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We are a generous group of people. In so many conversations with friends and family, I hear examples of the giving of our time and money to various charitable organizations. My brother oversaw a bike ride with hundreds of participants benefiting a cancer organization; my mom volunteers at her local library; a friend leads a campaign to bring drinking water to communities in Africa; and a local school group collects donations for the food shelf at Halloween time. Let’s not forget the large organizations and facilities that members of our community have built and endowed over the years. The examples of our generosity are endless.
Charitable giving sounds like a simple, straight forward concept. It’s actually quite complex and brings together an intersection of legal, tax, financial, and organizational issues that require careful consideration.
On a day-to-day basis and often at the end of the year, we make fairly simple gifts to our favorite organizations in the form of cash or other property. Many of these gifts provide a charitable deduction for us. As many of us know, if you file an itemized tax return, you may deduct charitable contributions of money or property to a qualified organization. A charitable deduction has to be taken in the year the contribution was made and at fair market value (FMV), except in some cases. For certain types of contributions, an appraisal is required. Generally, you may deduct up to 50 percent of your adjusted gross income, but in some cases 20% or 30% limits may apply.
Most organizations have to apply to be treated as a ‘qualified organization,’ and at the IRS’s website, you can download a list of all qualified organizations. Churches and governmental units are not required to apply for this status, so they are not on the list, but they are considered qualified organizations for the purposes of giving. If you receive a benefit as part of your donation, the value of the benefit must be deducted from the value of your contribution. The value of your time spent volunteering cannot be deducted, unfortunately, but some expenses relating to volunteer work may be deductible. A written record of a charitable donation is required, such as bank records, written receipts, and any appraisal obtained.
During our lifetime, we may have the opportunity to make a more sizeable donation to a charity or other organization. Outright gifts of real estate, conservation easements, IRA distributions, or gifts of appreciated stock, whether publicly-traded or in a closely-held business. Property with a low basis offers a great opportunity for giving because of the resulting tax benefits. Special rules apply, of course, but you may donate property with a low basis to a qualified organization, receive a charitable income tax deduction at FMV, while not having to recognize and be taxed on the capital gain.
Other opportunities for lifetime giving include a charitable remainder trust or charitable annuity trust. Such trusts allow you to maintain a lifetime benefit such as use or income while donating the underlying asset. As a business attorney, I can appreciate this example: owners of a closely-held business who are planning to sell their business have the opportunity to reduce capital gain taxes and realize a charitable deduction by donating shares in the closely-held business prior to entering into an agreement to sell the business. Shares can be placed in donor-advised fund or charitable remainder trust which would allow the owners to preserve a benefit during their lifetime. Additionally, the owners of the business may offset capital gain on the shares sold with the charitable deduction. An example of a win/win for the sellers of the business and the organizations benefiting from the gift.
Of course, as part of our estate plans, we also have the opportunity to make bequests to charities or organizations in our will or trust. Such charitable contributions provide significant funding to organization and have the tax benefit of reducing the size of an individual’s taxable estate.
From the perspective of the organization to which you would like to give, it’s important to keep in mind what type of gifts the organization prefers to receive. Gifts of money are always welcome, of course, and some organizations have wish lists to help donors make a decision on giving. Before you deed over real estate or another special asset to your favorite charitable organization, it’s a good idea to find out if they are set up to receive it and receive the most benefit from your charitable intentions.
Community organizations such as Community Giving, the Northwest Minnesota Foundation, and local community foundations offer a number of options to donors such as donor-advised funds, scholarship funds, field of interest funds, and unrestricted funds. Organizations such as the Leech Lake Area Watershed Foundation are in the position to accept special gifts, such as gifts of land and conservation easements, that fit with their mission and guidelines. Organizations such as Camp Olson are well-suited to receive gifts from those who support their vision and programming for youth. All of these organizations are able to provide advice and assistance to donors to help them maximize their giving and reach their philanthropic goals. When you are considering a significant or special charitable donation, it’s important to seek the advice of your attorney, your tax planner, your financial advisor, and your charitable organizations.
In the end, charitable giving is a way to make a statement on what’s important to you and a lasting impact on our world. From a simple donation to complex estate planning, our laws and tax code support charitable giving, and it’s integral to the life and health of our charitable organizations.
Any requests for topic suggestions may be sent to laura@breenandperson.com. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.