Myth 2

I can't bequeath to my favorite charities because I need to provide for my loved ones.

When we ask donors, “What is holding you back from making a bequest to the Ministries Foundation?” we often hear, “I have children and grandchildren that I need to support through my estate when I am gone.” But what if there was a way to provide for your loved ones while still being able to make a gift to your favorite charity in the process?

Many people don’t know that there are great ways to provide for both your loved ones and your favorite charity. The most common tool is a Charitable Gift Annuity (CGA), which is a contract between you and a charity where you transfer property (cash, securities or even real property if applicable) in exchange for a guaranteed fixed dollar payment to you or another beneficiary during you or your beneficiary’s lifetime.

One of the great things about a CGA is that you can set up an income stream for a loved one (or two) and have it begin to pay out right away or defer it until a set date. When the CGA is created you can avoid an immediate capital gain tax on a gift of appreciated, long-term property while receiving an income tax deduction for part of the gift as well.

Charitable remainder annuity trusts (CRAT) and charitable remainder unitrusts (CRUT) have similar setups as the CGA, except they require a larger gift to be made to establish the trust than a CGA. Trusts also can be distributed to multiple beneficiaries by either a fixed amount (CRAT) or a percentage (CRUT) of the trust for the span of a lifetime or a set number of years. Highly appreciated stocks are one great way to fund CRATs and CRUTs. You and/or your heirs save on capital gain taxes while still creating an income stream for the beneficiary(ies).

Retirement plans, such as 401Ks, IRAs and KEOGHs also make great charitable gifts because these assets are subject to both income and estate taxes. In fact, your retirement account could be subject to four different taxes: estate, federal income, state income and generation skipping if applicable. If you leave these assets to your heirs, they may not receive as much as you hoped they would. If you decide to leave your retirement assets to charity, the charity will receive the full amount of the retirement account because it is not required to pay taxes.

Remember, if you have a desire to make an estate gift to your favorite charity, there will always be a way for you to make it work while still taking care of your loved ones.