Gifting for income

It is possible to receive financial benefits during your life if you are charitable. You can get your charitable deduction if you itemize. You can save on capital gains taxes if you gift appreciated property. And, you can receive an income stream, often much larger than your asset currently produces, by taking advantage of charitable giving instruments such as a charitable gift annuity or charitable remainder trust.

If you are planning to leave assets to charity through an estate gift, and would benefit from more income during your life, then you are a good candidate to consider what the industry terms a “split interest gift.” With such a gift, part of the benefit goes to charity, and you retain part of the benefit as an income stream, for you and also for your family if you wish.

At the Community Foundation of Western Nevada, we work with generous people and their advisors on split interest gifts and can provide income streams as high as 9 percent through a charitable gift annuity. Imagine making a gift of $100,000 that has been earning you 2 percent or less, receiving a $50,000 charitable gift deduction, and then earning 9 percent income! We had one donor who made such a gift and used the additional income to make monthly donations to their church. If you are charitable, and you’re planning to benefit charities through your will or trust, there are life income and tax-saving benefits you should consider.

Another donor established a Charitable Remainder Unitrust (CRUT) to provide income to three family members. In this case, the donor makes a gift to the CRUT annually, so it gets larger each year. The donor receives a partial charitable gift deduction when he contributes to the trust. The trust value is used to determine the distribution to the three family members so that grows each year as well. The donor is planning to make a more significant gift of investment property at some time in the future, which the Foundation will receive and sell, making the gift easy for the donor and avoiding taxes so that the sale will generate more proceeds to grow the CRUT.

The Community Foundation often works with clients who have investment property such as rental houses. This has been a very effective approach by many people to build wealth, but in retirement the management of the properties, even if outsourced, can be trying and bothersome. We can run an illustration to see how much income the proceeds will produce if gifted to a charitable gift annuity. Avoiding taxes combined with the attractive rates of return and a partial charitable gift deduction usually result in an increased income stream to the donors as well as ending any active management and maintenance responsibilities.

How does the economy affect charitable contributions?

People who are considering making significant gifts are driven by considerations that may or may not include the economy. Those in retirement usually have a conservative investment portfolio, so they are not affected as much by what the economy is doing. Most people are motivated by a significant financial event, and the timing of that event outweighs all other considerations. For them, giving now is simply the best option because now is the “moment in time” when they can gift to help offset taxes. The most typical event is the sale of a business or property, but people are also moved to initiate significant charitable giving due to an inheritance.

Can you afford to make the gift?

At the Community Foundation, we work closely with each donor and their advisor to be sure a particular gift arrangement is best for the client. For donors with significant assets, the concern is rarely about having enough. For those who are generous but have limited resources and want to make a split interest gift, we need to be sure that a donor isn’t making a sacrifice that will lead to financial hardship in the future should they need assets for health care or other critical needs. Although these are gifts that work well (in fact, they work so well that many donors have come back to make additional split interest gifts or to add to their initial gift), they can’t be undone. Once a gift is made it is irrevocable.

We receive referrals for income gifts from advisors throughout the region. Direct inquiries are common as the Community Foundation uses Crescendo software programs and can run scenarios on any type of charitable gift. We are honored to be a trusted partner with donors and their professional advisors. Call to discuss a charitable gift that may help with income as well, 775-333-5499. Learn more at nevadafund.org

Chris Askin is the president and CEO of the Community Foundation.