This article originally appeared as a column for the Cleveland Jewish News.
You may have heard the term “planned giving” before. Maybe you encountered it in fundraising materials for your favorite charity. Perhaps your estate lawyer or financial planner suggested it as an option for you, or you may have heard about it from a friend or colleague who has made planned gifts.
Simply put, planned giving is a gift that is planned, that has more forethought than a simple cash donation to a cause. It can involve a future gift, such as one that is given upon your death, usually by will. It can involve an annuity that pays an income over time. Or it can involve some sort of appreciated asset that is a substitute for cash.
Ultimately, you should consult with your legal and financial advisers to determine what option is best for you and your situation. However, a little education is most assuredly useful and will go a long way toward helping you figure out how best to proceed.
Know that if you are considering donation of an asset, a bequeath via a last will and testament is a very common method. In that way, once your will is probated, the recipient of your choice will receive the asset you specified, potentially including things like securities, business interests, real property, or personal property (a significant piece of artwork, for example). Or, perhaps, you might opt to name your selected recipient as your beneficiary on an asset that is not divided by the probate process, such as a life insurance policy or a retirement account. Any of these options might be right for you if you own a significant asset from which your selected recipient can benefit, even if you do not have the cash immediately on hand.
Of course, instead of waiting, you may opt to immediately gift an asset that uses the asset’s appreciation as a substitute for cash – and generally buys the gift giver tax benefits in the process. For example, by gifting stock, the gifting party can not only avoid capital gains on the stock’s appreciation, but also take a tax write-off for the gift. Other types of assets, such as jewelry, books, and artwork, can be donated with a tax deduction taken for the fair market value, which may be more than the price paid. And the tax code explicitly permits individuals who have reached the age of 70½ to donate up to $100,000 in IRA monies to charitable causes without the distribution being considered as taxable income.
Finally, it is possible to make a cash gift in the form of an annuity that returns income or other financial benefits to the donor in return for the contribution. These can take multiple forms under the United States tax code, but generally speaking, a sum of money will be placed in a trust that benefits both the charitable organization and the donor on a long-term basis. As one example, a charitable gift annuity creates a contract between a donor and a charity whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity.
The bottom line is that, if planned giving is for you, there are a number of options depending on the nature of the gift you wish to make. Speak with your legal counsel and financial adviser and you will be sure to find the option that works best for your specific circumstances.
*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.