Advanced Strategies

CHARITABLE SUCCESS SOLUTION® | DONATE SMARTER

Some people see charitable giving as a means to an end, wanting to benefit from the transaction and looking for tax savings. Others want to help the charity and are not necessarily looking for personal gain.

  • What if you could combine the two more effectively and donate smarter?
  • What if you could take advantage of available tax laws and strategies that generate greater benefits you as the donor?

Our Charitable Success Solution® utilized a new Pooled Income Fund (PIF) and/or Charitable Lead Trusts (CLT) to offer well-designed giving strategies that can enhance a donors retirement estate planning while satisfying benevolent interests.

What are some options?

NEW Pooled Income Fund (PIF)

A type of mutual fund comprised of gifts that are pooled and invested together. Income from the fund is distributed to both the fund’s participants and named beneficiaries according to their share of the fund. If you are a donor to the fund, you and the other income recipients you choose receive quarterly payments for life, and upon your death the value of the assets will be transferred to the beneficiaries. Basically, a pooled income fund allows you to do three things: 1) receive income distributed from the PIF, although it will vary and is not guaranteed, 2) claim a current tax deduction and 3) designate a future gift to charity.

Example:  You donated stock with a value of $100,000 to a PIF. You designate a charity to eventually fund scholarships for underprivileged students.  You designate yourself to receive the PIF’s distributed income.

By transferring the stock to the PIF, you as the donor do not recognize a capital gain on the appreciated value since original purchase, so you avoid capital gains tax. You will also receive a charitable deduction for the year you enter into the pool and based on your age which should reduce your total tax bill.

The 2018 tax year looks to offer a historically high tax deduction for new pooled income funds (less than three years old) .

Why is the tax deduction so high? IRS Revenue ruling 96-1

A PIF is very similar to a charitable remainder trust, the difference is that the donor doesn’t have the legal cost of setting up the trust. The charity has set it up and bears the administrative cost.

Charitable Lead Trust

A trust designed to reduce beneficiaries’ taxable income by first donating a portion of the trust’s income to charities and then, after a specified period of time, transferring the remainder of the trust to the beneficiaries. Using a CLT the donor is able to reduce taxes upon the estate left by the deceased. This is done by donating to charities from the estate until all taxes are reduced. Once this is accomplished, the estate is then transferred to the beneficiaries, who typically will face lower taxes. Many different organizations offer information regarding the set-up of these types of trusts. Examples are universities, colleges, and non-profit societies.

WHICH CHARITABLE GIVING STRATEGY IS RIGHT FOR YOU?

Use the Charitable Gift Analysis (CGA) online tool.

Contact us and an LMA team member will talk about your needs and put together a detailed analysis. It is important to include your tax professional in this discussion and we are happy to provide them with an analysis as well.

ARE YOU A CHARITY?

LMA can be a valuable educational source for your donor base. Let us help you increase your funding pool and identify new benefactors. LMA can offer charitable organizations:

  • One-on -one educational sessions on utilization strategies with PIFs and CLTs.
  • Participate in organizational events, speaking engagements and conferences.
  • Arrange group seminars to educate donors how they can enhanced tax saving strategies.

You should not act upon this information without obtaining specific advice from your tax professional. This information was not intended to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. Lara, May & Associates, LLC, its members, employees, and agents (“LMA”) shall not be responsible for any loss sustained by any person or entity that relies on the information contained in herein. This information may not be current and the author has no obligation to provide any updates or changes. Accordingly, certain aspects may be superseded as new IRS guidance or interpretations emerge. LMA representatives are not licensed tax professionals. Charitable giving may not be right for everyone. A detailed analysis should be completed based on a donor’s individual need and unique situation to determine what is a suitable course of action. Donors are strongly encouraged to consult with their own tax professional with respect to taking any actions. Assets donated to a PIF are not an investment but a donation to a charitable organization and are irrevocable.  Income produced by a PIF is typically paid out quarterly, is subject to the underlying performance of the PIF, including performance, market risks, expenses and fees, is not guaranteed and will vary. The income distributions to the beneficiary should not be relied upon as an income source and are taxable as ordinary income.