by Venessa Richardson, ©2005 San Francisco Magazine
Used by permission.
If you’re like most people, you typically donate charitable dollars via direct-mail requests or specific fund-raising campaigns. However, there are many ways to give to your charity of choice and receive tax breaks or income in return. Planned-giving professionals recommend the options below for including a charity in your financial plans.
The simplest, most popular way to donate is through a direct gift of cash or assets from your estate after you die, thereby avoiding a staggering “death tax” of 41 percent. It’s a good fit for those who may need to change their will due to stock market fluctuations or college tuitions. Anyone can leave bequests, regardless of his or her tax bracket.
You don’t need to wait until your death to give money: A planned gift both avoids the death tax and gives you the satisfaction of seeing your money put to use. Those who make big donations can also enjoy perks such as black-tie dinners or front-row seats at events.
Life insurance policies
If you no longer need the policy for your family, you can name your charity as a beneficiary. Your premium payment then becomes an annual gift to the charity and is eligible for an income tax deduction.
Charitable remainder trusts
You receive annual payouts throughout your trust’s term, while avoiding any capital gains tax. The remainder of assets goes to charity at the end of the term. These trusts are beneficial for those with valuable, appreciated assets who want to turn them into income to live on.
Charitable gift annuities
Another good way to earn income over your lifetime, a gift annuity requires you to make a contract with your charity. In exchange for your assets, usually cash or securities, the charity agrees to pay you an income stream of equal, tax-free installments spread out over your lifetime. Installments typically range from 3.7 percent to 11.3 percent interest on the initial donation, depending on your age. A substantial income-tax deduction is awarded in the year you make your gift.
They’re ideal for spreading wealth among multiple charities because they act as a parking space for your money while you figure out whom to give it to. You get an immediate tax deduction for your donation, but then you can make grants from the fund at leisure, and the firms take care of the paperwork. Both community foundations and financial firms offer these funds with a minimum donation--the San Francisco Foundation’s popular Donor Advised Funds, for example, require at least $10,000--and let you pick from several types of investment pools. One thing to consider: whether you want a say in how your funds are invested. This option is typical with the financial companies, but not always so with some other organizations.
Regardless of how you decide to make donations, talk to a professional beforehand about how you can meet both your financial and your philanthropic goals.