December 3, 1998 | Read Time: 2 minutes
Giving to charity is a smart financial-planning strategy, says Worth magazine (December-January 1999).
“If you’re not making charitable giving part of your financial plan, you may be missing out,” Worth says. “The deduction for charitable contributions can now provide tax breaks for up to 50 per cent of adjusted gross income. With estate taxes as high as 60 per cent, giving away some of your hard-earned money while you’re still alive makes a lot of sense.”
Worth names five strategies that can benefit a donor’s tax situation and create good feelings in the process.
One is to set up a charitable remainder trust, which provides the donor with a stream of income while he or she is alive and passes the rest to charity at death, or a charitable lead trust, which gives charities an income stream while the donor is alive and passes the rest to the donor’s beneficiaries tax-free upon death.
Another strategy is to give stock that has greatly appreciated in price to charity as a way of reducing the tax burden on the donor’s children. Better to leave them assets that have little or no taxable gain, Worth says.
“If you give shares in Microsoft to your children, they’ll inherit your cost basis, so they’ll end up paying probably 20 per cent in long-term capital-gains taxes when they cash it out,” Worth explains. “If you leave it as part of your estate, your kids may have to pay as much as 60 per cent in estate taxes on the stock. But if you give the shares to a charity, it pays nothing when it cashes them out.”
Other strategies involve giving one’s life-insurance policy to charity; contributing to a charity’s pooled income fund, which is similar to a mutual fund but offers a tax break; and establishing a donor-advised fund at a community foundation.
