There are variety of motives for charitable giving, the foremost of which is benefiting a favored charity using tax favored dollars – gifts which lower your income tax liability due to the charitable income tax deduction. If, however, you fit the following profile you may be able to gain financially through charitable giving, or at least benefit your favorite charity with "extra-tax-favored-dollars".
        The profile is someone whose estate is otherwise exposed to estate taxes, who owns a substantial amount of heavily appreciated property, and who is in a high income tax bracket. Other factors weighing in the equation are the need to get more current return from the appreciated property, and the extent to which your descendants will need distributions from your estate after your death.
        Another advantageous charitable scenario is where a potential donor exposed to estate tax has qualified retirement plan proceeds that neither he nor his wife need, and they don’t have children that need it either. By designating a charity as beneficiary of your retirement account you can avoid both income taxes and estate taxes on the balance in the account at your death.
        If you feel you are a charitable giving candidate an estate planning attorney can advise you of your options and the extent of benefits you and your family can expect to realize under various planning scenarios. Charitable Lead Trusts and Charitable Remainder Trusts are among the more common charitable giving options in the estate planning context.

      A charitable remainder trust benefits a charity after a period of years during which the grantor or other beneficiaries receive payments from the trust for support. The trust is irrevocable. It provides the grantor with a current income tax deduction in the amount of the present value of the charitable remainder. The value is a function of the beneficiaries' life expectancies (or length of the trust), current interest rates, the amount of beneficiary payments, and the initial value of the trust.
        There are two types of charitable remainder trusts: charitable remainder annuity trusts (CRAT's) and charitable remainder unitrusts (CRUT's). CRAT's provide for fixed payments regardless of asset value fluctuations, and CRUT's allow for payments that can increase with inflation and provide flexibility in the timing of income payments. Charitable remainder trusts are tax exempt, so the trust itself does not pay income taxes, even as to retained income. The life or term beneficiary, however, is taxed on income distributed to him.
        Appreciated assets are usually used to fund charitable trusts. This avoids the capital gains tax otherwise due when the asset is sold. For example, if property valued at $1,000,000 with a cost basis of $50,000 is contributed to a charitable trust $190,000 in capital gains taxes may be avoided (based on a capital gains tax rate of 20%).
        CRUT's offer more flexibility than CRAT's in providing for future needs of beneficiaries. A trustee can defer some of the annual payments in the early years of the CRUT by investing in high-growth, low-income assets. Later, when the life beneficiary has a greater need for income, the trustee can invest in assets with a higher yield.
        Since the remainder of the charitable trust is not available for noncharitable beneficiaries the grantor in some instances may wish to fund an investment vehicle such as life insurance with the charitable trust income tax savings in order to provide for younger generation family and relatives.

        In large estates, the 45% federal estate tax can result in the need to liquidate hard to sell assets (such as family businesses), causing depreciated sale prices thus further reducing the remaining distribution to family or other beneficiaries. A charitable lead trust can alleviate this situation.
        A charitable lead trust is a trust for a term of years during which a specified annual payment (based on a percentage of the trust assets) is paid to one or more charities. Children or other beneficiaries are designated as remainder beneficiaries who receive the trust property at the end of the trust term.
        The creation of a charitable lead trust results in a gift to the noncharitable remainder beneficiaries in the amount of the present value of the remainder interest. The value is a function of the value of the trust, the term of the trust, the amount of charitable lead payments, and current interest rates. In some cases it is possible to design a charitable lead trust that results in a minimal valuation of the remainder interest and therefore, a substanital reduction in estate tax exposure.

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