Consider that lifetime gifts, unlike testamentary gifts, will typically create tax deductions. There may be greater tax benefits with a lifetime gift than a similar gift at death—and the donor has the opportunity to experience the benefit of the gift.
Funding a charity through a low-cost basis security (held for at least one year) may be an effective approach to gifting to a charity. The donor avoids incurring a capital gains tax while the charity gains the advantage of the market value of the gifted securities.
Donor-advised funds (DAFs) can provide an effective approach to lifetime giving, particularly in comparison with establishing a private foundation. The donor receives a charitable deduction upon establishing and funding the DAF, and the administrative burden is off-loaded to a third-party administrator.
After age 70 1/2, individuals are now able each year to direct a gift to charity from their IRA account of up to $100,000. This gift is a direct tax-free payout and reduces the amount of the donor’s required minimum distribution subject to income tax. Consider the importance of this gifting program in Connecticut, which does not allow an income tax charitable deduction.
Further, there are strategies that use split-interest trusts such as a charitable lead trust and a charitable remainder trust. The former provides funds to the charity while the donor is alive, with family members receiving the balance of the assets at the termination of the payout period. A charitable remainder trust allows the donor to reduce current income taxes and at-death estate taxes by converting an appreciated asset into lifetime income while helping one or more charities.