Although you build your legacy during your lifetime, it may not be fulfilled until your death. Creating your legacy honors your life and benefits future generations. You may choose to make gifts to charity both during your lifetime and upon death. Although you make your charitable gifts with altruistic goals, charitable gift-giving also provides income and estate tax benefits. There are many ways to make charitable gifts strategically. The following are a few examples of the various charitable gift-giving strategies.
Lifetime Gifts in New York
You don’t need to wait until your death to make direct gifts to charity. In fact, a well–planned program of lifetime gifts to charity may entitle you to an income tax deduction depending on your income level. It may also lower your estate taxes by removing the asset and its appreciation from your estate. In addition, you can take advantage of annual exclusion gifting to your family and friends. Each year, you can give an unlimited number of people up to $17,000 each in assets ($34,000 if your spouse joins in the gift) without any tax implications, reducing the assets and their appreciation included in your estate for estate tax purposes. There is also an unlimited exclusion if you make direct payments to an educational or medical institution for certain tuition (excluding room, board, and books) and medical payments (including medical insurance premiums) on behalf of others.
New York Split-Interest Gifts
Generally, split-interest gifts are made in a split-interest trust. These trusts split the ownership of assets into two parts: income interest and remainder interest. There are two types of split-interest trusts: lead trusts, which pay the charity first, and remainder trusts, which pay the charity last.
Donor-Advised Funds (DAFs)
A donor-advised fund, or DAF, is like a charitable investment account for the sole purpose of supporting charitable organizations you care about.
When you contribute cash, securities, or other assets to a donor-advised fund at a public charity, you are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth, and you can recommend grants to virtually any IRS-qualified public charity.
Donor-advised funds are relatively easy to set up and offer a tax-advantaged way to give to charities.
Charitable Remainder Trusts (CRT)
With a Charitable Remainder Trust in New York, you can transfer assets to an irrevocable trust established for a charity. The trust pays you, your spouse, or your designated beneficiary, the income for life or a period of years. The trust ends at the death of the last income beneficiary, and then the charity receives the remainder of the assets. A charitable remainder trust funded with appreciated low-basis assets allows the trust beneficiary to benefit from the trust’s sale of the assets without paying capital gains tax. Also, replacing the value of the assets given to charity with life insurance payable to your family allows you to make a tax-advantaged gift to charity while still providing for your family and avoiding capital gains tax.
Other tax benefits may include a reduction of estate taxes and an immediate income tax deduction.
Charitable Lead Trust (CLT)
With a Charitable Lead Trust, you transfer assets to an irrevocable trust established for a charity. The trust pays the charity the income for a period of years. Afterward, the remainder of the assets passes to your family.
The tax benefits may include an income tax deduction for the income given to the charity, avoidance of capital gains taxes on assets transferred to the trust, and your family may receive the remaining assets in the trust without paying estate taxes.
Pooled Income Fund (PIF)
A Pooled Income Fund allows you to “pool” assets together to create one large gift for charity. The charity reinvests the assets as a pool. The income is paid to you based on your share of the pool. Upon your death, the remaining share of the pool passes to the charity.
The tax benefits may include income and estate tax deductions.
Outright Gifts in your Last Will and Testament or Trust for New Yorkers
The simplest strategy to make a charitable gift as part of your estate plan is through your Last Will and Testament (will) or trust. Your will or trust can state your charitable gift’s specific purpose and use, such as scholarship funds, college professorships, college fellowships, and medical programs. Not only do these charitable gifts provide an estate tax deduction, they offer planning flexibility because they are revocable and can be modified during your lifetime.
Retirement Benefits in New York
To make a gift to a charity through your retirement benefits, you can simply change the beneficiary and designate the charity. Although retirement assets may be subject to federal and state estate and income taxes, charities are tax exempt and can receive 100% of the retirement assets. If you have charitable intentions, why not leave retirement assets so your loved one’s avoid paying income taxes on your retirement proceeds?
New York Life Insurance
Giving a life insurance policy to charity is a great gift. Generally, you pay the insurance premiums, and the charity can be the policy owner and beneficiary, receiving the life insurance proceeds upon your death. The tax benefits may include income and estate tax deductions.
A private family foundation in New York is a tax-advantaged entity you can create during your lifetime or upon your death for the purpose of direct gifting to charity. A private foundation allows you to make substantial charitable gifts while maintaining ultimate control of how grants are made. When establishing a private foundation, you fund it with assets and select the directors. The foundation directors will make grants to worthy charities. The tax benefits of a private foundation may include income and estate tax deductions.
You can select from many charitable gift-giving strategies to achieve your philanthropic goals and create your legacy. It’s important to explore these strategies because charitable gift-giving is also a powerful tax savings tool. We can help you enhance these strategies and develop a well-structured charitable action plan. Charitable gift-giving can be a win-win situation for both you and the charity. Contact the Russo Law Group, P.C. today to consider which strategies may be best for you.
Russo Law Group, P.C. helps you and your loved ones handle Estate Planning, Elder Law, Special Needs Planning, New York Medicaid Planning, Trust & Estate, Guardianship, Small Business Planning, and Real Estate law. We welcome you to contact our Garden City, Lido Beach, or Islandia, New York, law offices to learn more about how we can help address your charitable gift-giving legal matters.
If you have questions or concerns about estate planning and charitable giving in Long Island and New York City communities, please don’t hesitate to contact the estate planning attorneys with Russo Law Group, P.C. While we have several office locations, we can also visit your home and offer virtual meetings for convenience.