Issue: November 2007 Issue
'Tis the Season
Now is the time to start thinking about gifts -- and not just the ones wrapped with big red bows, but those planned for the future.
Planned Giving can be an overwhelming thought for many. But with a little patience and understanding, one might find they are ready to make the leap and plan for long-term charitable giving. James Mackey, partnerand co-chair of the Estate Planning Group at Walter & Haverfield LLP, answers some common questions asked by his clients as it pertains to planned giving:
What's the most effective way to give a gift to charity?
"A charitable remainder trust is often the most beneficial in terms of taxes for the donor," says Mackey. In this arrangement, property or money is donated to a charity, but the donor continues to use the property and/or collect income from it while living. The beneficiaries receive the income for a specified amount of time and the charity receives the principal one when the property owner's time is up.
"My clients often choose this method because it allows them to contribute to the trust and retain an annuity during their lives," says Mackey. "Plus, the donor avoids having to pay full capital gains tax on the donated assets and receives a tax deduction for the fair market value of the remainder interest the trust earned."
Other common methods include bequests, where the donor leaves personal property or money in a will, and charitable lead trusts, which transfers property/money into a trust permitting a fixed annuity to be distributed annually to a charity for a specified amount of time. Once that time period ends, the principal is distributed to the donor's family members.
You can also set up gift planning through a life insurance policy. By naming a charitable organization as the benefactor in a life insurance policy, a gift will be made upon the donor's passing to that organization, Mackey explains.
How does one decide which charity to assist?
"The decision is completely up to the client," says Mackey, adding his clients usually choose a college, hospital or organization that has helped them in the past or added significance in their lives, such as the American Red Cross or Juvenile Diabetes Research Foundation.
But sometimes his clients do need some assistance in choosing the right organization. "I had a client who didn't consider himself charitably inclined, so I had him meet with one of the local charities," says Mackey. "He found out he had an affinity for many of the things it did and ended up helping it [with a planned gift]. Sometimes it takes a little research for one to find an organization that fits in with their beliefs and objectives."
Can I set up my own foundation?
Yes. A private foundation can be a good method for people who want to take an active role in philanthropy and have control over their investments and grant decisions. "Each year, the donor designates a charity to fund, which is often dictated by the purpose of the foundation," explains Mackey. "For example, a family may want to establish a scholarship fund in the name of their deceased family member for his high school."
What's my first step in planned giving?
"You want to consult with your tax advisor and attorney to put together a comprehensive gifting plan that meets your objectives," says Mackey. "One size doesn't fit all, and setting up a planned gift may not make sense right now, but it may in the future."
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