Perhaps the most overlooked opportunity for charitable giving is Gifts of Assets. Most people focus on doing their giving "from their checkbook", which is fine but often limits the impact we can make and doesn’t offer the powerful tax benefits available when giving out of our assets.
The average American has about 9% of their net worth in cash and 91% in assets. For most of us, these assets can be found in our home equity, life insurance or our IRAs. For other families, this might also include a family business, rental properties, land, rare artwork and so on.
Considering a gift using assets can typically reduce or eliminate Long Term Capital Gains Tax while also providing a current tax deduction. Additionally, gifting some non-income-generating assets to a charitable trust can increase your retirement income and provide a significant future gift to charity.
Highly appreciated, low dividend publicly traded stocks and some mutual funds are often ideal for charitable gift purposes. For individuals seeking to make current outright gifts, they can receive a current deduction for the fair market value of the assets and avoid the recognition of capital gain income.
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Experienced counsel is needed when dealing with closely held stock, but with good planning it is generally possible to enhance the value of what is retained for the investor’s lifetime, increase what passes to the next generation, dramatically reduce taxes, and dramatically increase benefits to charity.
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IRAs and other qualified retirement plan assets can work extremely well for individuals during wealth accumulation and retirement. Unfortunately, these same assets can be very ineffective assets to pass down to family. It is not uncommon for 1/3 to 1/2 of the assets to be lost to taxes at the death of the parents, and in some cases taxes consume 75% of the value. As a result, gifting part or all of these assets to charity can make a lot of sense. Because of the tax savings in such an arrangement, family and charity may receive more than would be possible without special planning.
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Some individuals own life insurance that is no longer needed for the purpose that it was originally acquired. In this situation, the gift of a life insurance policy to charity, and the gift of funds needed to make any ongoing premiums, could provide immediate tax benefits to the individual and create the potential for them to make a very significant future gift to charity.
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Holding farmland or investment property may be unattractive due to management headaches and/or low income Selling may be unattractive due to the taxes that would be due upon sale. With careful planning, farmland and other investment property can be gifted outright to charity, or transferred to a life income plan that may increase financial benefits and produce charitable benefits.
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Leaving a portion of your estate to charity can often result in impact beyond your imagination while still blessing your family and loved ones. With thoughtful planning, it is possible to identify the assets that would be best suited for family members to inherit, and at the same time identify the assets that would be best suited for passing to charity.
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If you need an additional source of reliable income now or in the future, you may be a candidate for a charitable gift annuity.
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A donor advised fund (DAF) is a charitable giving tool created for the purpose of managing charitable donations on behalf of an individual or family. A DAF "feels" like your very own family foundation, but is much more easy to establish, has lower costs, and yet is very flexible for making gifts on your time frame and to your charities. In addition, there are tax advantages to contributing gifts of appreciated stock and other assets to a DAF prior to sale.
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