Consider This . . . Charitable Gifts

For many individuals and charities, the final quarter of the year is a time for a personal budget and charitable giving review and increased charitable solicitations, respectively.

The Wall Street Journal recently reported that the charitable review process and selection of charities for the more involved and aggressive philanthropists can take on the appearance of a small business and consume as much time. These individuals often get financial statements, forecasts and other organizational data on which they base their pledges of support.

There are various methods of giving to charities. Like so many things in life, not every gifting method is appropriate for you, nor will every charity be structured or prepared to receive or manage funds or assets that you may choose to give. Diligence and inquiry are the orders of the day. When in doubt, check the charity out at or

Let's get the obvious gifting methods and issues out of the way first. Cash and the fair market value of property can be given to any qualified charity and deducted in the itemized deduction area of your income tax returns. If the amount of your gift exceeds the 30 percent or 50 percent adjusted gross income (AGI) limitations in any given year, there can be a carryover of the unused gift amounts to future tax years.

To illustrate the benefit of the charitable deduction, assuming a combined federal and state tax rate of 43 percent, for every charitable dollar deducted you would save 43 cents in taxes. You can see very quickly that donors who give $1 million or more to charities can save $430,000 or more in taxes, using my assumed tax rates.

I had reported in a previous article that Bill Gates, chairman of Microsoft, had given in excess of $1 billion in 2001 and that, collectively, U.S. donors have given more than $200 billion to all the U.S. charities annually for several years. I'll let you calculate that tax savings on those amounts.

Let's look briefly at several of the more common gifting techniques:

The charitable remainder unitrust not only gives the donor an immediate charitable deduction based upon the future value of the benefit to the charity but also provides income to the donor for up to 20 years based on the annual year-end asset measurement. The earnings payout to the donor is calculated and changed annually as are the rates which are published annually by IRS. In most cases, when the gifts are made by husband and wife, there is no effect on their respective estates or gift taxes.

The charitable remainder annuity trust is similar to the unitrust with one exception-the annual payout to the donor is a fixed amount for the life of the trust.

The life estate reserved is a method of giving your home to a charity at your death but being allowed to deduct the value of the property today. The life tenants can continue to occupy the residence and must agree to maintain the property until the death of the tenant donors.

A family lead trust distributes the income from the assets to charity until the term of the trust expires and all assets pass to the family. Effective planning allows assets to pass to family members without gift tax consequences.

Grantor lead trusts are created for a term of years and, at the end of the term, the property reverts to the grantor. The donor is effectively given a charitable deduction today for the future value of the income going to the charity.

An education unitrust allows the donor to establish payouts to one or more college students for a specific period and receive a deduction currently and then pass the property to the charity at the end of the trust period.

Home buy-downs through a unitrust allow the homeowner to structure the sale of his residence so that a portion of the sale goes into an earnings-bearing unitrust without tax, and the donor receives the remainder tax free under the current rules for a tax-free disposition of residences under $500,000 for married individuals and $250,00 for singles.

A retirement unitrust allows periodic funding over six payments or fixed annual payments until retirement. Then a systematic payout occurs to the donor with the ultimate fund balance going to the charity.

Insurance combined with a unitrust can be an effective way to provide funds to your family at your death but also receive a charitable deduction at the inception.

These less familiar methods of giving are discussed in enough volumes to fill several library shelves and, in most instances, require the services of a certified public accountant, attorney and appraiser for interpretation and structure.

The good news is that many charities, like The Salvation Army, Anne Arundel Medical Center or the Chesapeake Bay Foundation have a planned giving group ready to assist you or your advisors and make the upfront costs more bearable and the process more understandable. Just remember, get good advice---it's worth the extra cost and time to do it right.

If you have comments or suggestions or have an idea for a future computer or business topic, e-mail me at or

Jimmy R. Hammand, CPA, is a resident of Annapolis and a consultant to businesses in Annapolis, Baltimore and Washington, D.C.


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