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As the holiday season quickly approaches, we are reminded of our charitable commitments yet to be fulfilled for 2009.  Given the current state of the economy, many donors, as part of financial belt-tightening, may consider deferring or canceling gifts.  But there may be alternatives to cash or checks that can help maximize the value of gifts to you and your charities.

Appreciated Property

Instead of cash, consider gifting appreciated assets (i.e. those with a low tax cost basis).  You receive a current charitable income tax deduction based on the fair market value of the asset, while reducing or eliminating capital gains tax on the appreciation.  Generally, the asset must have been held for at least 12 months.  Stocks and mutual funds can be gifted relatively easily.  Real estate, land, and personal property (art, cars, etc.) are other options to consider.

IRA Charitable Transfer

If you have an IRA and are over age 70 ½, you may wish to meet your charitable commitments through direct transfers from your IRA.  To qualify, assets must be transferred directly from your IRA to the charity.  You are not allowed to take a withdrawal from your IRA and forward your distribution as a qualifying charitable gift.  Up to $100,000 in gifts can be excluded from each taxpayer’s income ($200,000 for married couples) in 2009.  Unfortunately, gifts to donor-advised funds (DAFs), private foundations, and certain supporting organizations do not qualify.   Unless extended by Congress, 2009 is the final year these direct charitable transfers will be allowed.

Private Family Foundation

A private family foundation is a separate legal entity created by a family for the purpose of making grants to charities.  The foundation is given tax exempt status, like a public charity, allowing family members to receive an income tax deduction for contributions, although deductions can be limited more than with gifts to a public charity. Private family foundations are typically established by individuals or families with high net worth who want to maintain control over the family’s philanthropic legacy.  They are also used to involve multiple family members or generations in the family’s charitable goals.  Note that they have stringent rules and responsibilities and can be costly to set up and maintain.

Donor Advised Funds

A DAF provides a simple way to make significant charitable gifts over a long period of time.  It is similar to a private foundation, but requires less money, time, legal assistance, and administration.  A DAF is considered a public charity, allowing the donor a tax deduction at the time assets are contributed to the fund.  Donors may make grant recommendations from the account, or allow the account to build up tax free for many years.  While some DAFs have minimum initial contributions, many have lowered these requirements to provide incentives for charitable giving in a tough economy.

Life Insurance

Life insurance allows you to make a much larger charitable gift than you might otherwise feel you can afford.  There are several ways to gift life insurance.  The simplest is to name a charitable organization as the beneficiary on an existing life insurance policy.  Alternatively, you can purchase a new policy specifically for the charity and even name the charity as the owner and beneficiary (even as you continue to make the premium payments).  A third option is to donate existing life insurance to the charity by irrevocably assigning a policy to the organization.

Beneficiary Designations

Similar to naming a charitable organization as the beneficiary of life insurance, you can also name a charity as the beneficiary of an IRA, annuity, or employer-sponsored retirement plan.  However, naming a charity along with individual beneficiaries can significantly impact your individual beneficiaries.  If you plan to name any beneficiary in addition to the charity, additional planning may be required.

In addition to these options, there are a number of other techniques available to meet charitable commitments, such as charitable trusts, etc.  With a little planning, your Moneta Group Family CFO can help you determine how best to help you meet your charitable goals.

Jones-Kelli

Kelli Jones, CPA, CFP®

Kelli is the professional consultant for Pat Duff.