Financial Planning for the Charitable Heart, Part II

June 11, 2013 

Back in March, I discussed how to get started with charitable giving: defining your goals, deciding who to benefit and strategies for making outright gifts. Today, I'll review more "indirect" charitable strategies.

Donor-advised funds

If you want to donate (and receive the tax deduction), but don't know to which charity(ies) yet, a donor-advised fund may be your answer. Increasingly popular -- Charity Navigator notes that such donations grew 46 percent in 2012 -- donor-advised funds are established by opening an account with a public charity, which administers the fund per the donor's wishes for a small fee.

The donor gets a tax deduction when the account is funded, with cash, stock (highly appreciated, preferably) or other assets. Donors then direct which charities will receive grants from their fund: immediately, or over time. Such charitable vehicles are flexible and convenient, and we are fortunate to have several community foundations locally that offer donor-advised funds.

Charitable gift annuities

If you're charitably minded, but need income from your assets, a charitable gift annuity may work for your portfolio. It's a contract under which a charity receives cash or property from you and agrees to pay a fixed sum of money for a period of time -- based on life expectancy.

Payout rates depend on the age of the donor (from under 4 percent to as high

as 9 percent), and the income usually continues for life. When the annuity begins, the donor is allowed a charitable deduction for a portion of the gift.

Because donors receive income in return, IRS rules discount the deduction. However, some of the regular income received is excluded from income tax. When the donor dies, the donated asset goes to charity.

Charitable gift annuities help retirees combine their charitable passions with pension-like financial security. However, once made, these gifts are irrevocable, and the charity provides the income "guarantees." Remember, guarantees are based on the claims paying ability of the issuing company. That's why you should know the charity well, and consult with your tax advisor beforehand.

Charitable bequests

Finally, if you don't have heirs, or you've already provided for them in your estate plan, then naming charities in your will or trust could be a great way to leave a legacy. Charitable bequests could also reduce taxes due from your estate.

You can make bequests in your will or through a trust: each has its costs and benefits. Consult your legal advisor for guidance.

Naming a charity as beneficiary of your IRA or 401(k) is another potential bequest strategy. Assets in IRAs and 401ks distributed to a charity won't be income-taxed, but they will if an individual inherits them. And naming a charityas beneficiaryon a life insurance policy may potentially enhance your gift when death benefits exceed premiums paid.

I'll conclude this series in my next article with a few of the more complex charitable giving strategies being used today.

This information is not intended to be a substitute for specific individualized tax advice. As always, be sure to consult with your tax adviser to determine the strategy that's right for you.

Karin Grablin, CPA, CFP, MBA, is with SRQ Wealth Management. Contact her at or 941-556-9004.

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