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Help Charities While Still Alive
Foundations and philanthropic organizations have placed great emphasis for years on planned giving and providing potential benefactors more vehicles to provide a lasting gift.
"We're doing a lot better at it — and a lot of charities are," said Molly Parker, vice president for development at the Grand Rapids Community Foundation.
"People are getting a better understanding of it and hearing of it," Parker added.
"These people have been good managers of their money and this allows them to let that good stewardship continue on forever."
A myriad of factors have combined to drive increased awareness of tools such as charitable gift annuities and charitable remainder unitrusts that provide opportunities for people to make a gift now and reap the tax benefits, rather than leaving something to an organization in their will after they die.
Parker said people in general during the 1990s — especially during the bull market — became much more savvy and knowledgeable about estate planning and the long-term management of their finances.
"These people have been good managers of their money and this allows them to let that good stewardship continue on forever," Parker said.
At the same time, she said financial planners and trusts managers also became more interested in steering clients toward consideration of planned giving to foundations.
As a result, community foundations increasingly pushed planned-giving options to potential benefactors.
For example, planned giving enables a benefactor to target their gift to a specific cause or issue in the community such as, say, the environment or education.
"We saw that there was a real need to help clients and donors," said Robert Collier, president of the Grand Haven-based Council of Michigan Foundations.
"They could use community foundations (to make a donation), and whatever the interest they wanted to serve, they could apply it through a community foundation." The council is an umbrella organization for 400 foundations across Michigan.
For people who want to make a gift from their estate while they are living and receive tax benefits, charitable gift annuities and charitable remainder unitrusts are just two of the tools they can consider.
Under a charitable gift annuity, a person gives an irrevocable contribution of cash, securities or other assets to an organization. The organization benefits from the earnings on the donation and pays an annual or semi-annual annuity to the donor himself or a recipient of his choice, often the donor's children.
The donor then gets a tax benefit on the donation and the recipient only pays taxes on what they receive in the annuity payment.
Charitable gift annuities, said estate attorney Pam Tyler of Varnum, Riddering, Schmidt & Howlett in Grand Rapids, are "very popular right now."
Another option, a charitable remainder unitrust, generally involves a larger amount of money.
It involves the transfer of assets to a trustee, such as a foundation, and the trustee invests those assets and pays a fixed percentage of the unitrust's annual value to the donor's designated beneficiaries.
"Basically you use it as a vehicle to set aside your charitable giving during your lifetime," Tyler said.
Among the tax benefits of both arrangements is the reduction of estate taxes, as well as income tax deductions, she said.
While people pursuing these kinds of arrangements are already inclined to make a charitable contribution, the tax benefit "makes the gift easier for the person to do and makes the lifetime gift more beneficial," Tyler said.