Financial Focus When You Make Charitable Gifts, Everyone Wins

During this upcoming holiday season, you may think fondly of the many wonderful things that a special charitable organization has done for you, your family and others. And you may wish to show your support in a tangible way. When you do, everyone’s a winner.

Of course, you may want to volunteer, or give cash donations. But if you want to do even more, take a look at your investment portfolio - it can provide support to your favorite charity and tax benefits for you.

If you have stocks that have weathered recent market conditions and grown significantly in value over the years, you may want to donate them to the charity of your choice. By doing so, you’ll owe no capital gains tax when the stock is sold, as long as you’ve held it for at least a year. Furthermore, you can deduct all or part of the gift from your current income taxes.

You can always just give your appreciated stock outright to a charity. But if you choose to make your gift through a charitable remainder trust, you can get tax and estate planning benefits.

Here’s how it works: You donate an appreciated asset, such as a stock or piece of real estate, to a charitable remainder trust, which then sells the asset and uses the proceeds to purchase a portfolio of securities. From these investments, you receive an income stream for life; upon your death, the charitable organization receives the remainder of the principal.

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.

You may have noticed that this scenario seems to omit one important element - your family. If you transfer the bulk of your appreciated assets to a charitable remainder trust, aren’t you removing resources from your estate that would otherwise go to your children, grandchildren or other heirs?

In a word, yes. Assets that go to a charitable trust can’t also go to your family. However, you can use some of the income from the charitable remainder trust to purchase a life insurance policy on yourself, with your heirs as beneficiaries. Keep in mind, however, that the proceeds from such a policy will go into your taxable estate.

To avoid this potential problem, consider placing the life insurance policy in what’s known as 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. But if you want the steady stream of income, a charitable remainder trust may be the more attractive option.

Regardless of which route you take, you’ll be helping a valued institution and yourself. That’s a true “win-win” situation.

This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, 301-733-9465; Dave Walker, 301-766-7300; Joan Bowers, 240-420-8514; and John R. Pullaro, 301-766-7300.