The gift that keeps on giving - donating to nonprofit organizations - Brief Article

Kiplinger's Personal Finance Magazine, May, 1999 by Melynda Dovel Wilcox

A growing number of nonprofit organizations are encouraging donors to consider so-called planned gifts, which benefit both the charity and the donor. One strategy, called a charitable lead trust, is proving particularly popular among college alumni and their alma maters.

Under this arrangement, the donor transfers cash or property irrevocably to a trust. A portion of income earned on the assets is paid annually to the charity for the life of the donor or the term of the trust; the remaining principal is eventually passed on to the donor's heirs.

The advantages to the donor: an up-front tax deduction for the value of the future donations and a way to hold down the gift tax on the transfer of assets to the next generation. Near-record-low interest rates--which are used to figure the details--are resulting in bigger deductions and smaller taxable gifts. That's a win-win situation. "Low rates let you transfer assets to the next generation at a greatly reduced cost," says C. Ray True-blood of Renaissance Inc., a planned-giving consulting firm in Carmel, Ind.

You don't do this just to save on taxes, but a charitable lead trust lets you "temporarily endow the charity and permanently endow the family," says Robert F. Sharpe Jr., a planned-giving consultant in Memphis. Often, says Sharpe, grandparents use such trusts to teach philanthropy to succeeding generations. As teenagers or young adults, grandchildren help choose charities that will benefit the trust. Then, when the children are in, say, their thirties, they inherit the money.

Charitable lead trusts are usually set up with a minimum of $100,000, and they're typically used by individuals whose estates are worth at least $2 million. Contact your school or charity of choice to see if it has a planned-giving department, or consult an estate-planning lawyer about drafting the trust.