The transfer of assets to charities has long been used by the rich to reduce their income and estate taxes. Those advantages are now available to individuals and families of more modest means.
Charitable Remainder Trusts and Charitable Annuities are excellent options for those who wish to make gifts to charities, but who also want to create a stream of income, at rates often above those offered by financial institutions, for themselves or their families. Both Charitable Remainder Trusts and Charitable Annuities have the following tax advantages:
(1) They reduce the donor’s estate for death tax purposes;
(2) They create an immediate charitable deduction for income tax purposes–which is based upon the amount of income to be paid to the recipient and the recipient’s age; and
(3) If low-basis assets are contributed to a charity, the donor avoids paying capital gains tax on the appreciation of the contributed asset.
For individuals looking to make substantial gifts with no need for income, a private foundation is an excellent vehicle for not only generating an immediate tax deduction, but for also providing parents with an opportunity to include their children in family decisions as to which charities will be benefitted in the future, and to create a charitable legacy for future generations.