Charitable giving is a long-standing tradition in the United States and can be an important component of your estate plan as a means of giving back to the community and leaving behind a lasting philanthropic legacy.
Barbara Bush, the former First Lady, once noted that “giving frees us from the familiar territory of our own needs by opening our mind to the unexplained worlds occupied by the needs of others.”
Tax Incentives for Charitable Giving
While there are many personal and altruistic reasons for giving, many affluent donors are also motivated by the tax savings that can be associated with a charitable gift.
The Internal Revenue Code provides tax incentives to encourage charitable giving. Generally, the tax incentives are more favorable if a charitable gift is made (i) during the donor's lifetime (rather than at death), (ii) to a public charity (rather than a private foundation), and (iii) with highly appreciated property held long-term (rather than cash).
Following are some of the key tax advantages associated with philanthropic giving:
- Income Tax -- A donor may be entitled to an income tax charitable deduction made to a qualified charity (an organization recognized as tax-exempt in the pursuit of philanthropic, non-profit or civic activities) as long as the donor does not receive anything in return. There are annual caps that limit the total amount of charitable contribution deductions.
- Estate Tax -- Generally, contributions to organizations that qualify for the income tax deduction also qualify for the federal estate tax charitable deduction. For estate tax purposes, there are no limitations on the amount of the deduction for qualifying contributions.
- Gift Tax -- Similarly, contributions to organizations that qualify for the income tax deduction also qualify for the federal gift tax charitable deduction. For gift tax purposes there are no limitations on the amount of the deduction for qualifying contributions.
Gifts, Assets and Other Vehicles Used for Charitable Giving
There are many different kinds of gifts or alternative assets that will enable you to contribute to a charitable organization while also realizing greater tax benefits for yourself or your beneficiaries.
Some strategies provide for charitable giving during your lifetime, such as outright giving, while others provide for the gift to occur upon your death, such as bequests in your estate planning documents. Some vehicles provide for charitable giving while also generating lifetime income, which helps with retirement, estate planning and tax management. These would include charitable trusts like charitable remainder unitrusts.
Still other vehicles, including private foundations, provide for a tradition of giving beyond your lifetime, thereby solidifying your philanthropic legacy across future generations. You can select one or a combination of these vehicles depending upon your estate and tax planning strategies and your philanthropic goals.
Incorporating Charitable Giving Into Your Estate Plan
Cummings & Lockwood’s private clients attorneys assist affluent individuals and families with all aspects of their charitable giving and help them to meet their philanthropic goals as part of the estate and tax planning process.
In assisting clients, our attorneys pay special attention to the client’s overall plan to be sure that the particular charitable strategy achieves the client’s intended goals for the gift. This may take the form of a simple one-time gift during lifetime or at death or a more complex charitable strategy.
The firm’s trusts and estates attorneys can help clients in the creation, implementation, monitoring and administration of various charitable giving vehicles, such as charitable remainder trusts, charitable lead trusts, donor advised funds and private foundations, as well as in structuring pledges and gifts to public charities.
Brianna L. Marquis
Principal, Private Clients Group
Cummings & Lockwood LLC
Blue Back Square, West Hartford
Phone: 860.313.4923
Email: bmarquis@cl-law.com
Online: cl-law.com
Cummings & Lockwood’s private clients attorneys assist affluent individuals and families with all aspects of their charitable giving.