In recent years, Americans have given over $100 billion annually to charitable organizations. We have a rich history of supporting and promoting non-profit organizations involved in religious, charitable, scientific, educational, and similar activities. This brochure highlights some of the most important ways such gifts can be made, including the related tax advantages. Charitable gifts may be made at any time — now, later in life, or at death. In addition, some gifts stretch over an extended period. In any case, proper documentation is necessary.

Consider the following material carefully. We hope it will answer some of your questions and stimulate you to seek additional guidance.


Charitable Bequests At Death

Gifts through a Will or Trust are the most common methods of making a charitable bequest at death. This may be a fixed dollar amount, a percentage of the estate, or a distribution as a successor to a deceased beneficiary. These gifts may be outright or endowments where the charity will spend only the income, reinvesting the principal forever. However, no charitable gifts occur at death, unless proper documents are in place.


Charitable Gift Options

There are many ways to make charitable gifts, both during life and at death. As our tax laws change, new ideas continue to be developed. The most important alternatives today include the following:

Outright Gifts—A Common Choice:

The most popular type of charitable gift is an outright transfer. Any type of property may be given, including cash, stock, bonds, real estate and collectibles. Gifts of appreciated property can provide significant tax advantages. The full value of the gift may often be deducted, not just your cost. The appreciation will not be taxable to the donor of the charity, subject to any alternative minimum tax rules.

Real Estate—A Valuable Opportunity:

Any type of real estate can be given to charity. In fact, a gift of a personal residence of farm may be made to a charity now, while you continue to live there during your lifetime. Such gifts can qualify for itemized charitable income tax and estate tax deductions.

Life Insurance—Giving Beyond Your Means:

Many individuals name a charity as the owner or beneficiary of a life insurance policy. The premium payments may then be deductible. The death proceeds may be much larger than any gift the insured might otherwise be able to make. Alteratively, a charity could be the contingent beneficiary, to receive the proceeds only if family members do not survive the insured. Insurance gifts can occur without probate or other administrative delay.

Bargain Sales—Part Sale, Part Gift:

Bargain sales involve a sale of securities, real estate, or other property to a charity at less than the fair market value. The transaction is part gift and part sale. The seller can get an itemized charitable deduction for the difference between the fair market value and the sale price.

Retirement Funds—A Popular Contingent Gift:

Many people name a charity as a contingent beneficiary of their retirement plans or IRAs to succeed other family members. If you and other family members die before receiving all of the funds, the charity would receive what is left.

Bank Accounts—A Flexible Gift Opportunity:

A popular way to make a charitable gift is to open a bank account in truth for a charity. The person who opens the account has the right to make deposits, to make withdrawals, or to close the account at any time. The balance remaining in the account at death automatically becomes the property of the named charity. This occurs without probate or other administrative delay.

Qualified Conservation Easements:

A qualified conservation easement is the contribution of a qualified real property interest exclusively for conservation purposes in perpetuity. Generally, the easement must be to a public charity or government unit for the substantial and regular use of the public.


Deferred Gift Options

There are five primary types of deferred life income gifts:

1. A Charitable Gift Annuity provides that a charity promises to pay a fixed annual payment for the life of the beneficiaries. The amount depends on their ages, applicable interest rates, and annuity starting date.

2. A Pooled Income Fund provides annual income for your life or the life of your chosen beneficiaries. The payout depends upon what the charity gets when investing your funds together with similar gifts of others.

3. The Charitable Remainder Annuity Trust is an irrevocable transfer of property to a trustee, who pays you and/or your chosen beneficiaries a fixed annual income for life. Thereafter, the trust assets become the sole property of the charity.

4. The Charitable Remainder Unitrust is similar to a Charitable Remainder Annuity Trust, except the annual income paid to the beneficiary is a fixed percentage of the annual fair market value of the trust.

5. A Charitable Lead Trust pays income to a charity for a period of years, with the remainder coming back to you or going to your chosen beneficiaries.

Private Foundations And Substitutes

A Private Foundation is a private, non-profit charitable organization established by an individual donor. Gifts may be deductible for income or estate tax purposes. A Private Foundation is not subject to regular income tax. A Private Foundation lets a donor delay choosing the ultimate recipient charity and to retain anonymity. The donor may control the entity by choosing the directors.

There are several "non-trust" Private Foundation substitutes. With a donor-directed fund with a public charity, all donor contributions are pooled and specific donors may direct the distribution of income and principal attributable to their contribution to public charities. The entire fund must be distributed within one year after the death of the donor and the donor's spouse.

A donor-advised fund is a separate fund within a public charity. The charity must control the investment and disposition of the funds for charitable purposes. However, donors usually "recommend" distributions or achieve that by using a supporting organization.


What Should You Do Next?

When you are contemplating significant charitable gifts, consider some of the alternatives discussed above and consult one of our lawyers. Significant tax savings and advantages to you and to the charity may be available.