Charitable giving can be complicated, especially when it moves beyond cash or writing a check. A recent Forbes article provides some advice you may not have considered. The article is titled “Five Ways To Be Charitable Even If You Aren’t Bill Gates.” Take heart in knowing that even if you’re not Bill Gates, the “five ways” do not require the complexities of his estate plan.
Here are the Forbes tips (with some commentary by yours truly) for your consideration:
- Give the gift of education and medical care. Have you thought about giving your children or grandchildren in the form of a 529 college savings plan or a direct gift to the college? Gifts by way of 529 plans use up your annual gift tax exclusion (which is $14,000 per recipient per year as of 2013), but they are a wonderful way to benefit your loved ones. 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. These latter kinds of gifts are called “qualified transfers” and are worth discussing with your financial and estate planning advisors.
- Give your IRS distribution to charity. Since you have to take your required minimum distribution anyhow, send it directly to a charity instead. 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 either. The net result is a win for you and your favorite charity. This strategy may have a limited shelf life, as it is set to expire at the end of 2013. Hopefully, Congress will make it permanent at some point.
- Name your charity as your beneficiary on your retirement account. This option is appropriate if you’ve decided that left over retirement funds should 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 Hawai‘i, you can work with the Hawai‘i Christian Foundation or the Hawai‘i 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, 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. One Hawai‘i charity that will offer charitable gift annuities is the YMCA of Honolulu.
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. Again, talk with your trusted advisors about whether this might make sense for you and your ohana.
Scott Makuakane, Attorney at Law
Specializing in estate planning and trust law.