This area is blessed to have so many generous business owners and individuals who support local charities and faith organizations. I’m most commonly advising clients on how to leave a certain amount of money or a percentage of their estate to these organizations upon their passing (as opposed to during their life). However, with the way the income and estate tax laws have changed, this type of charitable contribution does not provide as much tax savings as it once did.
In terms of income taxes, there is usually very little income from the trust upon a client’s passing and this means that the charitable deduction has minimal savings. As far as estate taxes, the amount that can be protected has risen so much that this year that a single client must have more than $5.45 million and a couple must have $10.9 million before they are faced with this tax. If someone’s net worth is less than these exemption levels, no estate tax is due and this would eliminate the tax benefit from this charitable contribution.
For these reasons, I encourage business owners and individuals to consider making more charitable contributions during their life. To make a significant impact, some business owners and individuals set up what are called a “donor advised fund.” This can be done at a local community foundation or certain national institutions. The main purpose of this fund is receive a tax deduction today, but have the donated funds go to charities or faith organizations over a longer period of time. The charitable contribution can be made in a number of ways, but the sale of a business or contribute money from very profitable years are very common ways these accounts are funded.
Some business owners and individuals build up their “donor advised funds” and look to use a significant portion of them during difficult economic times. Remembering back to the last recession, many people faced financial challenges. Charities and faith organizations struggled to meet those needs. These “donor advised funds” can be a great benefit to help these organizations when they and people in the community need it most.
If you have any questions about this type of charitable planning, feel free to contact me.