Charitable giving in Indiana can be part of your estate plan. When you understand all the facts and take the correct steps you can assist nonprofit enterprises of your choosing while gaining tax efficiency in the process. Right now the estate tax exclusion is $5.25 million, and the top rate is 40%. When you are planning ahead for the future you should inventory your assets so that you have an understanding of your net worth. If your assets exceed the estate tax exclusion you must take steps to preserve your wealth. Charitable giving in Indiana can be part of the plan.
Charitable Giving in Indiana
a) Direct Lifetime Giving
One way to get assets into the coffers of a charitable organization would be to simply give a donation directly while you are living. You get a tax deduction, and you are reducing the value of your estate by the amount of the gift. There is a gift tax in place, and it is unified with the estate tax. The $5.25 million exclusion that we mentioned applies to the value of your estate and the taxable gifts that you give throughout your life. Fortunately, gifts to approved charities are exempt from the federal gift tax.
b) Private Foundations
Because of the fact that we have all heard of private foundations that have been created by very wealthy people, such as the Bill and Melinda Gates Foundation, you may get the wrong idea. Yes, billionaires do in fact start private foundations, but you don’t have to be a billionaire to create your own foundation. The majority of the foundations in the United States are operating with less than $1 million in funding. There can however be considerable administrative costs involved in operating a foundation, and as a result many people look for alternatives.
c) Donor Advised Funds
A donor advised fund would indeed be an efficient alternative to a private foundation. The fund itself provides the infrastructure, and numerous donors are working with the fund so the administrative costs are low. As the name implies, you as the donor advise the fund with regard to where your money is going to go. You can ultimately support a number of different charities, but you only deal with one entity for accounting purposes. You are entitled to a charitable deduction when you make a donation into the fund, and there’s no capital gains tax on appreciated securities contributed into the fund.
d) Charitable Trusts
Another possibility would be the creation of a charitable trust such as a charitable lead trust or a charitable remainder trust. With a charitable lead trust the charity that you choose receives income from the trust for a prescribed period of time and a beneficiary assumes ownership of what is left over. Anticipated interest is added by the IRS to calculate gift tax responsibility. However, if the assets outperform the rate that was applied, you gain tax efficiency. Appreciated securities conveyed into a charitable remainder trust ultimately benefit the charity after you or someone you select receives income from the trust in a tax efficient manner.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.