global Tax Charitable Donations: Give Now or Later? March 21, 2017 Give back during your life or posthumously? If you give during life, you can receive a double tax benefit, but giving after death can offer more financial security during life. Should you make charitable donations during your lifetime or through charitable bequests at death? Here are several tax and nontax factors to consider when you answer this tough question. Tax Considerations Lifetime gifts generally have a significant tax advantage over testamentary donations that happen after your death. If you leave cash or other property to charity in your will, your estate is entitled to a charitable deduction to the extent the property’s value is included in your gross estate. But, if you donate property during your lifetime, you’ll receive a double tax benefit: The property’s value (plus any future appreciation) will be removed from your estate; plus, you may be able to deduct the donation on your federal income tax return. The deduction is limited to a percentage of your adjusted gross income (AGI), ranging from 20% to 50%, depending on the type of property and charity. For example, Lois plans to donate $1 million to a qualified public charity in her will. Assuming she’s subject to federal estate taxes at a 40% marginal rate, her estate’s charitable deduction will save $400,000 in taxes ($1 million × 40%). Now let’s suppose that Lois makes the donation as a lifetime gift instead. Assuming that she’s in the top federal income tax bracket and the AGI limits aren’t a factor, her current donation would save $396,000 in taxes ($1 million × 39.6%). It also results in a net reduction of her estate by $604,000 (the $1 million gift less the $396,000 tax benefit), which saves $241,600 in estate taxes (40% × $604,000). The bottom line? Making the donation during life, rather than at death, generates an additional $237,600 in tax savings. Beyond Taxes Another critical consideration when contemplating a substantial lifetime gift is uncertainty about your financial future. If you’re concerned about future market fluctuations or outliving your retirement savings, you might prefer to make charitable donations through your will or trust to ensure that you meet your personal financial needs before sharing your wealth with others. On the other hand, if you’re confident in your financial security, lifetime gifts offer several nontax advantages. For example, they enable you to help your favorite charities sooner rather than later. And they give you the satisfaction of seeing how your gifts benefit your favorite charitable organizations during your life. Best of Both Worlds If you want to have cash flow to fund your living expenses but still want a current tax deduction for charitable donations, there are various tools that can help combine the benefits of lifetime and testamentary giving: Charitable remainder unitrust (CRUT). You can transfer cash, securities or other appreciated property into this type of trust. Then the trust pays you a fixed percentage of the principal (revalued each year). Charitable remainder annuity trust (CRAT). This vehicle is similar to a CRUT, except the trust makes fixed annual payments to you or to beneficiaries you name. Its payout is fixed through the term of the trust, no matter how the investments perform in the trust. Charitable gift annuity. This gifting vehicle involves a contract between a donor and a charity, whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity. Finding Balance If you’re charitably inclined, talk to a member of our Private Client Services team. We can help you strike an appropriate balance between your charitable goals and your personal financial needs. Also, visit our Charitable Giving Strategies page.