Donors may be foregoing significant tax benefits by funding five or six figure gift annuities with cash.
Just 16% of the charitable gift annuities established in the study were funded with non-cash assets. Donors funding gift annuities with cash rather than appreciated securities may be foregoing the advantages of the ‘triple tax benefit’: savings on federal capital gains taxes, deferral of certain capital gains and the potential reduction of estate taxes.
Charitable trusts remain a powerful but underutilized tool to help donors fulfill broader philanthropic goals.
Charitable trust activity continues to decline, despite the creative ways that trusts can help donors meet their charitable, tax and income goals. For example, business owners going through a liquidity event can use CRTs to strike the ideal balance between charitable intent, desire for ascertainable cash flow as well as interest in deferring capital gains on the sale of an asset.
Donor advised funds (DAFs) continue to be an important part of the philanthropic landscape.
During times of economic uncertainty when capacity for charitable giving may be limited, donors with DAFs are well positioned to provide critical funding to nonprofits when it’s needed the most. This was illustrated during 2020, when grants through the BNY Mellon Charitable Gift Fund increased by 86% over the prior year. In addition to offering a simple and flexible option for charitable giving, DAFs are also now being used in creative estate and tax planning strategies to promote legacy, family and next generation giving.
Charitable organizations need to be proactive in assessing and managing underwater gift annuities.
Over half of the charitable organizations issuing gift annuities in this study had at least one “underwater gift”. Effective identification and management of current underwater gifts, as well as gifts that are projected to go underwater, is vital for charities to manage the financial risks inherent in issuing gift annuities, to protect their reputations as responsible stewards, and to cultivate future gifts from their donors.
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