Articles Advice & Features

The Art of Giving Back


by Colin Smith | Contributor


My uncle grew up poor, but he was determined to go to college.  He did, and although he had his financial struggles while he was there, he graduated and went on to do well for himself. Whenever his alma mater solicited donations, he always gave something, as he felt that his donations would lessen the struggles of a present or future student facing similar challenges.

Many of us feel that some charitable organization, alma mater, or life experience made a difference in our lives and shaped who we are today. We each exercise our philanthropy in our own unique ways. Some people donate their time.  Others feel unable to give a substantial sum of assets while they are alive so they do so in their estate.  Other people fund these organizations while they are living and reap tax advantages in the process.  But is it possible to give to charity without jeopardizing your income needs in retirement? Yes, it is.

Trusts come in many forms and can revocable or irrevocable. Your lawyer, tax professional, and financial planner can guide you through the various options and recommend one or more of that fits your goals and estate.  Tax-exempt trusts are irrevocable trusts that render certain internal sales and transfers of assets tax-free.  If done properly, they do not incur capital gains taxes amongst inter-trust asset transfers, and they give you a tax deduction.

As an example, a charitable remainder trust can pay you and your heirs income over a period of time with the remainder going to your charity of choice.  You get an immediate tax deduction for placing assets in trust, and since it is a gift, it can help you avoid estate tax since the assets are no longer part of your estate.  It does not count against your estate for tax purposes because the beneficiary is a charity.  Let’s assume you have a piece of real estate worth $1,000,000 that you originally paid $100,000 for. If sold, you would be liable for capital gains on $900,000.  A charitable remainder trust that holds the real property can avoid those capital gains taxes.

Regardless of how you give assets to charities, here are a few practical considerations:

• Consult with the charity and ask how the assets would be used.  When you make a donation, you can specify what you want the assets to be used for.

• Have a backup charity.  Charities can fail over time, lose their tax exempt status, or become mired in accusations of wrongdoing.

• Consult with your estate attorney or tax professional to ensure that you’re reaping the maximum tax benefit for your philanthropy.

As with anything in estate planning, don’t delay.  Most charities are grateful for any amount, no matter how small.

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