Planned Giving Helps Green Groups–And Keeps the Tax Man at Bay
Death and taxes may be inevitable, but there are ways to soften the blow. Bequeathing a gift to an environmental group can ensure that your conservation ethic lives on, while also considerably reducing taxes for you and your beneficiaries.
The simplest way to give upon your final departure is to include your favorite ecogroup in your will. If you don’t have a will, you should. Otherwise, when you die all your possessions and assets will be given away according to government formula, not your wishes. You needn’t be rich or have children to have a will, and you don’t even need an attorney to set one up. Don’t tell my lawyer mom I said this, but computer software and three witnesses can create a competent and valid will—particularly if your estate is under $600,000. There’s even a nonprofit educational council, Concern for the Dying, that will send you a free (donations welcomed) set of forms to create a will.
Simply state in your will (or add, if you already have an established one): “I give, devise, and bequeath to [put name of environmental group and address here] the sum of $______ to be used for its general purposes” (or whatever particular program you’re interested in supporting). Instead of an exact dollar amount, you can indicate a percentage of your assets or make your gift contingent on your beneficiaries predeceasing you. Any monies willed to a tax-exempt charity reduce the amount of your estate (which over $600,000 is subject to a heavy federal, and usually state, tax).
Beyond wills, planned giving can get a bit more complicated, but unlike a will, it offers the possibility of current tax benefits. Tax-deductible giving comes in many forms and can be tailored to a variety of individual financial situations. Elizabeth Finch, manager of gift planning at the Natural Resources Defense Council (NRDC), breaks it down into three simplified categories: charitable gift annuities, pooled income funds and trusts.
“A charitable gift annuity is essentially a contract in which, in exchange for your gift-whether it be cash, securities or property-you receive a guaranteed dollar amount every year for the rest of your life,” Finch explains. A large portion of the donated gift gives an immediate tax deduction, and a percentage of the income you receive is tax-free. “Your annual payment depends upon your age when the gift is made and can even be deferred until retirement if you’re young and don’t need it now,” adds Anne Doyle, director of planned giving at the Environmental Defense Fund (EDF). When you or your beneficiaries die, the gift’s remaining principal goes to your designated tax-exempt organization.
Pooled income funds and charitable remainder trusts function similarly to gift annuities. The differences are that a pooled income fund’s annual income varies, depending upon investment performance; remainder trusts are for larger donations (typically $100,000-plus) and offer more investment options. Minimums for pooled income funds and gift annuities can be as low as $5,000 depending upon the group receiving the donation.
All three gift-giving options pay off especially handsomely for those with appreciated property that doesn’t produce much income. Let’s say, for example, you were lucky enough to bet on Bill Gates and your original Microsoft investment of $2,000 is now worth $25,000. If you were to sell your stake, you’d owe taxes on $23,000. By giving the appreciated stock to your favorite eco-charity, the whole $25,000 can be put to work. You’d also get an immediate charitable tax deduction. Everyone ends up happy (except, maybe, the IRS) about keeping your money out of the government’s clutches.
Taking it on Trust
If you don’t feel comfortable denying your heirs the principal of your investments but can manage without the income yourself, consider a charitable lead trust. Essentially it’s the opposite of the remainder trust, in that the charity uses the income from your gift, but when the giver dies, the principal goes to the donor’s noncharitable beneficiaries. Generally, charitable lead trusts are used not for their immediate tax deductions but as a way to benefit a charity while significantly reducing gift and estate taxes.
Death is a part of life, and thoughtfully planning for it extends your life’s work.
MARSHALL GLICKMAN is publisher of the Vermont-based Green Living.