Creating a charitable trust is another way to make charitable gifts

Published in the December 11-25 issue of Morgan Hill Life

By Dan Newquist

Dan Newquist

Dan Newquist

If you’re like me, you are running like crazy this time of year. Fresh off of Thanksgiving, we are already well into December. Holiday parties, community events, recitals, holiday shopping, house guests, travel, vacation, New Years… Yikes!

To pause and give thanks for our blessings and the people in our lives is one of the most important things we can do this time of year. We must also give thanks to those who are in need as well as those who inspire and lead. Charitable giving can be of your time, talent or treasure. The latter will yield a current income tax deduction, help you avoid capital gains tax and help reduce the amount of taxes your estate might owe when you die.

Charitable gifts can be made with a variety of assets including cash, stock, real estate or life insurance. The gifts can be made by you directly as an outright gift to the charitable entity. An outright gift benefits the charity immediately and exclusively and you get an immediate income tax deduction. It is important that the charity is a qualified charitable organization according to the IRS.

Make sure to get a written receipt for any cash or property donations showing the date of your gift, amount (or value of property), and the organizations name and tax identification number.

Gifts can also be made through will or trust bequests and beneficiary designations. These gifts are made by including a provision in your will or trust document or by using a beneficiary designation form. The charity will receive your gift at your death and at that time your estate can take the income and estate tax deductions.

Creating a charitable trust is another way to make charitable gifts. With charitable trusts, you can name a charity as the sole beneficiary and you can name a non-charitable beneficiary as well. The most popular types of charitable trusts used to make partial gifts are the charitable lead trust and the charitable remainder trust.

A charitable lead trust pays income to the charity first for a certain period of specified years, and then the trust principal passes back to you, your family members, or other named heirs. The charitable remainder trust is the exact opposite and pays income to you, your family members, or other named heirs first for a specified period of time and then the principal goes to your designated charity.

Other charitable giving options include private family foundations and donor-advised funds. These options work well when large amounts of assets are desired to be used for charitable giving and the donor wants certain abilities to manage or advise on how the funds are distributed to charities.

Remember, there are limitations on the amount of deduction that is available, depending on your adjusted gross income and type of asset given. We recommend that you discuss your charitable giving strategies with your financial advisor and tax advisory before determining the best approach for your situation.

This article is for educational purposes only and is not intended as tax, legal or investment advice.

DAN NEWQUIST, CFP®, AIF® is a Principal Investment Advisor Representative with RNP Advisory Services, Inc, a registered investment advisory, in Morgan Hill and can be reached at (408) 779-0699 or [email protected]. Securities offered through Foothill Securities, Inc., member FINRA/SIPC, an unaffiliated company.