Charitable Giving

As an Estate Planning attorney ,  I  strongly support charitable giving and I urge you to become a supporter of your favorite charity through your Estate Planning.  If you have any questions about making a charitable contribution, please give me a call or send me an email.  I hope you find the following information helpful in making your decision to make a charitable contribution.

Richard Noble

"Win.. .Win...  Estate Planning"

Introduction

It's been said that there will be only two kinds of charities in the 21st century:  former and endowed.  All charities, even charities with a long history of service to America,  must be concerned and diligent about finding the necessary support for their financial future.

As you read this article,  consider how some of these gifts might fit into your planning.  These gifts,  from benefactors like you,  will make it possible for charities to continue to offer the important services they provode.  

Cash Gifts

Gifts of cash have always represented the most fundamental and important source of support for charities. 

The net cost of a gift decreases for donors in the higher tax brackets.  The table below gives estimates of the cost and tax savings from cash gifts in different brackets:

• Gifts of cash are deductible up to 50% of your adjusted gross income each year.  However,  unused deductions may be carried over and used for five years after the gift is made.
• These gifts are considered made on the date they are had delivered or mailed.  So,  a year-end gift mailed in December is deductible that year,  even if it is not received by the charity until January.
• Income-producing interest such as oil and gas or mineral interests,  mortgage income,  or copyrights may also be contributed to produce a continuing source of cash for the charity.

Stock Gifts-Publicly Traded Securities

In many cases, a gift to a charity of stocks or bonds may provide even greater tax benefits than a gift of equal value in cash.  This is especially true for securities that have appreciated in value and could generate capital gains tax if they were cashed in.

Many donors choose to make gifts of appreciated securities because they can avoid paying capital gains tax on them.  They can take a charitable deduction for the full market value of the securities (if owned for at least one year) and,  through the deduction,  save tax dollars which can be reinvested.

For stocks that are worth less than you paid for them,  it may be better to sell the stock,  report your loss for tax purposes,  and then donate the cash proceeds.

Securities that have been held less than one year may be donated,  but your charitable tax deduction will be limited to your cost basis.

Gifts of stock held for more than a year are deductible up to 30 percent of your adjusted gross income (AGI) every year.  If held for less than a year,  they are deductible up to 50 percent of your AGI every year.  Excess deductions may be carried over for five years after the year of the gift.

Stock Gifts-Closely Held Stock

Often very highly appreciated in value (and expensive to sell) gifts of closely held stock offer the same tax advantages as gifts of common stock.  In fact,  some donors use these gifts as a way of either "transferring" ownership interests to others such as family members,  or regaining control of the shares and establishing a new cost basis for the stock.  

Though the advantages of closely held stock gifts are similar to those of publicly traded stock gifts,  an appraisal may be required to establish the market value of these shares.

• Example: A donor owns 80 percent of a family business.  His children own the other 20 percent.  He transfers to the charity a 5 percent interest in the company and gets a tax deduction for value of those shares.  If the company buys the shares from the Charity (reducing its accumulated earnings), the children's ownership of the company goes up.  If the donor buys back the shares,  he retains the same ownership percentage,  but has greatly increased his basis in the reacquired shares.

• Example:  A donor is considering a gift of $100,000.  It may be cash,  or it may be stock with a basis of $20,000 he has held for more than a year.  The comparison:

Stock Gifts-Stock Options

A gift of stock options can be every bit as valuable to the charity as a gift of the stock itself.  It is also a "painless" way to make a gift.  You're giving away stock you haven't actually received yet.  These gifts will not produce an immediate tax deduction,  since the value of the gift cannot be determined until the option is exercised by the charity.  But when the option is exercised,  you are then entitled to a tax deduction equal to the difference between the option price and the stock value.

Personal Property Gifts

Whether through inheritance,  collecting,  or investment,  we accumulate a lot of personal property.  Sometimes these items are valuable -- sometimes the value is purely sentimental.  But often these items may be costly to insure or difficult to sell.

A gift to the charity of artwork,  collections (such as stamps or coins),  antiques,  boats or cars,  or other items of personal property maybe an effective alternative for giving.  Personal property gifts that could be used for Scouting purposes,  or items that are worth less than you paid for them,  will be deductible at their current fair market value.  Other personal property gifts may be deductible only at their cost basis, so you should discuss these options with your own tax advisor.

• Prior to making a gift of personal property, especially one worth more than $5,000,  you should arrange for an appraisal of the item(s).  However,  any appraisal fees you incur may also be deductible as an expense associated with a charitable contribution.

Gifts of Land, Homes, and Farms
-Outright Gifts

With the continuing increase in property values,  many people find that the real estate they own is their greatest asset.  They may also find that it is an asset with a high price:  property tax and maintenance costs, if held;  capital gains tax, if sold.  A gift to the charity of property--residential, rental, vacation homes, farms, commercial,  undeveloped,  or even land rights such as oil, gas, water and mineral rights--may offer significant benefits.

Generally, outright gifts of real property entitle you to:

• Avoid the capital gains tax on any appreciation in value.
• Take a charitable income tax deduction based on the fair market value of the property.

Before deciding on a gift method,  you will need to know (1) the appraised value of the property, (2) your basis and any debts or liens on the property,  and (30 your plans for,  and any family interest in,  the property.  You should also discuss your gift with the charity so it can determine whether the property will be used in its program,  generate income,  or be sold,  or if there are any environmental concerns.

• As with gifts of stocks and bonds,  land held for more than one year is deductible up to 30 percent of a donor's AGI for the year.  If held for less than a year,  it is deductible up to 50 percent of the AGI for the year,  but the deduction will be limited to the property's cost basis.  The five-year carryover rule applies here as well.
• Property with a mortgage or lien usually does not make a good gift.  The tax deduction will be reduced by the debt amount,  and the donor is also treated as having taken a similar amount into income,  regardless of who is responsible for the debt.

Gifts of Land, Homes, and Farms
-Bargain Sales and Gift/Sales

A gift of real estate does not have to be an all-or-nothing proposition.  You may donate a partial interest the land--or any accompanying land rights--instead of donating the entire property.  You receive a deduction based on the appraised value of the interest you donate.  When the property is sold,  the proceeds are distributed accordingly.  This is referred to as a gift/sale arrangement.

Life Insurance

You can change the beneficiary designation on your life insurance policy to make a charity the beneficiary thus making a gift after your death.

Charitable Remainder Trusts 

Perhaps the most popular and flexible of all the ways to make a major gift to a charity is the charitable remainder trust (CRT).  Your gift is placed in trust.  The trust sells and reinvests the assets,  and makes regular income payments to you and/or other named beneficiaries.  Payments may last either for a specific number of years or for one or two lifetimes.  Trusts may be funded with cash,  stocks,  bonds, land,  and even other assets.

The payout rate is variable and based on the fair market value of the gift placed into the trust.  Payments can be either a specific amount per year (annuity trust) or a fixed percentage (unitrust).  Trusts with percentage payouts are revalued each year;  as the principal grows in value,  the annual income will also grow.  After the trust ends,  the principal passes to the charity.

The rates of payment,  investment philosophy,  type of income,  and other details can be tailored to provide a financial planning tool that is creative,  fiscally sound,  and responsive to your needs.  It provides a significant gift to the charity,  so you also receive an income tax deduction when you create your trust.  It is also a great opportunity to fund the trust with low-yielding,  highly appreciated assets;  avoid capital gains tax and increase your income stream.

You may also have heard these trusts referred to as charitable remainder trusts,  unitrusts,  or annuity trusts.

• Example:  A donor has highly appreciated land worth $300,000 (he paid only $50,000 for it).  It is currently generating no income.  He places it into a charitable unitrust to pay 6 percent annually to him and his spouse for 15 years (there is a 2 percent annual principal growth).  The benefits:

• In general, the shorter the trust term or the smaller the annual payout,  the larger the deduction.
• Since trust property is removed from a donor's estate,  this may result in significant savings in estate taxes and/or probate costs at the end of the donor's lifetime. 

Computer Illustration of how the Gifts Work

• Would you like to see how the various gifts work using your own property?  The Boy Scouts of America has a tremendous website which has computer models of how the various gifts work which can be based on your own property. These models will work for any charity.   Click here to see the Computer Models

Organizations that deserve your support:

• Boy Scouts of  America- Cascade Pacific Council- Portland, Oregon
  My son was an Eagle Scout with Troop 127 in Lake Oswego and I am a strong supporter of Scouting. The Cascade Pacific Council is the overall organization for Scouting in the Portland area and provides an outstanding program.

• Morrison Family and Child Services, Portland, Oregon
  If you are concerned about the the welfare of young people in our community,  Morrison Family and Child Services deserves your support. The person to contact is Benson Meyers at 503 233-4356.

• Cystic Fibrosis Foundation-Oregon Chapter
  Fifty years ago, a group of stron-spirited and resolved parents formed the Cystic Fibrosis Foundation in an effort to save their children's lives.  Today, the Cystic Fibrosis Foundation continues with the same resolve and sense of purpose of that mission: finding and funding a cure. 

Or or more information contact Oregon Legal Center at
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