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Giving and Tax Planning in 2020

Charities are talking about how the CARES Act provides incentives for donors to make charitable gifts in 2020.

[caption id="attachment_1113" align="alignleft" width="185"] Chris Askin, CSPG, CFRE
President/CEO[/caption]   I especially hear about how 2020 is the best year ever to establish a Non-Grantor Charitable Lead Trust. From three separate trustworthy and informed sources,I have heard this, so I want to help spread the word while there is still time remaining in 2020 for donors who may benefit. A Non-Grantor Charitable Lead Trust is a fit for donors who want to pass appreciated assets to heirs and reduce gift or estate tax consequences. The donor contributes money to the trust, from which the charity receives payments, and following a term of years, the heirs receive the asset tax-free.

Donors pay gift taxes on the present value of the projected remainder going to heirs. But the tax is discounted by the term of years where the charity will receive income, and this can be structured, so the present-day value results in little or no gift taxes.

  • One of the reasons a Non-Grantor Charitable Lead Trust is so popular is that many people believe the current high estate tax threshold will be reduced, so assets intended for heirs can go into the trust, and the trust can make charitable contributions for the donor. For donors who are maxed out on their deductions or who have seen reduced benefit from itemizing deductions, this is a great way to make charitable gifts and receive substantial current and future financial and estate tax benefits.
  • Another benefit of this unique gift strategy is that many people have investments that grow much more quickly than the market, and with this gift plan, any substantial growth also goes to the heirs tax-free.
  • A third benefit is that a donor can transfer property or companies using Non-Grantor Charitable Lead Trust. The Kennedy Family famously used this technique to transfer the Chicago Board of Trade. Virtually any income-producing asset, or asset used in coordination with liquid assets, can be placed in the trust.
In an example recently shared by Russell James, Professor at Texas Tech University, a gift of $10m to a CLT would result in $543,000 to charity per year for 20 years, with a $0 gift tax on the original gift. Using an estimated 8% growth, the actual remainder to heirs after 20 years is $21,758,079 with no gift tax so free and clear to them. It should be noted that the CLT does pay income taxes but deducts charitable distributions, usually without income limitations. The gift of an asset that increases in value and provides income that matches the charitable distributions would avoid taxes while growing the remainder value.
Families of means use the Non-Grantor Charitable Lead Trust in accordance with their family values of generosity and giving back to their community. By doing so, they avoid taxes and can pass substantial assets to their children/grandchildren. For donors who already have charitable bequest arrangements, this strategy provides a no-cost way to begin the bequest distributions to charity earlier and a no-cost tax-free transfer method to family.
The Community Foundation of Western Nevada works in concert with professional advisors and clients. We can not only help administer these trusts but also carry out the plans for the donor for the charitable distributions. If the donor wishes, their family can be involved with the distributions, much like a private foundation, serving as philanthropic advisors engaging heirs in the family philanthropy. To learn more, please give me a call. We help people who care with causes that matter, and we do so with your financial and estate goals in mind. Chris Askin, President/CEO 775-333-5499