Charitable planning in times of crisis

The ongoing global pandemic and the recent anniversary of September 11th provide a great opportunity to re-evaluate our goals. At the beginning of the pandemic, we had to make drastic changes in our daily lives. So far, countless health care workers still endure long hours in overrun hospitals with insufficient supplies struggling to save lives in the face of mounting admissions. All over the country and around the planet, people have looked for ways to help. Many have done so by providing food and school supplies and making and donating masks. In the months since we were first asked to protect in place, many individuals have taken steps to innovate, stimulate, and mitigate. Many of these works have come in the form of charitable contributions.

If you want to make a charitable contribution to an organization involved in fighting an epidemic, you have several avenues to choose from. Of course, you can donate cash to the charity. A cash donation gives you the right to deduct your current donation income tax, up to 60% of your adjusted gross income if you donate to an eligible public charity. If the donation exceeds 60% of your adjusted gross income, you can carry forward the deduction for up to five years. This simple and straightforward method allows you to make an impact just by writing a check. However, you may be able to donate more or cost less if you donate in other ways.

Giving you stock or other valued assets will give you a deduction for the full value of the asset, up to 30% of your adjusted gross income. Note that you can deduct the full value of the asset, even though you paid much less for it, and if you sold it, you incurred up to 20% capital gains, possibly 3.8% net investment income tax, and any state income taxes. Basically, donating an estimated asset to a charity allows you to take an income tax deduction for the capital gains you took away by giving the asset to the charity. If you wish to gift stock to a charity, simply ask the charity to provide its transfer information and pass this information on to your broker with a directive to transfer the stock to the charity. This method allows you to make an immediate impact with just a little research and a few phone calls.

If you’re considering a big gift, a charitable trust may appeal to you because it allows you to benefit a charity and yourself or your family. For example, the Remaining Charitable Trust (“CRT”) pays you or your family a source of income either for life or for years, and at the end of the trust term, the remainder goes to charity. You receive a current income tax deduction for the value of the charity’s remaining interest, which is determined actuarily. You receive a current deduction even though the charity receives nothing until many years into the future when the trust expires. The amount of the discount varies based on the income interest term, payment rate, and the assumed interest rate.

If you have a non-publicly traded asset to contribute to charitable causes, you may consider an Advisory Donor Fund (“DAF”). DAFs have become some of the fastest growing charitable vehicles. The grantor can contribute cash or other assessed assets to the grant fund; However, the DAF’s ability to accept non-publicly traded assets that other eligible charities cannot accept sets the DAF fund apart from other charitable giving options. If the donor gives $1,000,000 in cryptocurrency to DAF, that donor will receive an immediate income tax deduction for the fair market value of the cryptocurrency. The DAF invests in assets that continue to grow while the donor makes recommendations for grants to any eligible public charity usually with just a few keystrokes or a phone call. Once contributed, assets cannot be returned to the individual donor or any entity other than a charitable organization recommended by the donor. The grant fund may allow the donor to appoint a successor advisor to make recommendations for the continuation of charitable giving upon the death or incapacity of the donor.

A Qualified Charitable Distribution (“QCD”) offers another option to consider if you take distributions from your traditional Individual Retirement Account (“IRA”). If an individual makes a charitable contribution from an IRA that does not qualify as a QCD, the Internal Revenue Code treats the contribution as a distribution and includes it in the owner’s gross income. This happens whether it is a direct transfer from the trustee at the expense of the IRA to the charity or a distribution to the owner who subsequently made the transfer to the charity. The owner can take a deduction from charitable contributions, but only as part of the itemized expenses (unless the deduction is less than $300 for an individual or $600 for a couple). With a QCD, the owner directs the custodian of the IRA to transfer funds directly from the IRA to the charity. The QCD excludes the distribution from the owner’s income while meeting the Minimum Required Distribution (“RMD”). A QCD counts towards any RMD for the year and can start at age 70 although age 72 now represents the starting age for RMDs after the Safety Act. QCD offers a powerful charitable planning tool for anyone required to take RMDs or for those over the age of 70.

This article is just a scratch on the surface of the many options available for charitable giving. If you are inclined to philanthropy, explore these and many other potential strategies with a qualified estate planning attorney. An attorney who specializes in this field can help you understand all of your charitable giving options and how best to organize your gift for maximum impact.

Terina Stead, JD, MA (tax)
Associate Director of Education
American Academy of Estate Planning Lawyers, Inc.
9444 Balboa Street, Suite 300
San Diego, CA 92123
Phone: (858) 453-2128

Terina Stead
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