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Family Finance

Planned Giving Provides All-around Benefits

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11/01/2009 - There's certainly something to be said for spontaneous and random acts of generosity. But when it comes to making charitable donations, it may be wise to give some thought to the matter to try and get the most out of every dollar. Planned giving, usually arranged with the benefit of financial and legal experts, refers to strategies that can help you maximize your giving in a way that can be financially beneficial to everyone involved — including you, the donor.

A little planning can make charitable donations go a long way

When you think through and compare various options for charitable contributions, it's easy to see how planning can lead to more profitable giving.

Donating cash versus appreciated securities. The form of your charitable donation can make a difference. For example, you can choose to simply write a check for $10,000 to your favorite tax-exempt charity. Your check benefits the organization you wish to support and you reduce your estate value. People who itemize may also be able to deduct the gift from their taxable income for the year, subject to adjusted gross income (AGI) limitations. However, you may want to look into your portfolio and, in consultation with your financial advisor, make a comparable gift in the form of securities.

By donating appreciated stock with a current value of $10,000, for example, you receive an immediate income-tax deduction for the shares' full appreciated value (as long as you've held the publicly-traded shares for more than one year and your deductions remain within AGI limitations). By giving away the stock, you also avoid a tax bill for any capital gains tax on the shares' appreciation. Thus a gift of appreciated stock yields a dual tax benefit for the donor, while giving the charity the option to hold the stock in hopes of further appreciation or sell for a cash infusion.

Bequest after death versus charitable remainder trust. If you have large stock holdings and want to continue to benefit from your investments — but also want to share your wealth with your favorite charity — there are a number of ways to go. You can simply send the charity of your choice a check once a year and take the deduction on your taxes (subject to AGI limitations). You can also make provisions in your will to leave a portion of your assets to the charity. There are other options available that a financial and legal advisor can help you explore that may allow you to give more to your favorite charity while you are still living. For example, by placing your assets in a charitable remainder trust, you receive income for the remaining years of your life or for a specified length of time of 20 years or less. If you select a charitable remainder unitrust, the amount you receive will adjust to reflect changes in your trust asset balance. As an irrevocable gift (meaning it cannot be changed), you can claim an immediate charitable income tax deduction for the value of the charity's remainder interest (again, subject to AGI limitations). Any amount exceeding the AGI limitation can be carried forward up to five years. Because the trust is essentially removed from the estate, it may reduce estate taxes. This form of giving also provides the added benefit of enabling you to enjoy the personal satisfaction of giving while you're alive. And, the charity benefits by being the recipient of whatever remains in the trust at the end of the term.

Estate tax changes are looming.

Estate taxes, which can take a big bite out of an inheritance, are a moving target. Unless Congress takes action to prevent it, the estate tax is scheduled to expire for one year in 2010. In 2011, it is scheduled to resume with a lower exemption and higher rates. Proper planning, which takes into account changing estate tax laws, can help you make the most of your charitable gifts.

Take advantage of professional advice

Talk to your financial advisor to discuss how your giving goals fit within your overall financial plan and explore strategies for planned giving. A tax advisor can help you sort out how charitable donations affect your tax bill, while a lawyer can help you draw up necessary papers for a legal agreement such as a trust. With proper advice, it's easier to be a good steward of your resources as you support organizations you value.


Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA & SIPC.

This information is not intended as legal or tax advice. Please consult with your legal and tax advisors regarding your individual situation.

©2009 Ameriprise Financial, Inc. All rights reserved.

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