During this upcoming holiday season, we may think fondly of the
many wonderful things that a special charitable organization has
done for us, our family and others.
During this upcoming holiday season, we may think fondly of the many wonderful things that a special charitable organization has done for us, our family and others.
We may donate our time and efforts at the local food or toy drive. We may volunteer at our children’s or grandchildren’s school. But as we reflect on the ways that these organizations make the lives of those they touch brighter, we may also wish we could do more for them.
If you feel like this, there are additional ways you can help, strictly beyond cash donations.
If you have stocks that have weathered recent market conditions and grown significantly in value over the years, you can donate them to the charity of your choice. You, too, can benefit from this donation. By doing so, you’ll owe no capital gains tax when the stock is sold if you’ve owned the appreciated stock for at least a year. And you can deduct all or part of the gift from your taxes.
You also can help your estate planning by making your donation through a charitable remainder trust. You may do so by contributing appreciated assets – such as stocks or real estate – to the charitable remainder trust. The trust then sells the assets and uses the proceeds to purchase a portfolio of securities. You are then paid an income stream for life, and the organization receives the principal upon your death. By setting up such a trust, you avoid capital gains tax, and you can claim a deduction on your current-year taxes. And because you’re moving assets from your estate, your beneficiaries will have fewer estate taxes to pay.
By transfering the bulk of your appreciated assets to a charitable remainder trust, you need not forget about your heirs. You may wish to use the income from the charitable remainder trust to purchase a life insurance policy on yourself. It is important to note, however, that the proceeds from such a policy will go into your taxable estate. If you’d like to avoid this, consider purchasing an insurance policy in an irrevocable life insurance trust. Because the trust actually owns the insurance policy, the proceeds are kept out of your taxable estate and your heirs will owe less in estate taxes. You can also direct the trust to provide your heirs with regular income.
Before establishing a trust, consult with your legal adviser to learn the full advantages and disadvantages of these complex estate-planning instruments. Should you simply donate an appreciated stock or make your donation through a charitable remainder trust? The answer depends on your financial goals. If a tax deduction is your primary objective, a straight donation may be the best choice for you. If you would like to establish a steady stream of income, a charitable remainder trust may be the more attractive option.
Regardless of which option you choose, you’ll be helping a valued institution and yourself. In short, everyone would be thankful.
Financial Focus is provided by Mark Vivian, a representative of Edward Jones Financial Services. His office is at 615 San Benito St., suite 105. Phone 634-0694.