Evaluate these tools when allocating assets for philanthropy
As you develop your estate plan, consider opportunities for charitable giving.
“Farm families, by nature, are really concerned about their communities,” says Johnne Syverson, president of Transition Point Business Advisors in West Des Moines, Iowa. “They want to give back in some way.”
Proper planning can help you make a significant difference for your favorite charities, in addition to capturing tax benefits.
With any donations, be sure to read a charity’s gift guidelines and ensure it is a 501(c)(3) nonprofit organization, recommends David McDaniel, CPA and partner with Sikich LLP in Indianapolis. This will ensure the group is equipped to receive the assets, it will use them in a way you see fit and you will get the tax benefit.
Work with your financial advisers to see if these options are a good fit for your philanthropic efforts.
This tool allows you to contribute cash or appreciated assets to the fund and then direct distribution to charities. Contributions coming into the fund are tax deductible, but you don’t have to name the recipients immediately.
- Centralizes giving to multiple charities through one collection device, producing a single receipt for accounting.
Key Takeaway: This type of fund is a great way to involve family members in charitable giving, including off-farm heirs.
Gifts Of Grain
Cash isn’t the only type of financial donation. Grain contributions are not listed as a charitable deduction; rather, the financial benefit is simply the tax saved on avoided income.
- Coordinates giving with a grain elevator. The charity must establish an account at an elevator. Upon delivery, a specified portion of the grain is put into the charity’s account.
- Delegates key responsibility. Once grain is delivered, the charity takes responsibility for the grain and initiates the sale.
- The charity provides the donor with a receipt to prove the contribution.
Key Takeaway: Communication is vital with this option. Work with your elevator on delivery, sales and paperwork.
There are two main options for charitable trusts. A charitable lead trust provides income for a set number of years to a designated charity. When the time ends, the assets in the trust return to the donor or donor’s beneficiary. A charitable remainder trust generates income for you or your beneficiaries, either for a set time or for life. Remaining assets are gifted to one or more charities. Although trusts are used less frequently than other tools for giving, they provide many benefits.
- Provide flexibility for use with almost any income-producing asset including land, investments and rental properties.
- Offer varying tax benefits, depending on which trust you use, the value of the gifts and when or if the charity takes ownership of the assets.
- Require setup and ongoing maintenance costs.
- Alleviate capital gain taxes for appreciated assets such as farmland.
- Ensure income for retirement years, in the case of charitable remainder trusts.
Key Takeaway: These are some of the least utilized tools, though they are powerful. Trusts allow assets to stay under family control and prevent you from selling assets to settle the estate.