In Uncertain Times, Donors Hold Back
Conrad Teitell, a lawyer with Cummings & Lockwood in Stamford, Conn., who represents a number of large charities, outlined trusts that can benefit both donors and charities, generally with significant tax advantages.
A charitable remainder trust allows people to contribute a large asset that is not producing income — a home, jewelry or art — that is then sold by the charity, which is not liable for capital gains tax, and reinvested in assets that provide income for the donor. After the donor’s death, the principal, or remainder, goes to the charity.
Donors who want to give to charity and be able to pass assets to their heirs might consider a charitable lead annuity trust. It can provide an income stream for charity for a set number of years with the principal going to a child, down the road. “Government tables tell what the charity’s interest is worth, and what the child’s interest is worth,” Mr. Teitell said. The tables change monthly, and the value of the current tax deduction depends on the value of what is put into the trust and the payout rate.
Sidney Kess, a New York tax lawyer, said that a special tax provision had been extended for this year. It allows people 70 1/2 or older by the end of the year to give up to $100,000 to eligible charities from an I.R.A.
A gift from a tax-deferred account is not deductible, he said, but a direct transfer — as opposed to taking a distribution and donating it — will not raise adjusted gross income. That number ripples through returns, often resulting in higher taxes by limiting the amount of deductions that may be taken, or causing a greater amount of Social Security to be taxable because adjusted gross income is now higher.
Even people who are looking at their withered stock portfolios in dismay may be able to give. Say an investor paid $70,000 for 1,000 shares of stock. The shares are now trading at just above $2. She could sell the shares, donate the proceeds to charity and have a capital loss of $68,000 to use this year or she could use part this year, plus use $3,000 against ordinary income and carry the balance forward, shielding future capital gains from taxation.
