Deferred Charitable Giving

Deferred donations, often called deferred giving plans, usually allow you to retain the benefit of the donated funds while providing a gift to charity at a later date. You receive an immediate income tax deduction for the value of your gift, and you avoid paying capital gains tax on a gift of appreciated property.  It is important to remember that a contribution to any of the deferred giving type funds is irrevocable.  There are several options a taxpayer may consider:

Option 1: Pooled Income Fund

Pooled income funds provide you with the simplest and perhaps most common form of deferred charitable giving. These funds entitle you to an income tax deduction in the year that you make your contribution and to a stream of income for life for you and/or your spouse. If your donation includes appreciated property, such as stock, no capital gains tax will be imposed on you or the pooled income fund. However, the downside is that since the value of your income depends on the investment return of the pooled income fund, your income amount will vary.  The income earned by the pooled income fund is usually distributed to you quarterly or annually and is treated as ordinary income subject to income tax, and is reportable on your personal return.

Option 2: Charitable Remainder Trusts

Similar to a pooled income fund, a charitable remainder trust (“CRT”) entitles you to income for a fixed period of time following your donation and eventually pays the principal to the charity. However, CRTs provide more options for the payment of the income than pooled income funds: you can choose to receive either a fixed annuity payment or a “unitrust” payment, which increases with the appreciation of the trust asset’s value.   The contribution to the CRT is based on the present value of the assets that will eventually go to the named charities.  As with a pooled income fund, the payouts from the CRT are taxable to the donor.

Option 3: Charitable Gift Annuity

This option offers you the greatest security. You provide a gift and receive, in return, a lifetime annuity and a charitable income tax deduction. Because the annuity payment is an obligation of the issuing institution, you are guaranteed a fixed amount of income for a pre-determined period of time.  The amount cannot be indexed for inflation and will not fluctuate, but is backed by the charity’s entire asset base, not just your gift.  The amount of your deduction is based on the fair value of the gift less the present value of the annuity stream guaranteed to you.

For more information or if you have any questions concerning your charitable gifting, please contact us.