Try out this good recipe for tax-advantaged giving

By Julie Diamond, Special to the Jewish Review

article created on: 2011-11-01T00:00:00

As the days grow shorter and we look for our favorite Thanksgiving recipes, it’s also time to think about year-end taxes. Our financial lives are not separate from our personal values, beliefs and passions. These parts of ourselves are reflected in our tax and financial plans, and philanthropic giving. It all melds together as a whole, much like the secret ingredients in that pumpkin pie that you eat too much of year after year.

Whether you have modest assets or a large estate, the Jewish values of tzedakah (justice) and tikkun olam (repairing the world) can be effectively expressed through your financial plan. You might be surprised to learn that you, too, can be a “philanthropist” once you find the right approach to planned giving—meaning a gift to a nonprofit that is more complex than writing a check. Typically, planned gifts are included in your will, such as bequests, or in your estate plan. Many strategies for tax-advantaged charitable gifts include giving right now and can create income, endowment and protect assets for your spouse and heirs.

With Congress reviewing proposals to reduce charitable tax deductions plus the ongoing changes in estate taxes and possible revisions to tax rates in general, it’s important to consult with your tax or financial advisor in making these decisions. You may even find tax advantages in accelerating your giving in this calendar year.

Gifts of appreciated assets

When you donate appreciated assets such as stocks to a nonprofit, the nonprofit will liquidate them at the fair market value and you receive a tax deduction for that amount, allowing you to bypass the capital gains taxes and make a sizable donation. The gift can be used for a nonprofit’s annual expenses, for a program or to create an endowment, meaning a permanent asset for the nonprofit that will provide between 4-5 percent of the principal amount (gift amount) each year for the nonprofit. Endowments can supplement an organization’s budget by as much as 20 percent or more, providing much needed stability especially during challenging financial times when annual fundraising can fall short of organizational goals. Endowments also provide an enduring way to honor the memory or name of a loved one or family.

A popular way to organize your giving is through a donor advised fund. You can donate your appreciated assets to establish such a fund and then make advised grants from the fund to your preferred nonprofits later on. You get the tax deduction at the time of your gift and the flexibility to distribute your charitable dollars from the fund when you’re ready. The Oregon Jewish Community Foundation provides many donors with the convenience of donor advised funds and monthly grant-making privileges.

IRA Charitable Rollover

Available until Dec. 31, 2011, the IRA Charitable Rollover allows individuals 70½ years of age to make a direct transfer of up to $100,000 from their IRA to a qualified public charity such as any of our Jewish organizations including the Jewish Federation’s Annual Campaign. These contributions can be used for general operations or to create endowment. For example, an endowment of $50,000 will generate an annual distribution of approximately $2,500. Even modest endowments like these are meaningful.

While there is no new tax deduction when a donor makes this kind of distribution to charity from a IRA, the donor avoids paying income tax on the gift amount. IRA rollover contributions, however, cannot be made to donor-advised funds, supporting organizations or private foundations.

Charitable Gift Annuities

Charitable Gift Annuities have been growing in popularity because they are relatively easy and give the donor several important advantages including a charitable deduction, guaranteed income for life and the potential for endowment after the annuitant passes. CGAs can be funded with cash or appreciated assets thereby adding the benefit of bypassing capital gains. The American Council on Gift Annuities provides research on risk, investments and rates to nonprofits. In our community, the Oregon Jewish Community Foundation offers donors CGAs for the benefit of our Jewish organizations. The current rate for a 75 year old, single life is 6.5 percent; for an 80 year old, 7.5 percent; and 90+ years old, 9.8 percent. Typically, annuity payments are quarterly. The annuity remainder after the donor’s death benefits our community as a permanent endowment.

Life Insurance

There are many ways to use life insurance as a form of charitable giving including purchasing a new policy and naming a nonprofit as a beneficiary. The donor will have the benefit of making a tax deductable gift each year when he or she pays the premium to the nonprofit. Eventually, the policy may “carry itself” and the donor won’t need to continue the annual premium payments. When the donor passes away, the policy will pay out to the nonprofit, leaving a much larger gift than the donor could have made during his or her lifetime. There are many other ways to use life insurance as a charitable gift; consult with an insurance professional to explore the possibilities.

Other opportunities for emotional and financial benefits include charitable remainder trusts, charitable lead trusts and designation of qualified retirement assets to a nonprofit. From complex estate plans to a simple commitment of 5 percent of your estate as a bequest, you can find the approach that’s best for you and your family. Your estate attorney, CPA, financial advisor or a nonprofit planned giving professional can help evaluate your unique situation.

As we reflect on our blessings in celebration of Thanksgiving, we can include the richness of our Jewish heritage of 5,000 years. How our community looks in the next 10, 20, 100 or 1,000 years is up to us. By making wise choices about charitable giving, you can make a real difference and take advantage of tax deduction benefits, too. It’s a great recipe for creating a Jewish legacy, something so much more rewarding than just a good financial plan. Like the difference between canned pumpkin and fresh pumpkin in that beautiful holiday pie.

Julie Diamond is the executive director of the Oregon Jewish Community Foundation. For more information on how the foundation supports donors and community organizations, call 503-248-9328 or visit www.ojcf.org. For planned giving information visit www.ojcfgift.org.