Advantages and Disadvantages of Charitable Gifts
The most immediate advantage to you for making a charitable gift during your lifetime is the reduction of your taxable base. In addition, you are able to control where the assets are going and how they will be used. You are creating your legacy by supporting an organization you care about. As a bonus, you are entitled to a charitable deduction on your income tax return in the year you make the gift (depending on your income level). If you make a charitable gift through your estate, your estate is eligible for the charitable deduction, thus reducing your taxable base.
Disadvantages of Charitable Gifts
One of the cited advantages of life income gifts — removal from your estate — could be a disadvantage if you later need funds for medical care or some other emergency. If you become ill and need cash for your health care, you cannot retrieve these funds. If your estate assets decline in value and there is less than you anticipated for your family, you cannot take back the gift you made to the charity.
Once a life income gift is created, it is irrevocable and IRS will not allow it to be undone. With people living much longer than in years past and possibly needing nursing care in later life, it is important for you to be sure you won't need these gift funds in the future.
If you are insurable, you could buy additional insurance for your heirs to replace the charitable gifts you intend to make. You will need to keep the value of the policy under your exclusion amount or think about using an irrevocable life insurance trust, which was explained in Chapter 18.
Your family might also be annoyed with you for not leaving them a greater inheritance. If you are able, during your lifetime, to explain what you plan and how charitable gifts fit into the plan, your heirs may be less disappointed. And, if the inheritance would be going to taxes anyway, your plan should make sense to them.
There are many reasons for making charitable gifts, either during your lifetime or through your will or trust. Sometimes individuals seek tax benefits, to reduce both their annual income tax and the potential estate tax. Many individuals, however, wish to support their favorite charities in some way, and the tax benefits are secondary. For whatever reason you might consider a charitable gift — either now or through your estate planning — be sure that the gift does what you want it to do for the charity and that it does not hurt your family.
