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Charitable Choices

Americans are known as a charitable people. In 2000, charitable giving represented 2.0 percent of our overall Gross Domestic Product (GDP) and our total charitable contributions exceeded $203 billion. Remarkably, individual Americans actually increased their giving by an estimated 4.9 percent over the previous year, despite the political turmoil and economic downturn in 2000. * Generally speaking, there are three fundamental gifting strategies: Giving Now, Giving Later and Giving & Receiving.

Giving Now
    Traditionally, Giving Now is the most common method of charitable giving. You simply deliver cash, stocks, life insurance, real estate deeds or other qualifying assets to the charity itself. Such direct gifts are deductible on your income tax return for the year in which the contribution is made. If the gift value exceeds your maximum allowable deduction for that year, then you may deduct the excess over the next five years. Giving Now allows you to see how your gift is used by the charity. For example, did your gift support a burgeoning administrative budget or did it impact the charitable objective you originally intended?
     In short, if you are giving while you are living, then you know where it is going. On the other hand, once you have made an outright gift…it is gone. You may derive absolutely no further benefit from the income produced by the asset given, nor may you redirect your gift to another charity should the original charity change its course. **

Giving Later
     For some people, Giving Now makes sense for a certain level of current financial commitment to their charitable causes. However, given their financial and non-financial circumstances, they want to wait until death to leave a more substantial gift. While Giving Later means giving up potentially valuable income tax deductions now in exchange for a charitable estate tax deduction at your death, this approach allows you to derive lifetime benefits from your Giving Later assets while assessing how wisely your charities use your Giving Now assets. Unlike Giving Now, Giving Later often requires prior planning in your legal instruments, such as specific provisions under your Last Will & Testament or Revocable Living Trust. In any event, once an outright charitable bequest is made following your death, the bequest may not be redirected should the charity change course in the future. **

Giving & Receiving
    The Internal Revenue Code (IRC) recognizes that it may be attractive for certain taxpayers to have their cake and eat it too! A popular legal technique in such an approach is the Charitable Remainder Trust (CRT), also known as a split-interest gift under IRC §664. Through a CRT, you may increase your current income, enjoy current income tax deductions and change the ultimate charitable beneficiary right up to the time of your death.
     Here is how it works. First, you contribute an asset to the CRT. [Note: Appreciated assets (i.e. assets that would be subject to capital gains taxation if  you were to sell them yourself) are commonly contributed because they tend to be low-income producers and have a low income tax basis.] Second, the CRT sells the asset without capital gains taxation and then reinvests the proceeds in an income-producing portfolio that grows, income tax free, inside the CRT. Third, you (and your spouse) receive a lifetime income plus valuable income tax deductions for up to six years. Fourth, if the ultimate charitable beneficiary changes for the worse during your lifetime, then you may replace them with another charity by reference in your Last Will & Testament. Moreover, if your ultimate charitable beneficiary is your own Donor-Advised Fund (DAF), then you may appoint your heirs or others to further advise your DAF regarding its future charitable beneficiaries in keeping with your predetermined guidelines. Such an approach may allow you to transfer your legacy of charitable giving to your generations yet unborn.

Summary 
     If you are like most Americans, charitable giving is important to you. While there is no one-size-fits-all-approach to charitable giving, you may want to consider exploring your options regarding when, how and what to give before making any major contributions.

 *Giving USA 2001, AAFRC Trust for Philanthropy, www.aafrc.org

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