American generosity is built to withstand adversity. Total U.S. charitable giving increased 3.8 percent in 2010 and 2.1 percent in inflation-adjusted dollars. During a time when many consumers and organizations were looking for ways to cut expenses, individual donors apparently decided that giving was not an expense worth cutting. In a survey of wealthy individuals from around the world, Americans were more likely than Europeans or Asians to say that the ability to give to charity was one of the benefits of wealth. Where do Americans get their penchant for philanthropy? Although Americans are indeed generous, it would be an oversimplification to say that they lead the world in philanthropy because they are more generous. U.S. tax law treats charitable giving more favorably than do tax laws in many nations. We help clients understand and utilize trusted methodologies to accomplish charitable desires.
Charitable Remainder Trust
A properly structured charitable remainder trust provides the opportunity to receive tax benefits and a potential income from an asset donated to charity. The grantor may qualify for an income tax deduction, and it is possible to creatively structure an arrangement whereby even after the donor receives income for life, the charity can receive the full amount of the original donated amount. A grantor who places money, securities, property, and/or other assets in a charitable remainder trust can designate an income beneficiary of themselves or family to receive payment of a specified amount (at least annually) from the trust. Upon the grantor's death, the trust assets can become the designated charities and won't be counted as part of the grantor's estate for estate tax purposes.
Charitable Lead Trust
A charitable lead trust takes a nearly opposite tack. The grantor places an asset in an irrevocable trust on behalf of a designated charity, and any income generated by the asset during the trust period goes to the charity. After the trust period, the remaining trust assets are passed to the grantor or the grantor's designated beneficiaries. This eliminates current capital gains on the donated assets, a valuable benefit when the donated assets have experienced high appreciation. This strategy also could potentially reduce estate taxes.
Donor-Advised or Donor Gift Funds
Donor-advised or gift funds are an often overlooked mechanism to charitable giving and do not require creation of what can be extensive trust of legal documents. This approach may allow a family significant up-front tax deductions. In addition, actual yearly distributions to charitable organizations can be spread out over future years, at the discretion of a donor family. These can offer a high degree of donor control and have become increasingly popular over recent years. Please contact us if you would like to learn more about how donor-advised or gift funds work.