Thinking of giving to charity this holiday season? You’re not alone. For many people, the holiday season is also the giving season. Perhaps you’re going to donate old items such as clothes, toys or furniture. Or maybe you’d like to donate your time and volunteer with your favorite charity.
Of course, you may be considering a much more sizable donation, like a significant amount of assets. A monetary donation to a charity can obviously be helpful for the organization. It can also provide you with important tax benefits. And you get the benefit of seeing how your donation can help others.
Before you write a check, though, you may want to meet with a financial professional. You can give money or assets to a charity in a variety of ways. The right strategy depends on your needs and goals. Below are a few ways you can donate to your favorite charity:
Perhaps the simplest approach is to write a check to your favorite charity each year. This strategy is straightforward, and it gets the funds to the charity in the quickest way possible. You also may be able to deduct your donation from your taxes.
Talk to a tax professional before you do this, though. There are caps on how much you can deduct as a charitable gift. You also may be able to carry forward some of your gift as a deduction in future years. If you’re contributing assets like securities instead of cash, the deduction rules can be somewhat complicated. A financial professional can help you develop the right strategy.
Do you have a permanent life insurance policy that you no longer need? You could stop paying the premiums, surrender the policy and take the cash value as a lump sum. However, that would create a taxable event.
An alternative is to donate your policy to charity. You simply transfer the policy to the charity, which becomes the owner and beneficiary. Upon your death, the death benefit is paid to the charitable organization. The policy also continues to build tax-deferred cash value.
When you transfer ownership of the policy to the charity, you may be able to deduct your past premium payments from your current tax return. You also may be able to deduct any future premium payments that you make. You get a current tax benefit, and the charity gets a sizable donation in the future.
Perhaps you want to leave part of your estate to a favorite charity. One way to do this is with a charitable remainder trust. You set up a trust for the benefit of your charity and then transfer assets into the trust. The trust then manages those assets and possibly even sells them for diversification purposes. Because the trust is meant for charity, you avoid any taxes related to gains.
The trust invests the assets to generate income, which it pays to you for the remainder of your life. When you pass away, the trust distributes the assets to the charity according to your instructions. A charitable trust can be a powerful gifting tool, but it can also be complex. A financial professional can help you determine if it’s right for you.
Ready to develop your gifting strategy? Let’s talk about it. Contact us today at Senior Care Alliance. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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