A Practical Guide to Gift Planning and Tax Saving

By taking the time to carefully consider your charitable gifts, you may find you can give more effectively, experience tax savings and gain even greater satisfaction in the process. We welcome the opportunity to assist you and your advisors as you explore the options that are best for you.

The Amount and Timing of Your Gift Can Be Critical

The extent of your resources, the urgency of need, and many other factors will typically underlie the decision regarding what and how much to give at a particular time.

After you have decided how much you would like to give, the timing of your gift may become very important. Most gifts will be completed at the time you decide to make the gift. Certain gifts, however, because of size and/or other circumstances, may need to be completed over a longer period of time. Such gifts can be made through provisions in a well-drafted will, through revocable living trust arrangements, as beneficiary designations of life insurance policies and retirement plans, and other planning vehicles.

Tax Considerations

Some people will discover that they can enjoy greater tax savings through careful structuring and timing of their gifts. If income, gift and estate tax savings are an important part of your gift planning process, you may want to consider how you can benefit from incentives Congress has provided to encourage more and larger gifts.

The actual tax savings from gifts depends on your tax bracket. The higher the bracket, the more taxes you will save.

As you make plans for the long-term distribution of your assets, remember there are no limits on the amount that can be devoted to charitable use while completely bypassing federal gift and estate taxes.

Selecting the Property to Give

While cash is the most common method of making charitable gifts, there can be significant advantages in making your gifts using non-cash property you may own. Stocks, bonds, mutual funds, real estate and other properties can make excellent charitable gifts. Making gifts in this manner may allow you to give with minimum impact on your level of spendable income.

Another reason to make gifts in the form of non-cash property is to enjoy the dual tax incentives Congress has provided for this type of gift.

When you give property you have owned longer than a year and a day that has increased in value since you acquired it, you are usually entitled to an income tax deduction for the full current value of the asset, not just your cost basis. You also avoid capital gains tax that would have been payable had you sold the property.

Meeting Your Special Needs

Many donors would like to make larger charitable gifts but find it difficult to do so in light of personal planning considerations, such as the need to plan for retirement, eldercare, educational expenses and other financial commitments. Fortunately, a number of planning tools exist that can enable you to make gifts of a lifetime while first meeting a variety of personal goals.

• Giving through a revocable living trust. Many use living trusts to provide for the management and final distribution of their assets. Charitable gifts can be rewarding additions to living trusts.
• Gifts that give back. You may prefer to make a gift today and retain income for the remainder of your life (and/or that of a loved one) through the use of charitable remainder trusts and similar gift plans.

These arrangements can provide an income tax deduction in the year the gift is made. Such plans may be used effectively in planning for retirement, caring for older relatives and covering educational expenses.

• Increase income, replace assets. Charitable trusts and similar gift arrangements can enable you to convert appreciated, low-yielding assets into a source of additional income without incurring capital gains taxes at the time of the gift. You may even be able to plan your gift so that it results in significant amounts of tax-free income.
• Arranging a temporary gift. Under this plan, payments from the trust go for charitable use for the length of time you choose. The assets in the trust are then returned to you, your family, or others you name. The lead trust thus enables you to make a gift over a number of years and possibly reduce taxes that might otherwise be due on the assets given to loved ones.
• Giving through life insurance. If no longer needed for your family's security, you can give existing policies or provide for death benefits to be paid in whole or in part to charitable beneficiaries.
• Giving through retirement plans. If you have one or more retirement plans containing assets that will be subject to estate tax in addition to income tax when received by your heirs, consider using those assets to fund charitable gifts as part of your estate plan. The result can be significant tax savings for your heirs.