Giving While Living
George Papadopoulos, CPA/PFS, CFP,www.thefeeonlyplanner.com
Many investors have tried imitating the incrediblesuccess of Warren Buffett. Will healso now lead the way in how the wealthy conduct their philanthropy for maximumcharitable impact? I'm pretty surethat you've heard that Warren Buffett is giving away the bulk of his$37-billion dollar fortune to his pal Bill Gates' charitable foundation.Buffett's previous plan was to give it all away at his death, but his act showsthat giving while living can be better choice in many ways. First, you get tosee the results and reap the joy of giving. And, in most cases, yourinvolvement will help ensure that your legacy is fulfilled. Giving while living can provide many attractivetax benefits. Not only can you reduce your income tax bill, you can save estatetaxes by removing donated funds from your estate. Let's look very briefly at some of the options available toyou:
• Charitable Remainder Trust - Donate assets to a charity, which provides youwith a regular income stream in return. When the trust term is over, the assetsgo to the charity. You receive an income tax deduction for the amount that isestimated to be donated to the charity.
• Charitable Lead Trust - This is the mirror image of the CharitableRemainder Trust. Here you donate assets to a charity, which receives theregular income stream. At the end of the trust term, the assets left over inthe trust pass to your heirs. Again, you receive an income tax deduction forthe amount that is estimated to be donated to the charity.
• Charitable Gift Annuity - Donate assets to a charity, which promises topay you a fixed amount regularly for life. Part of the annuity payments youreceive are taxable, but you receive an income tax deduction for the amount thatis estimated to be donated to the charity.
• Donor-Advised Fund - This choice has become more popular in recentyears. You provide a lump sum to a third-party charitable fund, and you receivean income tax deduction. The fund legallycontrols the money, but you can recommend how it is distributed and which charitiesbenefit.
• Pooled Income Fund - Donate money to a charity which invests it ina special fund and pays you your share of the fund's earnings. When you die, you receive a taxdeduction for the value of what is left of your original investment that goesto the charity.
• Private Foundation - Your legal team establishes your owncharitable entity with funds from your family. This entity makes grants tosupport your stated charitable mission; therefore, you have much more controlover the decisions of the foundation. However, private foundations can be expensive to run (compared to adonor-advised fund) and have less favorable tax rules than public charities.
• Qualified Charitable Distributions from IRAs- The Pension ProtectionAct of 2006 provides an exclusion from gross income for an otherwise taxabledistribution from IRAs (up to $100,000 per year) that is paid directly from theIRA to a qualified charity, if the IRA owner is 70 ½ or older and certain otherconditions are satisfied. This is effective for the years 2006 and 2007 only.
If you are fortunate enoughand charitably inclined, be sure to discuss the most appropriate choices withyour estate attorney, financial planner, and tax advisors. They can help youproperly coordinate your charitable intent with the maximum tax benefits.