What Gifting Strategies Are Available to Me?

There are a number of different gifting strategies available for planned giving. Each has its advantages and disadvantages.

Instead of making an outright gift, you could choose to use a charitable lead trust. With a charitable lead trust, your gift is placed in a trust. The recipient of the gift draws the income from this trust. Upon your death, your heirs will receive the principal with little or no estate tax.

If you prefer to retain an income interest in your gift, you could use a pooled income fund, a charitable remainder unitrust, or a charitable remainder annuity trust. With each of these strategies, you receive the income generated by your gift, and the recipient receives the principal upon your death.

Finally, you could purchase a life insurance policy and name the charitable organization as the owner and beneficiary of the policy. This would enable you to make a large future gift at a potentially low current cost.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges. Most have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the policy; plus, there could be income tax implications. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

Outright GiftDeductible for income taxesNo retained interest
Charitable Lead TrustA current gift to charityCurrent income tax deductionPass assets to heirs at a future discountTransfer of assets is irrevocableIf current income tax deduction is taken, future income is taxable to donorDonor gives up use of income for life of the trust
Pooled Income FundCurrent income tax deductionIncome paid to beneficiary for lifeNon-income-producing assets can be converted to income-producing assetsIncome is unpredictable from year to yearIncome received is taxed as ordinary incomeRemainder interest will usually go to only one charity
Charitable Remainder UnitrustCurrent income tax deductionAvoids capital gains tax on appreciated propertyReduce future estate taxesTransfer of assets is irrevocableQualified appraisal generally requiredComplex administration and setupDistributions to noncharitable beneficiaries are generally subject to income tax
Charitable Remainder Annuity TrustCurrent income tax deductionAvoids capital gains tax on appreciated propertyFixed incomeFixed payment cannot be limited to the net amount of trust incomeQualified appraisal generally requiredComplex administration and setupDistributions to noncharitable beneficiaries are generally subject to income tax
Gifts of InsuranceCurrent income tax deduction possibleEnables donor to make a large future gift at small cost in the futureMay require annual premiumsIn some cases the death benefit could be part of donor’s taxable estate

While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.