As the 2024 tax year wraps up, you may be looking for a way to save on taxes in 2025. Planned giving is a strategic way to support the causes you care about while maximizing financial benefits. These charitable contributions allow individuals to leave a meaningful legacy, often while enjoying significant tax incentives.
Whether you’re planning your estate or looking to optimize your financial strategies, planned gifts can provide a win-win for you and the charities you support. After all, wouldn’t you rather give your hard-earned funds to a worthy cause than the IRS?
Let’s explore some of the most effective planned giving options and their associated tax advantages.
1. Bequests: A Timeless Legacy
A bequest is one of the simplest and most popular forms of planned giving. It involves designating a charitable organization as a beneficiary in your will or trust.
- How it works: You specify a certain amount, percentage, or asset to be given to a charity in your estate plan.
- Tax benefit: Bequests are deductible from the value of your estate, potentially reducing estate taxes. This means your generosity can benefit both the charity and your heirs.
2. Charitable Gift Annuities: Income for Life
Charitable gift annuities (CGAs) allow you to support a charity while securing a steady income stream for yourself or a loved one.
- How it works: You transfer cash or assets to a charity in exchange for fixed and guaranteed lifetime payments. After your lifetime, the remaining funds support the charity.
- Tax benefit: You may receive an immediate income tax deduction, and a portion of your annuity payments may be tax-free. Additionally, appreciated assets used to fund the annuity can reduce capital gains tax liability.
3. Charitable Remainder Trusts: Giving and Receiving
A charitable remainder trust (CRT) is a versatile tool for balancing philanthropy and personal financial goals. Typically, a CRT is funded with an asset that, if sold, would produce high capital gains taxes. A CRT can help you defer, or even avoid capital gain taxes entirely, while providing you with income for life.
- How it works: Assets are placed into a trust that provides income to you or your beneficiaries for a specified period. The remaining assets go to a designated charity.
- Tax benefit: Donors receive an immediate income tax deduction based on the charity’s remainder interest, defer capital gains taxes, and reduce estate taxes.
4. Donor-Advised Funds: Flexible Giving
Donor-advised funds (DAFs) are a convenient and tax-efficient way to manage your charitable giving. Obtain a tax deduction immediately but spread your charitable giving over time.
- How it works: You contribute to a fund held by a sponsoring organization and recommend grants to charities over time.
- Tax benefit: Contributions to a DAF are immediately tax-deductible. Additionally, you avoid capital gains taxes on appreciated assets contributed to the fund.
5. Beneficiary Designations: Simple and Effective
Naming a charity as a beneficiary of financial accounts or policies is an easy way to make a planned gift.
- How it works: Designate a charity as the beneficiary of your retirement account, life insurance policy, or other financial account.
- Tax benefit: These assets pass directly to the charity, avoiding income and estate taxes.
6. Real Estate or Appreciated Securities: Smart Asset Transfers
Donating real estate or appreciated securities allows you to support a charity without liquidating valuable assets.
- How it works: Transfer ownership of real estate or stocks directly to a charity.
- Tax benefit: You can avoid capital gains taxes and may receive a tax deduction for the fair market value of the asset.
Maximizing the Impact of Planned Giving
Planned giving is more than a financial strategy; it’s a way to align your legacy with your values. To ensure you maximize the benefits of your gift—both for yourself and the charity—consult with a financial advisor, tax professional, or estate planning attorney. These experts can guide you in selecting the right planned giving option to meet your goals.
By incorporating planned gifts into your financial plans, you can make a lasting impact on the causes you care about while securing meaningful tax advantages. It’s a powerful way to give back and build a legacy of generosity.
Author: Richard Harrison, Director of Planned Giving, ADRA International
https://adra.giftlegacy.com
plannedgiving@adra.org
