Gifts During Lifetime
If you are looking to reduce the size of your estate or your current income taxes, or you simply wish to support a charity while you are living, there are many methods of making gifts. Outright cash is always welcome by charities, and most charities have annual campaigns requesting such support. You can simply write a check each year, or you can make a pledge for a certain sum over a period of years to have a greater impact.
If you give appreciated assets to charity, you are eligible for a deduction for the full fair-market value on the date of gift. You avoid payment of capital gains tax that would result if you were to sell the assets yourself. In addition, you remove that asset from your taxable base.
You could also give tangible gifts such as your books, your art, or your office equipment to a charity. If you give a charity tangible property for its related purpose, you are usually eligible for a charitable deduction based on the current, appraised value of the gift. Thus you reduce your estate, and you also receive a current income tax deduction for your gift.
If you have assets such as stocks or bonds that have appreciated over the years but that you think might decline in value in the future, consider giving those assets to a charity.
If you decide to retain the assets until your death, your heirs will receive a step-up in basis, but the value could do what you anticipated — decline over time. And they will remain in your estate.
There are limits or reductions in charitable deductions if you are in a particularly high income bracket. Check the IRS booklet, Publication 526, on charitable contributions to see whether you're affected.
Real Estate
If your family is not interested in your primary residence, a second home, or a business property you own, you might consider a gift of that property during your lifetime. Again, the property would be valued as of the date of gift, and you will have removed a major asset from your taxable base.
Life Insurance Gifts
If you find you have a life insurance policy that you no longer need for your family's support, you can donate that policy to your favorite charity by making the charity both owner and beneficiary of the policy. You remove the value of the policy from your estate, and you receive a charitable deduction in the year of the gift.
You may name a charity as beneficiary of a policy but, at the same time, you should turn over ownership. If you do not also transfer ownership of the policy to the charity, you have not relinquished control. Thus you will not be eligible for a charitable deduction, and the value will remain in your estate as part of your taxable base.
Examples of policies you may no longer need include a policy you bought to cover your mortgage payments or educational expenses for your children. If the house is now paid for and your children have graduated, you might consider giving this policy away.
Another way to support your charity through life insurance is to give it a paid-up policy. It can be a policy that no longer has premiums due or it can be a new policy requiring a single premium.
By naming a charity both owner and beneficiary of a policy, you give up control of the asset. You are then able to remove that asset from your taxable base. Such a gift could also provide you with a charitable income tax deduction in the year of the gift, which might be useful for your financial picture.
