Monday, February 14, 2011
There are several ways to maximize the new gift tax exemptions through the use of charitable gifts. First is the charitable lead trust. A charitable beneficiary receives trust income, and the remaining principal becomes a gift to one or more beneficiaries at the end of the trust’s term. The present value of the payments to the charity offset the taxable value of the remainder gift.
Second, donors can give a lump sum to a recognized charity for a gift annuity. The donor receives an upfront income tax deduction, and the payments to the beneficiary will only be partly subject to income tax. The principal that remains at the death of the beneficiary belongs to the charity.
Third, donors can put assets in a charitable remainder trust, receiving a current income tax deduction for the future value of the charitable gift. A further benefit of charitable remainder trusts is that the trust may sell assets and reinvest them with no capital gains tax liability.
Fourth, donors can give their homes to a charity while retaining a lifetime interest. The home’s future value is the charitable deduction.
Fifth, donors over age 70 ½ can make donations to charities directly from their IRAs, which will count against their required minimum distributions.
See Jan M. Rosen, Tax Cut Deal Could Benefit Charities, N.Y. Times, Feb. 9, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.