charity at a specified time in the future. When you transfer cash or other assets into a CRT, you receive an immediate income tax charitable deduction based on the present value amount in the trust that will ultimately go to the named charity.

Some things to keep in mind: First, a CRT is irrevocable—you permanently relinquish control of the assets. Next, you’ll need to work with your adviser and estate planning attorney to determine what type of income stream will come from the trust. Most grantors choose either an annuity (a fixed annual amount) or a unitrust (a fixed percentage—for example, 5% of the trust’s value at each year-end). The best choice depends on your income needs going forward. Remember that the income you receive is taxable.

A final consideration is how you’ll fund a CRT. Real estate is a good option; rare antiques are less relevant due to the lack of liquidity. Highly appreciated securities or closely held stock can be even better, as gifting them helps reduce capital gains taxes.

  1. Charitable Lead Trust (CLT). If reducing income taxes is a main driver for CRTs, a CLT reduces gift and estate taxes. CLTs are also irrevocable, but instead of the grantor receiving income during the term of the trust, the charity does. Another important difference between the two is that the assets inside a CLT are taxed to the grantor.

As with a CRT, it’s crucial to have a conversation with your adviser about how to minimize the tax burden of the income stream that’s created, and you will likewise decide between an annuity or unitrust payment and receive a charitable deduction against your income when you fund the trust. A key distinction is that growth on CLT assets (above the Section 7520 interest rate) passes to the beneficiary estate- and gift-tax-free. Thus, with careful planning, you can give generously to your heirs and support a cause.

All of these options require careful planning and may incur an expense—especially when you factor in the administrative cost of maintaining trusts. Our estate, tax and financial planning professionals can help you determine the best charitable vehicle for your goals. Since this service is complimentary for Adviser Investments clients, we can assist with the prep work to help you cut down billable hours from an attorney.

Please don’t hesitate to contact your wealth management team. As The Planner You Can Talk To, we’re always happy to help.

About Adviser Investments

Adviser Investments is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $7 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.


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