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Charitable Giving Strategies Ranging from Simple to Complex
Published Date : April 29, 2024
As the end of 2025 approaches, with it comes the possible reduction of the lifetime exemption, prompting clients to engage their estate planning attorney and Sand Hill Wealth Manager for guidance. For those that have interest in supporting their favorite charitable organizations with large gifts, it may be worthwhile to discuss charitable giving strategies during those meetings with their professional team.
For tax-savvy donors seeking to accomplish their philanthropic goals in a smart way, donors can contribute long-term appreciated stock to avoid capital gains, as well as taking advantage of IRA Qualified Charitable Distributions (QCD) that satisfy retirement required minimum distributions and fulfill charitable goals. With the passing of 2022’s SECURE Act 2.0, QCD limits are now indexed for inflation, increasing the 2024 limit to $105,000 for those age 70½ and older. In terms of planned legacy giving, donors can name specific nonprofits in their estate plan or multi-year tax and income planning. Often it is in the form of a direct gift written into their revocable living trust or retirement account beneficiary designation.
Recently, I sat down with local nonprofit Peninsula Open Space Trust’s Director of Planned Giving, Jeanine Crider, and she was able to share some of the more complex giving strategies that her organization has had success with. Many larger, established nonprofits may have the capability and capacity to receive complex gifts, such as real property, for example. They can work with individuals to establish Charitable Remainder Unitrusts (CRUT), which provide a charitable deduction at trust funding, income payments for a specified term, and the avoidance of capital gains tax by funding the trust with appreciated assets. At the end of the CRUT term, the remainder trust assets are left to the named charitable beneficiary(ies). Often, donors think of funding these types of charitable vehicles only with appreciated securities, but illiquid assets such as rental properties or some life insurance policies can also be gifted.
To expand on the CRUT concept, there is an even more nuanced strategy called a Flip CRUT that could be a solution for certain illiquid assets, such as real property. It allows the donor to receive the charitable deduction at funding but delays the full income payments to a later date when a specified triggering event takes place, such as attainment of a certain age by the non-charitable beneficiary. A Flip CRUT starts as a Net Income with Make-Up Charitable Remainder Unitrust (NIMCRUT) and in this stage, the annual income stream is the lesser of the trust’s net income (think rents collected on a rental property minus expenses) or the standard payout calculated as a fixed percentage of the trust’s assets each year. Once the triggering event takes place and the trust is flipped into a standard CRUT, the standard percentage-based income stream prevails. This can be advantageous if the triggering event timing coincides with the sale of a property inside the Flip CRUT, with the proceeds reinvested into a diversified portfolio owned by the resulting (post-Flip) CRUT.
As highlighted above, there are many ways to accomplish one’s philanthropic goals ranging from straight forward to very complex. When partnering with non-profit organizations, plus one’s broader professional team to include their Wealth Manager, estate planning attorney and tax advisor, individuals should feel confident they are structuring their planned charitable giving in the most effective way to meet their long-term goals.
Source: IRS
Peninsula Open Space Trust (POST) is a regional non-profit land trust working to protect open space on the Peninsula and in the South Bay to benefit people and the environment alike. They report conserving over 87,000 acres so far, including land that has been incorporated into public preserves, as well as land that provides essential habitat for wildlife. To learn more about POST, please visit www.openspacetrust.org.
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