Maximize Your Donation’s Impact: Proper Planning Can Minimize Your Exposure to Income and Estate Taxes

The primary purpose of a charitable gift is to assist a charitable
organization in carrying out its mission and reaching its goals.
There can be great satisfaction in making such a gift, and most
charities will graciously accept even the most modest donations.
The purpose of this article is to alert you to some of the issues to
consider when planning such donations to those charities you
consider worthwhile.
If you are charitably inclined, you should consider making your
donations in the most tax-effective manner possible. There are
techniques for making gifts that will maximize the income tax
deductions for gifts you make during your lifetime, and also
minimize the exposure of your estate to estate taxes on gifts you
leave to charity at your death.
Making gifts can be as simple as writing a check to your favorite
service agency, or contributing a work of art to your favorite
museum. The income tax consequences of such gifts are generally
straightforward, allowing you to take an income tax deduction
equal to the value of the gift. But there are limits on the amount of
income that you can offset by taking deductions for your charitable
donations, and the determination of the proper deduction can be
further complicated when the property you donate has appreciated
since you acquired it — donated stock being a prime example.
Moreover, there are also some special tax incentives for creating
certain conservation restrictions on your land, and for transferring
property directly from your IRA to charity. Proper income tax
planning can help you to maximize your donation to charity by
maximizing your income tax savings on the donations.
Lifetime gifts can also be made through more complicated vehicles
such as charitable trusts and donor-advised funds. Charitable trusts
in particular are popular because they can be structured to benefit
your favorite charities and your family in succession, so they can
be used to strike a balance between what would otherwise often be
competing interests in your estate plan. Lifetime gifts, if properly structured, can have income tax benefits for you and can also be
useful in managing your exposure to estate taxes. Similarly, gifts
that you make at death, such as direct bequests to charity through
your will or trust, can help minimize your estate tax exposure.
You should also be aware of some of the more sophisticated
techniques that are available to provide for your favorite charities.
These techniques may include creating your own foundation to
hold some or all of your estate for the same charitable purposes
that you support during your lifetime, and can provide for your
family members to participate in the control and administration
of the foundation. It is essential that such charitable planning be
integrated into the rest of your estate plan to ensure that it provides
for the disposition that you desire.
In summary, if you are inclined to make charitable donations, you
should consider the income and estate tax issues that are inherent
in proper charitable planning. By doing so, you can maximize the
amounts you can give to charity by minimizing the cost to you for
doing so.