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Increase Your Wealth By Giving To Charity
For most people a gift to charity is writing a check when their favorite charity comes calling. We know that our gift helps the charity, and we expect an income tax deduction as a bonus.
Keep in mind that when you give to a charity, that charity is doing work for society that the government would be likely have to fund if not for the charity's work. Thus, the government has a good reason to give you the incentive of a tax break when you help a charity feed the hungry, educate children, or save the birds.
You can give to charity in a more sophisticated way. Your own benefits can be so great that some financial planners recommend giving as a way of increasing your wealth to fund your retirement. The charity also benefits. Even the government benefits by the stronger charity organization. This sounds too good to be true, but it isn't. We will look at two different ways of giving.
Charitable gift annuity. Many charitable organizations offer this annuity. You transfer assets to the charity and it pays you (and your spouse or child) a lifetime annuity. As an example, one major charity will pay a 7.1% annual return on the "investment" or "gift" from a 70-year-old married couple until the second spouse dies. In addition the couple will get a tax deduction, and part of the income payment will not be taxable.
Charitable remainder trust. This is an even more sophisticated way to give. Here you transfer money into a trust which your lawyer can create, being careful to comply with strict tax rules. The trust might provide that for the rest of your life (and perhaps your spouse's or child's life) the trust will pay you a return on your "investment" or "gift" of a percentage you can set, within limits. You might choose a 5% or 10% annual return.
The principal fund in the trust can rapidly grow tax free, even if the trust sells appreciated assets. This means your return can increase in proportion to the fund's tax-free growth. After you (and your spouse or child) die the trustee will give any remaining funds to a charity you named. The tax free growth of your "gift" or "investment" is why some financial planners recommend this as a smart retirement plan, which will incidentally help your favorite charity in the future. The magnitude of the tax-free growth of your fund can be astounding.
These are only two ways to increase your own wealth by being generous to a charity. See your financial advisor or estate planning advisor for further discussion and additional ways to increase your wealth by smart giving.
-DOUGLAS J. ENGEL
Editor's note: The author is a Seattle attorney who works in the area of estate planning in the Seattle law firm of Dubuar, Lirhus & Engel LLP.
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The information in this web site is all general information. The information is applicable only to the state of Washington, unless otherwise stated. This general information is not legal advice for your particular circumstances. If you have legal questions you should consult your lawyer.