Charitable giving can be complicated, especially when it moves beyond handing over cash or writing a check. A recent Forbes article provides some practical advice you may not have considered. The article is titled “Five Ways To Be Charitable Even If You Aren't Bill Gates.” And if you’re not Bill Gates, the “five ways” do not require the complexities of family foundations.
Here are the Forbes tips (with some added commentary by yours truly) for your charitable consideration:
- Give the gift of education and medical care. Have you thought about giving to your own children or grandchildren and in the form of a 529 college savings plan or a direct gift to the college? You can also pay tuition directly to a private school or college and not have to treat that payment as a gift for gift tax purposes. A similar exclusion applies to payments made directly to doctors, dentists, orthodontists, or other medical care providers.
- Give your IRS distribution to charity. Since you have to take your required minimum distribution anyhow, send it directly to a charity instead. This option is available for the remainder of 2012, but its future is uncertain. This is a no-brainer if you are taking RMDs from your traditional IRA and are also charitably inclined. You won't get a deduction, but you won't have to take the charitable gift into income. The net result is a win for you and your favorite charity.
- Name your charity as your beneficiary on your retirement account. This option is appropriate if you’ve decided that any retirement funds left over should eventually pass to charity instead of loved ones. Be sure to designate your charitable beneficiaries accordingly! Note: The full amount of your retirement account given to charity is income tax free. If left to a non-charity, then the full amount is taxable as ordinary income. AND your retirement account is includible in your estate for estate tax purposes. If you are charitably inclined and have substantial retirement plan assets, this is an opportunity to avoid some double taxation (income tax + estate tax).
- Donor-advised funds. By giving to a donor advised fund, you can give today, take the charitable deduction in this year’s taxes, but decide which charities to benefit next year or beyond. They are easy to establish too. In Hawaii, you can work with the Hawaii Chrisitian Foundation or the Hawaii Community Foundation.
- Charitable gift annuity. Are you keen on the idea of receiving a guaranteed lifetime monthly income, especially as an assurance in old age? If you also want to benefit charity in the process, then consider hitting two birds with one stone by opting for a charitable gift annuity. Not every charity will do this for you, but it's worth asking if your favorite ones will.
This is just an overview of the “five ways” featured by Forbes, so be sure to consult with your financial, tax and legal advisors regarding the appropriateness of each for your circumstances.
Another important point to remember is that paying estate tax (the tax on owning stuff when you die) is 100% optional. You can give your loved ones a decent inheritance, benefit one or more charities for a term of years, and then have whatever is left of your estate go to your descendants. This is a very powerful technique, called a Charitable Lead Trust. You can create one of these during your lifetime or upon your death.