Ways to Maximize Your Charitable Impact - Part 2
By: Mark Boujikian, CFP®
Harris Financial Advisors, Torrance, CA
We all want to make a difference and feel confident that difference is felt by both our favorite charity, and ourselves. In Part 2 of our series, we are going to look at two ways to give that help us to make the biggest impact on our charity, while also receiving the most favorable tax treatment the tax code offers to help us build wealth:
Life Insurance – 2 ways to play:
• Transferring ownership of a life insurance policy – Some individuals have life insurance policies that they no longer need. Sometimes the burden of paying those premiums is enough to let the policy lapse and save the cash. However, a donor can choose to permanently transfer ownership in that policy to a charity.
The benefits of this gift can be numerous, such as exclusion from your estate after living three years beyond the gift, and an exponentially larger gift to the charity upon your death in the form of the policy’s death benefit.
• Naming a charity as beneficiary of a life insurance policy – This is a very simple alternative to transferring ownership and requires the completion of a one‐page beneficiary designation form provided by the insurance company.
The designation of a beneficiary can be modified or revoked by you, the donor, thus giving more control than an outright transfer of ownership. This designation can also provide the charity with a very large gift in relation to the premium money spent by the donor to keep the policy in force.
Charitable Remainder Trust
• A donor creates a charitable remainder trust (CRT) and transfers property into it. The donor can then specify themselves or their designated beneficiaries to receive income for life or a term of years. You will get an immediate income‐tax deduction for a portion of your contribution to the trust based on the term you choose for your income interest. The shorter the term, the greater your deduction.
A major benefit is that the donor will not recognize any upfront capital gains tax on the sale of appreciated assets within the CRT. Gains would not be recognized until actually paid out by the trust.
This type of trust begins to make sense for larger gifts of appreciated assets such as stocks or real estate. The charitable remainder trust allows for a current income‐tax deduction, annual income to the donor based on a percentage of trust assets, the potential for the gift to the charity to grow, and the trust property being excluded from the donor’s estate. Talk about maximizing your charitable impact and your bottom line!
As with any charitable giving technique, ALWAYS consult with your financial advisor, tax advisor, estate attorney, and many times, with the charities themselves to explore your options and find out how to maximize your gift and improve your bottom line, a win/win scenario for you and your favorite charity. Stay tuned for Part 3 of our series for three more giving techniques that could even further maximize your impact, and your tax savings…