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Donate
Money the Smart Way
It may be the result of the bear market or the uncertainty surrounding estate taxes.
Perhaps it's because the huge surge in giving after September 11, 2001, consumed
potential future donations. Whatever the reason, charitable giving by Americans
has been dwindling.
In one recent survey of individuals with a reputation for steady donations
(people with more than $3 million in assets), 20 percent had planned to scale
back giving in 2002.1 Individuals who are
feeling pinched by the current economic climate might be interested in a vehicle
that allows them to donate assets while potentially earning income and reducing
their current tax burden.
 See
What a CRT Can Do
With a charitable remainder trust (CRT), a donor transfers assets to an
irrevocable trust and names a charity as the beneficiary.2
The donor may receive regular income payments from the trust throughout his or
her lifetime, even though the assets are no longer considered part of the
donor's estate. After the donor’s death, the charity receives the remaining
principal.3
The tax advantages of CRTs make them well suited for highly appreciated assets
such as stock, real estate, and mutual fund shares. Because trust assets are
generally not subject to taxes, the full amount of the donation is preserved.
This allows the charity to receive a potentially larger gift than if the donor
sold the asset, paid the capital gains taxes, and donated the after-tax proceeds
to the charity. At the same time, this increases the donor's potential income
because it keeps more of the donor's money working to generate current income.
Typically, the donor also receives a current income tax deduction based on the
present value of the future gift to charity. The deduction is based on the
donor's age, the retained interest, and interest rate assumptions.
Charitable donations can take many forms, including cash, securities, life
insurance, or even your free time. However, if you are looking for a giving
strategy with greater potential benefits for the charity and your family, a
charitable remainder trust may be worth considering.
1) Christian Science Monitor, November 25, 2002
2) The use of trusts involves a complex web of tax rules and regulations. You
should consider the counsel of an experienced estate planning professional and
your legal and tax advisors before implementing such strategies.
3) Bear in mind that not all charitable organizations are able to use all
possible gifts. It is prudent to check first. The type of organization you
select can also affect the tax benefits you receive.
© 2003
Emerald Publications
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