Charitable Giving that Pays Both Ways

Investors commonly perform “tax harvesting” measures late in the year to reduce their taxable income for the current year, or even create more spendable Social Security income in the next year. A lesser-known component is the Charitable Remainder Trust (CRT), an all-year option that not only reduces taxable income, but can return income generated by the trust to the donor or their designee(s)

Giving USA, a public service initiative that tracks giving, recently stated that 2015 philanthropy in the United States - the most benevolent country in the world -reached nearly $373 billion. The organization’s 2015 report indicates:

• Individual giving is the largest sector at 71%, followed by foundations at 16%, charitable bequests at 9% and corporations, 4%.
• The largest recipient categories are religion, education and human services.
• Gifts from $1 - $100 matter, and more people gift than vote.

In many - and if not most - cases, a good-hearted individual or couple 1) makes a gift, 2) feels very good and 3) gets a tax deduction. And that’s the end, until repeated.

Well-advised donors can do the same, but can also establish a CRT, whereby larger gifts are paid into a trust that will hold the gift for up to 20 years for an intended beneficiary. In general:

• Gifts can be made with cash, stocks, real estate or other assets like insurance, and are deductible the year the gift is made.
• Income earned by the trust can be paid to the donor or a designated recipient during the life of the CRT.
• The intended beneficiary generally receives their gift at the end of the trust or the passing of the donor.

Giving has been and remains important to the economy, totaling about 2% of Gross Domestic Product. Both 2014 and 2015 were strong giving years, with the combined growth a 10% increase over 2013, per Giving USA. As the economy continues to recover, it may make more and more sense for donors to evaluate the give – and the take – of philanthropy.