November 2007 Newsletter: Charitable Giving

The Big Picture
Charitable Gifting

This is the season during which we give most. Already in the giving spirit, we donate cash and goods to our favorite charities. While charities benefit from the majority of our gifts, changing the type of donation we provide could create a larger benefit for us.

In addition to cash contributions, consider donating appreciated assets, including securities if you have owned them for at least a year. The donated asset is assessed at full fair market value. So instead of selling your stocks or mutual funds, you could donate them to your favorite charity. The donation could be tax deductible and help you avoid paying capital gains taxes.

Another way to give is through a donor-advised fund. Here's how it works: You contribute cash, stocks or certain other assets, which are in turn invested in one or more investment options. The investment company manages the investment options to potentially increase the value of the initial contribution and produce a steady income stream. You can recommend eligible charities for grants from the fund over a period of time while taking an immediate tax deduction.

Trusts may also play a role in a giving plan. They could help charities while benefiting you now and your heirs later. One popular option is a charitable remainder trust (CRT). By using a charitable remainder trust, the Trustee can sell highly appreciated gifted investments and reinvest the proceeds to generate income without paying capital gains tax. Thus, a properly planned gift could enable you to realign your investment portfolio without incurring any current income taxes. That could allow you to diversify your holdings and even increase your cash flow.

A CRT can be funded with a variety of assets, including stocks, bonds, mutual funds and real estate. The trust provides you with income for a specified time period, after which assets are transferred to the charity of your choosing. You will receive a tax deduction based on the amount the charity is estimated to receive after expenses.

Another possibility is a charitable lead trust. It provides a stream of income to a charity for a specific period. Upon dissolution of the trust, your heirs would potentially receive the remaining assets free of estate taxes.

The only thing you can't do is take back your gift. You can't start selling assets and then pocket the money. But depending on the strategy you select, you might be able to change the charity that will eventually receive your gift.

Making a donation to a qualified organization provides some very attractive benefits. There are other ways to leverage your assets to benefit others while helping you pursue your financial objectives. Discuss your options with your financial advisor, your estate planning attorney, and tax professional. You may also contact us at 410-732-2633 or 877-807-2633.

Whatever gifting strategy you choose, planned giving can be very rewarding. It's wonderful to see your gift at work while receiving tax benefits on your donation.