For the last several months, enormous amounts of money have flowed into
charitable causes the world over, and it is said that the appetite for
“giving” is huge. This should help alleviate some of the problems of the
world, especially in developing countries, and support numerous noble causes
at home.
Advisors need to present “Charitable Giving” to their employer or group
clients, as the time is very favorable for such a discussion, and the tax
implications and benefits to society at large are enormous. Below are some
facts I mention to my group clients on charitable giving and on setting up a
private foundation. Sometimes I make a few peanuts out of the giving
program, but most of the time the job is completely voluntary and provides
me with the satisfaction of enhancing the cause of charity.
Charitable giving maximizes support to the causes one cares about. Giving is
one of life’s greatest satisfactions. It allows you to share your financial
success with loved ones and establish a legacy to benefit future
generations. Before making a gift or donation, one needs to know some facts
about charitable giving to maximize the benefits of the gift to the
recipient and avoid unnecessary costs.
Gifts are irrevocable. The donor must release all control and title over the
asset for the gifting process to be complete. Gifts can trigger taxes. Gift
taxes are levied on the donor, not the recipient.
Most gifts are tax-exempt. Five types of gifts that do not trigger gift
taxes are: any gift to a spouse, in any amount, because there is an
unlimited marital deduction provision (spouses should be U.S.
residents/citizens); gifts up to $19,000 (for tax year 2026) per donor, per
recipient, to any number of individuals—this is called the annual exclusion.
The gift should be available to the recipient for immediate use, possession,
or enjoyment. A spouse’s gift that follows the above rule to the same
individual(s) is also included. The total annual exclusion for a married
couple is thus $38,000, as the IRS considers them to be split gifts—$19,000
from each spouse.
Gifts to charities and/or political organizations may have ramifications;
however, a wise donor uses caution with such gifts.
Paying medical and/or educational/tuition expenses for another person,
especially when paid directly to the institution(s), also qualifies. To
qualify as a gift, a transfer during one’s lifetime of cash, securities,
property, or any other kind of asset should be permanent and irrevocable.
Some gifts may require the donor to pay a gift tax. These include amounts
over the annual exclusion of $19,000 (or $38,000 for couples) to any
individual in a single year, any gift of any size not available to the
recipient for immediate use, enjoyment, or possession, and medical and/or
educational/tuition expenses not paid directly to the institution concerned.
If one makes a gift that is taxable, the IRS requires filing a gift tax
return (Form 709) and keeping copies indefinitely. Filing the gift tax
return does not mean one has to pay gift tax, which is currently at about a
55% rate. Presently, we all have a lifetime exemption equivalent to about $5
million.
Hence, large gifts will reduce the lifetime exemption and decrease liability
to estate taxes at the time of death by the amount gifted. A future increase
in exemption limits, repeal of estate taxes, imposition of higher or newer
state taxes, and other provisions in tax rules after the year 2026 are still
undecided and are being discussed by Congress.
With proper planning today, one can realize immediate tax benefits, enhance
the quality of life for loved ones, and increase the scope of organizations
through gifting. Even with modest amounts, one can create a foundation or
join many of the foundations already established for charitable giving
programs.
Creative gift-giving can lower overall taxes for the donor and benefit loved
ones and favorite causes. Gifts or transfers of assets to minors (UGMA/UTMA),
children, and grandchildren have been popular for a long time. New education
and college savings plans have extended the scope of giving even further. In
addition to children and grandchildren, gifts can be designed to take care
of the long-term needs of parents and grandparents on a tax-deductible,
tax-favorable basis.
To secure current and future income for yourself and loved ones and enable
one to leave a philanthropic legacy, one can set up a tax-deductible annuity
program. Many such legitimate and excellent programs are available. A
qualified tax attorney, financial planner, or competent accountant can
provide further insight into charitable giving.
The paperwork for these programs is usually simple and easy to execute. For
complicated estates, charitable remainder trusts, charitable lead trusts,
and other instruments may be designed to manage funds in tax-efficient ways
to provide maximum benefit to all concerned.