Did you know that in 2018 about 63 million Americans participated in some kind of volunteer work?
Yes, the spirit of giving is still alive despite more difficult world conditions. Charities in the USA are supporting disaster relief work, rehabilitation work, and in many cases providing free education to those that need it.
Have you thought about how you could help a charity meet people’s needs? One way is by sharing your wealth via charitable planning.
What does charitable planning mean and how can you get involved? Did you know it could give you significant tax benefits? Why not read on to find out.
What Is Charitable Planning?
For many people, charitable planning is a basic part of financial planning for the future. As progress through life, we start to consider how we will use the money and assets that we have accrued up to that point.
A person may choose to share their wealth by means of scheduled periodic gifts, such as annual gifts. However, for many, charitable planning means that they create a plan regarding how their wealth will be distributed to charities that they select after their death.
If you want to make such a plan, where should you start?
How Do I Start?
The first step in making these arrangements is to select the charities that will benefit from your assets in the future. You may want to choose a charity that you have been supporting for some time. In other cases, you may see a need within society and want to address that need by donating financially to a charity that works in that field.
However, after you have selected the charity that you want to give to, the next step is deciding how much you will give. If you are choosing to give a financial gift posthumously, you will need to decide how much or which assets you will give to family members as an inheritance. Following this, you can assign assets or funds to your chosen charities.
There are generally two types of gifts that you can give as part of charitable planning. Lifetime gifts and Planned gifts. Each has its own implications regarding tax. What are the differences between these?
When a person gives a Lifetime gift, they stand to benefit from significant tax savings during the year that they give the gift. This may include an income tax deduction and perhaps other savings.
Among the types of gifts that you can give include real estate or appreciated assets such as stocks and shares. Should you give this type of gift you may be able to avoid paying tax on the appreciation of the asset.
As the name suggests this is part of charitable planning that involves a person giving before they have passed away.
Many incorporate planned gifts as part of their financial planning for old age. Generally, a person plans to give these types of gifts after they have passed away.
When making a planned gift a person decides to give assets or finances to a trustee. The trustee or person that will ensure that the funds reach the person or charity at that time.
In other cases, a person may personally assign part of their wealth to a charity as a term of their personal will. For example, may choose to assign a charity as a beneficiary of their life insurance.
Many favor the latter as it ensures that they can still benefit from their assets for the duration of their life. However, after the person passes away, they are delivered to the owner’s preferred destination.
Despite the fact that the assets will transfer to the charity after death, the owner may well still be able to benefit from income tax deductions during their lifetime when making these arrangements.
What Kinds of Giving Is Possible?
What vehicles can a person use to ensure that their assets and finances are transferred to their preferred charity? Here are a few examples:
- Charitable Remainder Trusts
- Charitable Gift Annuities
- Private Foundations
- Donor-Advised Funds
As mentioned, a person may also choose to make a charity the beneficiary of a Life Insurance policy or IRA and retirement plan.
As you can see there are many different routes that a person can take when planning to provide long-term support to a charity. Each person will need to analyze their own desires and financial situation before selecting the one that meets their needs the best.
However, each person needs to remember that charitable planning involved planning. This means that unless the correct documentation and agreements are put in place ahead of time, the gift may not be transferred as the owner wishes.
How to Benefit from Charitable Planning Now
If you are currently in a higher tax bracket than expected, you likely want to ease your tax burden without receiving less money. In this case, you could consider using charitable planning to accomplish this.
By giving in advance to your selected charity, you lower your eligibility for tax. Should you choose to select a charity with a donor advised program, the money may stay with the charity until you direct, to a reasonable degree, how they will use it. Perhaps this will be for a cause that is particularly close to your heart.
In this way, you continue to earn the money, enjoy giving it to a worthy cause, and then can direct who it helps.
Making the Best Charitable Planning Arrangements Possible
If you are planning the future of your estate, small decisions can make a great difference. Starting early when considering who can benefit from your material wealth is vital. It can help you to make charitable planning arrangements that have the maximum effect on the beneficiary.
If you would like to learn more about this, we would be happy to help. We leverage our years in the financial and legal sectors to help our readership to make wise decisions. Why not contact us or check out our blog to find out more.