Charitable Giving

In the Grand Traverse area, volunteerism is a way of life.  Our community supports many valuable projects and programs.  Whether it is your church, your school, the arts, the medical community or other civic program, you will at one time or another be requested to give of your self, your time and your money.

There are a number of ways in which a person who wishes to give may do so –  benefitting him or herself, the members of his or her family and the non-profit organization at the same time.  It is important to examine the affordability not only in terms of the immediate out of pocket expense but of the after tax cost as well.

Different types of giving are available to meet divergent economic situations and distinctive family circumstances.  Not every alternative is appropriate for everyone.


There are a variety of techniques and methods available for giving to a non-profit organization which include but are not limited to the following:

• Donations of cash or appreciated property

• Charitable Remainder Trusts

• Charitable Gift Annuities

• Charitable Lead Trusts

• Gifts of Life Insurance

Each of these meets a different need and circumstance.  Each has a differing tax consequence.

Gifts of cash or property

As most taxpayers know, contributions to qualified religious, educational and other charitable institutions are deductible for income tax purposes.  This is the type of gift that most are familiar with and most often made when assisting our church, the United Way or Humane Society.

Gifts of property either personal or real property can also be contributed if the charity acquiesces.  Large gifts must be substantiated by appraisals which establish the actual value of the item or real property being donated.

Gifts of appreciated securities (stocks, mutual funds, and the like) have become very popular as method of giving.  If the donor gives the appreciated security directly to the charity, the donor receives a deduction for the fair market value of the security given.  While the recipient of a gift takes the gift with the same basis (cost paid) as the donor would have for the purpose of calculating capital gain, the charity is able to sell the security without having to pay the capital gain due to its charitable status.  With the capital gain being avoided on such appreciated securities, the donor gets credit for a donation of the full value of the security and the charity gets the full value of the property even after the sale.

A caution with gifting of any kind arises here.  Gifts must be made to organizations which qualify as charities.  Just because something sounds worthy and “charitable” does not mean that the contribution to it is in fact deductible.

Charitable gifts also can have an Estate tax consequence.  A charitable gift can save an estate a maximum of 55% for each dollar contributed.

Charitable Remainder Trusts

This type of giving vehicle involves the establishment of an irrevocable trust in which the income interest from the gift is either retained by the donor or given to a family member.  The remainder of the gift is given to the charity at the death of the donor or some other specified time.  The longer the time it takes for the charity to get its gift, the smaller the income tax deduction.

The trust must be either an “annuity trust” or a “unitrust” under the tax code.

An “annuity trust” is set up to perform like an annuity.  The current lifetime beneficiary (donor, spouse or family member) gets a fixed income each year which is paid out of the trust.  It is not related to the amount the trust earns every year.  In other words, the trust may earn less or more, but the income beneficiary continues to receive the specified yearly income.  This can continue for either a fixed term of years, for the life of the donor or the life of the beneficiary.

A “unitrust” is established to perform like a variable annuity.  The lifetime beneficiary gets a fixed percentage of the value of the trust every year.  If the trust earns more and its value increases, the beneficiary receives more.  The opposite is true as well.

The tax advantages to each type of trust must be carefully analyzed prior to establishing such a trust in order to determine exactly what type of deductions will be received and what type of income will be generated.  Additionally it must be cautioned, these are irrevocable.

Charitable Gift Annuities

A charitable gift annuity agreement is a contract undertaken between a charity and a donor.  The charity agrees to pay an annuity to an individual in return for the transfer of an amount to the charity by the individual.  The contractual obligation is backed by the charity’s assets.  Often the charitable contribution is appreciated property.

The tax consequences involve an immediate charitable gift to the charity.  This amount will be the excess of the fair market value or cash value of the property donated over the value of the annuity.

When the individual receives annuity payments back from the charity, a portion of the payment is considered to be a return of capital.  The balance of the amount is considered to be ordinary income.

Since the contribution of the appreciated property is irrevocable, the value is permanently out of the individual’s estate for estate tax purposes, thereby reducing the value of the estate upon death.

Charitable Lead Trusts

This instrument is another irrevocable trust.  It is designed to give the charity an ascertainable amount of income for a fixed or determinable period of time.    At the conclusion of the interval, the grantor’s beneficiaries receive the remainder or principal which is left.

Lead trusts are best used where the Grantor and his immediate family have no current need for additional income.  The grantor may, however, desire to maintain the asset in the family name to benefit future generations with the property that will appreciate over the year.

Life Insurance Gifts

Gifts of life insurance on the donor’s life may offer many tax, legal and practical advantages to both the donor and the charity.  A charity benefits when it is given the incidents of ownership in a policy of life insurance on the donor’s life.  In addition to being the beneficiary of the policy, the charity can us the cash equivalence when it is most needed, even before the death of the donor.  The charity may also borrow against the policy.


There are many vehicles available for charitable giving.  They differ in approach and in effect.  Some are right for smaller budgets, from for larger one.  Different needs are met by different methods.

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Linda E Wasielewski
attorney & mediator
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