Last week we offered a variety of gifting strategies for our affluent women readers in honor of Women’s History Month! Today we have a continuation of that for those of us who are visual learners, where we have a table/ chart with each of our main strategies that presents both the advantages and disadvantages.
Pictured: Wealth Advisors Stephanie Vokral, CFP®, CDFA®, AIF® (Left) and Erin Eiras, CPFA®, CEPA® (Right)
Rather than an outright gift, you could consider a Charitable Lead Trust. Here, your gift is placed into a trust, and the chosen recipient draws income from it over time. After your passing, your heirs receive the principal with minimal estate tax.
If you’re focused on retaining income interest, explore a pooled income fund, charitable remainder unitrust, or charitable remainder annuity trust. In each, you enjoy income, and the recipient inherits the principal upon your demise.
Another option is securing a life insurance policy, designating the charitable organization as owner and beneficiary. This facilitates a substantial future gift at a potentially lower current cost. Ensure insurability by assessing factors like age and health.
Life insurance costs and availability hinge on age, health, and policy specifics. Beware of contract limitations, fees, and surrender charges. Assess potential income tax implications and remember that guarantees rely on the financial strength of the issuing company. Life insurance isn’t FDIC guaranteed. Make informed decisions for robust financial planning.
While trusts offer numerous advantages, they do incur upfront costs in addition to ongoing administrative fees. They also involve a complex web of tax rules and regulations, so it’s best to consider seeking guidance from an experienced Estate Planning Professional who can facilitate communication with other specialists such as legal and tax professionals.
here are the pros and cons of each option:
| Outright Gift | Deductible for income taxes | No retained interest |
| Charitable Lead Trust | A current gift to charity
Current income tax deduction Pass assets to heirs at a future discount |
Transfer of assets is irrevocable
If current income tax deduction is taken, future income is taxable to donor Donor gives up use of income for life of the trust |
| Pooled Income Fund | Current income tax deduction
Income paid to beneficiary for life Non-income-producing assets can be converted to income-producing assets |
Income is unpredictable from year to year
Income received is taxed as ordinary income Remainder interest will usually go to only one charity |
| Charitable Remainder Unitrust | Current income tax deduction
Avoids capital gains tax on appreciated property Reduce future estate taxes |
Transfer of assets is irrevocable
Qualified appraisal is generally required Complex administration and setup Distributions to noncharitable beneficiaries are generally subject to income tax |
| Charitable Remainder Annuity Trust | Current income tax deduction
Avoids capital gains tax on appreciated property Fixed income |
Fixed payment cannot be limited to the net amount of trust income
Qualified appraisal is generally required Complex administration and setup Distributions to noncharitable beneficiaries are generally subject to income tax |
| Gifts of Insurance | Current income tax deduction possible
Enables donors to make a large future gift at a small cost in the future |
May require annual premiums
In some cases, the death benefit could be part of the donor’s taxable estate |
While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.
