by Ken Stelts, Investment Counselor
"If you haven't got any charity in your heart, you have the worst kind of heart trouble." These words, spoken by Bob Hope, reflect the feelings of millions of Americans.
Each year, donations to religious, civic and educational institutions help feed malnourished children, give families in need a helping hand, and provide neighborhood children a safe place to play after school. In short, they help make this world a bit brighter for us all.
Many of us would like to do more if we could. If you feel this way, here's two ways, beyond strictly cash donations, that you can contribute.
Donate Appreciated Stocks
If you have stocks that have grown significantly in value over the years, you can donate them to a charitable organization. Not only will the charity benefit, but so will you. That's because you'll owe no capital gains tax when the stock is sold if you've owned the appreciated stock for at least a year. Better yet, you can deduct all or part of the gift from your taxes.
Establish a Charitable Remainder Trust
You also can help your estate planning by making your donation through a charitable remainder trust. Here's how it works: You contribute appreciated assets -- stocks, real estate, etc. -- to the charitable remainder trust. The trust sells the assets and uses the proceeds to purchase a portfolio of securities. The trust then pays you an income stream for life, and the organization receives the principal upon your death.
By setting up such a trust, you avoid capital gains tax, and you can claim a deduction on your current-year taxes. Furthermore, because you're moving assets from your estate, your beneficiaries will have fewer estate taxes to pay.
What About My Heirs?
If you transfer the bulk of your appreciated assets to a charitable remainder trust, what will be left for your heirs? You may wish to use the income from the charitable remainder trust to purchase a life insurance policy on yourself. It is important to note, however, that the proceeds from such a policy will go into your taxable estate.
If you'd like to avoid this, consider purchasing an insurance policy in an irrevocable life insurance trust. Because the trust actually owns the insurance policy, the proceeds are kept out of your taxable estate and your heirs will owe less in estate taxes. You can also direct the trust to provide your heirs with regular income.
Before establishing a trust, consult with your legal adviser to learn the full advantages and disadvantages of these complex estate-planning instruments.
Everyone is a Winner
Should you simply donate an appreciated stock or make your donation through a charitable remainder trust? The answer depends on your financial goals. If a tax deduction is your primary objective, a straight donation may be the best choice for you. If you would like to establish a steady stream of income, a charitable remainder trust may be the more attractive option.
Regardless of which option you choose, you'll be helping a valued institution and yourself. In short, everyone benefits.