Charitable Transfers

Federal Tax basics:

Charitable transfers produce tax benefits and accomplish worthy objectives. Rules governing the deductibility of charitable transfers are also complicated and impose several requirements and limitations. IRS has published a very detailed explanation of the rules governing charitable donations that can be accessed through this Link. The linked publication deals with income tax effects of charitable deductions. There is no equivalent publication addressing the effects for purposes of the federal estate and gift tax. By properly structuring a plan it is possible to provide for family members as well as charities both during your life and after death; and, it is possible to obtain a significant income-tax deduction when the plan is properly constructed to meet the requirements of federal law.

Trusts you might wish to implement:

Trusts are flexible almost without limitation. They are a perfect vehicle for creating “split-interests” in the same assets in order to accomplish more than one objective. For example: A trust can be established to make distributions to a beneficiary for a term of years or for an individual’s life followed by distributions to a charity. Such trusts are used to sometimes accomplish the combined goals of providing for an individual and thereafter supporting charitable organizations. Such trusts can be established during life (“intervivos”) or in a Will (“testamentary”). There are a multitude of requirements that must be met depending upon the arrangement you select. By meeting those requirements the donor obtains the benefits of a charitable deduction – even if the charitable interest does not receive distributions until the future. Using this device, a trust is funded with property having a determinable value. But a deduction is not available for the entire transfer where some interest is given to non-charitable beneficiaries. Therefore, a computation is performed to compute the present value of the respective interests. The value allocable to the charity’s interest is deductible. It is common for such trusts to become the vehicle for paying costs of health, education, and general welfare of family members for life, followed by an outright transfer of the assets to a charity. But there are almost limitless ways to construct your preferred methods of distribution that should be considered as part of a coherent plan governing assets.

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