Giving to the IPA
by Joseph A. Dunn, Jr.
would like to see more of your money going to a charity in which
you believe, and less to taxes, please consider giving to IPA [a
501(c)(3) charity]. This article will review how trusts can be used
to make your gifts to IPA work even harder. Some of the issues are
quite technical, so if you want to explore the use of trusts, I’ll
be happy to walk you through the process over the phone.
Outright gifts of cash, checks, or assets (stocks, bonds, real
estate, etc.) to the general fund are always welcome and can be
tax deductible. You may also wish to consider designating an amount
to IPA in your will. In addition, two types of trusts can be used
to help leverage the value of your charitable gifts and reduce certain
types of taxes.
Following are some examples of estate planning techniques that
may be beneficial to both you and the IPA.
Charitable Lead Trust
When your assets, such as stocks, mutual funds, or property are
transferred to a properly structured charitable lead trust (CLT)
any income generated by the trust goes to IPA. Upon your death,
the assets in the trust revert to your beneficiaries. It is especially
useful if the assets placed in the trust have appreciated because
there are no capital gains taxes to be paid by you. In addition,
there are appropriate current tax deductions that apply.
Charitable Remainder Trust
When assets are transferred to a properly structured charitable
remainder trust (CRT) the trust pays an income to you (and, if applicable,
your spouse or beneficiary) during the donor(s) lifetime(s). After
the death of the donor(s), assets in the trust go to the IPA.
• Assets placed in the trust may be partially deductible
for income tax purposes
• Appreciated assets become exempt from capital gains
• Trust assets are not considered part of the donor’s
estate for estate tax purposes.
The tax advantages of CRTs make them well suited for highly appreciated
assets like stocks, real estate, and mutual fund shares. This allows
the charity to receive a larger gift than if the donor sold the
asset, paid capital gains taxes and then donated the after-tax proceeds
to the IPA.
Depending upon your circumstances, you might wish to place your
personal residence into a trust, while retaining a life interest.
In this scenario, you would irrevocably deed your home to IPA, but
retain the right to live in it for the rest of your life or for
a specified period of years. In addition, you could rent all or
part of the property to someone else or sell it and proportionately
share in the proceeds with the IPA. At the time you establish your
retained life estate agreement, you qualify for an appropriate,
immediate tax charitable deduction.
Donations to CRTs and CLTs are irrevocable, and can not be taken
back once made.
Life insurance can also be used to benefit IPA. You may wish to
consider taking out a life insurance policy: you are the insured,
you pay the life insurance premiums, and IPA owns the policy and
is beneficiary. In this scenario the life insurance premiums are
tax deductible to you.
When you donate, think how you and your heirs can benefit by reducing
your income or estate taxes. A recent story I heard was of someone
who had inherited money and realized upon her mother’s death
that while the heirs received 50%, the government took the other
50% for estate taxes. With proper planning (and possibly up-front
tax deductions) the government’s “share” of 50%
could have gone to a favorite charity. However, this can only be
accomplished with appropriate financial planning prior to the person’s
Donating in a way that maximizes the benefit to IPA and to you
may seem complex. However, when leaving a substantial legacy to
any charity, you may wish to consult with either your attorney,
tax accountant, or financial advisor to determine if any of these
strategies could work well for you. If you need further information,
please call me at 301-897-9611.
This article appeared in the July 2004 IPA Newsletter.