Are you planning on giving to your favorite charity this holiday season? The holidays are a popular time for charitable giving. In fact, 63 percent of Americans make some kind of charitable donation during the last two weeks of December.1 Many of those donations go to churches and charities related to poverty and children’s causes.
While seasonal giving is always helpful, you may be considering something that has a more lasting impact. Maybe you want to make a sizable gift that will benefit the charity and its recipients for years or even decades into the future. A sizable donation will obviously help the charity, but it can also provide you with important tax benefits.
You may want to consult with a financial professional before you write a check, though. There are many different ways to give to charity. Not all methods are right for all people. Your approach should be based on your specific needs and goals.
The simplest approach to gifting may be simply to write a check once a year to the charity of your choice. It’s straightforward and simple, and it gets funds to the charity quickly. You also may be able to deduct your donation from your taxes.
There are some considerations with this approach, though. Charitable deductions have caps, so you may not be able to deduct the full amount. There can also be complicated rules with regard to the gifting of securities, property or other assets besides cash.
You also may want to consider whether you’ll need the resources in the future. You may feel like you have plenty of assets today. As you get older, however, you may become more vulnerable to a wide range of health issues. It’s possible that you could need costly medical treatment or even long-term care. Make sure you can overcome these challenges before you gift assets to charity.
Life Insurance Benefit
If you’re like many retirees, you may have life insurance policies that you bought long ago but no longer need. You may be tempted to stop paying the premiums and simply surrender the policy. In fact, doing so may deliver a sizable cash value distribution.
However, you could also donate your policy to charity. You simply transfer ownership of the policy to the charity. Upon your death, the death benefit is paid to the charitable organization. The policy also continues to build tax-deferred cash value.
When you make the charity the new owner of the policy, you may be able to deduct your previous premium payments from your taxes. You also may be able to deduct any future premium payments that you make. You get a current tax benefit, and the charity gets a sizable donation in the future.
An alternative is to simply make the charity the beneficiary on the policy. You retain ownership and control of the policy, but the charity gets the death benefit when you pass away. There are no tax benefits from this approach, but it may be a simpler strategy.
You could also set up a charitable trust to transfer a large portion of your estate to charity after your death. You create the trust document and then make the trust the owner of the assets. The trust then manages those assets and possibly even sells them for diversification purposes. Because the trust is meant for charity, you avoid any taxes related to gains.
The trust invests the assets to generate income, which it pays to you for the remainder of your life. When you pass away, the trust distributes the assets to the charity according to your instructions. A charitable trust can be a powerful gifting tool, but it can also be complex. A financial professional can help you determine if it’s right for you.
Ready to develop your gifting strategy? Let’s talk about it. Contact us today at Scott and Associates of Texas. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
18276 – 2018/11/27