There are social and emotional benefits of charitable giving and there are also potential financial benefits to these types of gifts. Your estate plan can include these types of gifts both during your life and upon your death. In many instances, charitable donations have potential tax advantages. A knowledgeable attorney can assist you in determining how to plan for charity in such a way to maximize the benefit to charity, your family, and you.
For example, gifting to charity now may allow you to deduct cash contributions in 2021 up to 100% of your adjusted gross income for cash distributions to qualifying public charities (this used to be a 60% limit previously). To make sure gifts maximize your tax benefit, it is important that your donations are given to a recognized 501(c)(3) charity or recognized foundation, that you keep proper records, and if you are gifting anything other than cash that you understand how the value of your gift will be treated by the IRS.
Depending upon your specific situation and potential need for long-term tax planning, more complex charitable planning is appropriate and may include using one of several types of trusts that exist to facilitate charitable giving and maximize tax benefits.
For example:
- Charitable Remainder Unitrusts (CRUTs).
- This arrangement allows a person to receive an income tax deduction the year they contribute to their CRUT; the person contributing to the CRUT can set up a variable income stream that pays them back for life; when the creator of this trust dies, the remaining assets go to the charities named in the trust tax free;
- Charitable Lead Annuity Trusts (CLATs)
- The charitable beneficiary in this arrangement receives a fixed amount during the term specified in the trust; the person contributing to the CLAT names non-charitable beneficiaries to get the remaining assets at their death; when the creator of the trust dies, the remaining assets distribute back to the non-charitable beneficiaries;
- Charitable Remainder Annuity Trusts (CRATs)
- Similar to a CRUT, except the assets distributed to the charity are fixed instead of variable; the person contributing to the CRAT receives an income tax deduction; when the creator of the CRAT dies, the charity receives the remaining assets;
- Charitable Lead Unitrusts (CLUTs)
- Similar to a CLAT, except the assets distributed to the charitable beneficiary are variable instead of fixed and must be distributed annually.
Charitable planning is important! Don’t forget to include charitable considerations into your estate planning. As we look to the future and weigh POTENTIAL tax law changes, it is important to remember that, currently, there are strategies that exist to minimize negative impacts. Crain & Wooley stays abreast of all law proposals and is constantly monitoring ways in which we can lessen the potential impact for our clients.
Have questions? Ready to improve your charitable giving plan? Contact Crain & Wooley.