Two Charitable Options to Give More Strategically in the New Year

Even though 2020 has been a challenge for everyone in very personal and different ways, I believe that one commonality we all share is that it has reminded us to cherish what we do have and review/revise our life priorities.

One of those priorities might be allocating a contribution toward a cause important to you in order to help those less fortunate. As you consider your charitable giving priorities for 2021, I’d like to briefly explain why split interest trusts or charitable gift annuities might be good options to pursue. Both options enable you to create or maintain cash flow from an asset or assets while at the same time satisfying a charitable objective – a win-win!

Split Interest Trusts

A charitable remainder trust (CRT) is a type of split interest trust. A CRT provides an annual stream of payments to one or more noncharitable beneficiaries for a term of years or for life. When the noncharitable interest expires, the remainder passes to charity.

CRTs are often funded with highly appreciated assets. The assets are transferred into the CRT and sold. There is no tax due on the sale because the CRT is exempt from tax. The trust then has the cash to make the required annual distributions to the non-charitable beneficiaries.

The grantor of the CRT who has funded the trust receives a charitable contribution deduction in the year the CRT is funded. The contribution amount is the present value of the charitable remainder interest and is calculated based on IRS provided actuarial factors. A CRT is often called a split interest trust because of the noncharitable beneficiary and the charitable beneficiary each have an interest in the trust.

There are many other types of split interest trusts. Some of these split interest trusts are attractive when interest rates are high and some when interest rates are low.

Charitable Gift Annuities

Many charitable organizations offer charitable gift annuities as an option for their donors. A charitable gift annuity benefits the donor in much the same fashion as a split interest trust. The annuity provides a stated return for the non-charitable beneficiary. The charitable contribution that is taken in the year the charitable gift annuity is purchase is calculated using IRS actuarial assumptions.

As an example, I serve on the board at Deerfield Episcopal Retirement Community as treasurer. In my case, if my wife and I chose to set up a charitable gift annuity with Deerfield, giving a gift of $50,000 yields 3.9% ($1,950 annually), a charitable deduction of $10,088 the first year and tax-free portions of each payout through year 2044. In the meantime, Deerfield will distribute the annual payout (based on my age) for as long as I live – regardless of the market and even if I outlive the balance of the gift.

“If you have family or charitable causes to which you’ve already committed your estate, the gift annuity allows you to use cash or stock as a gift now, and ultimately, after your death the remainder of the gift will go directly to the fund you’ve chosen,” said Michelle Wooley, Deerfield’s director of philanthropy.

As we end this troublesome year and look ahead to a brighter future, I’d be happy to speak with you further about whether either of these charitable options is a good fit for your philanthropic endeavors.

Moreover, if you are donating material goods – be it art, property, etc. – read my article outlining key IRS guidelines to follow when it comes to these types of donations.

Happy holidays and cheers to 2021!

Larry HarrisLarry Harris, CPA, CFP®, PFS

Director of Tax Services

Share:

Share on facebook
Share on linkedin
Share on email
Share on print

Recent Posts:

Financial Lingua Franca

For anyone new to investing (and even for those who are not so new) the financial terminology used by investment professionals can be unfamiliar and a bit confusing. When you sit down with an advisor to discuss your investment portfolio, there are several words and phrases that are likely to arise.

How To Get Your Children To Own Their Financial Future

I am often asked how to raise a financially literate child. It seems easy enough, right? We help them with some terminology, coach them to have financial discipline and teach them about the stock market. With a combination of an allowance and a lecture about frugality we send them on their way into life on the path to financial freedom. But like so many other aspects of raising a high functioning human, we learn that it does not work like we thought.

How Parsec Monitors Investment Securities

Parsec invests in a variety of securities for its clients. These may include mutual funds, exchange traded funds (“ETFs”), and individual stocks, among others. All of these investments can and do experience significant price pullbacks from time to time. While Parsec’s research committee focuses on investments it can hold for the long-term and performs significant due diligence before adding any new positions, price declines still happen. In this article we will discuss how we monitor investment securities and our process when a stock or fund does not perform as expected.

Recent Quarterly Newsletters:

Retirement & The Golden Years Edition

Read our Q1 2021 newsletter where we focus on retirement and “the golden years.” Specifically, our CEO Rick Manske opens with some Medicare and longevity guidance. We have three articles on Social Security, from how it fits into your retirement plan to how and when to apply. Our director of tax services gives guidance on downsizing. Our chief investment officer discusses retirement income. Our financial planning manager outlines question to ask to determine if you might need a care manager. And lastly, we celebrate internal news from new hires to recent promotions and awards.

Debt Management Edition

Our Q4 newsletter is all about debt, including how to manage it effectively, whether to invest versus pay down debt, and tax implications. We go into depth on educational debt, mortgages, and what we deem “fun” debt. Even though debt is not a fun topic, it is extremely important in your financial plan so please read onward!

Recent Whitepapers:

Get updates from parsec financial

Scroll to Top