Individuals often want to make substantial gifts as part of their overall estate planning. There are a number of options available for charitable giving other than outright gifts. These options, sometimes referred to as "deferred" giving plans, usually allow you to retain the benefit of donated funds, with a gift to charity at a later date. The advantage of such plans is that you might receive an immediate income tax deduction for the value of your gift and avoid the payment of any capital gains tax on the gift of appreciated property. Below are various options for making deferred gifts.

Pooled Income Fund - PIF

The simplest, and perhaps most common, form of deferred giving is the pooled income fund (PIF). These funds, established by charities to encourage deferred giving, are usually offered by universities, churches, and other major charitable groups. In return for your contribution of cash or property to the PIF, the PIF agrees to provide you and/or your spouse with a life income. There is no guarantee of the amount of income, as it is based upon the investment return of the PIF. The PIF will provide you with a history of its past investment results, as well as its investment philosophy, to give you some idea of the income you can expect. At the death of you and/or your spouse, the income interest will terminate, and your capital account in the PIF will be given to the sponsoring charity.

A PIF has clear tax advantages. You are entitled to an income tax deduction in the year in which you make your contribution to the PIF. The amount of the deduction is the value of the interest which passes to the charity at your death or the death of your spouse. This amount will vary, depending upon your life expectancies and the investment return of the PIF. As an example, if a 60-year-old donor transfers $100,000 to a PIF which has an 8% return, and retains a life income interest, the amount of his charitable deduction will be $25,197.

There are also advantages to contributing appreciated property, such as stock, to a PIF. Although the stock will be valued at its fair market value in determining your charitable deduction, no capital gains tax will be imposed on you or the PIF. A contribution to a PIF will also help to reduce your estate tax since the amount passing to the charity after your death will be deductible for estate tax purposes.

Charitable Remainder Trust - CRT

A charitable remainder trust (CRT) is similar to a PIF in that, in return for your payment, the trust will pay you income for a fixed period of time, with the principal eventually paid over to charity. The charity can include a foundation established by your family. A CRT, however, is more flexible than a PIF since it provides you with more options for the payment of the income. Rather than tying your income to the investment return of the trust, a CRT can pay you either a fixed annuity payment or a "unitrust" payment. A unitrust payment is advantageous in inflationary times since it is a fixed percentage of the value of the trust assets, revalued annually. Thus, as the trust assets appreciate in value, your payment will increase. A CRT also offers the advantage that you may decide whether the income interest is to be paid to you for life or for a specified number of years.

A CRT, if successfully implemented will:

1) avoid the payment of capital gains tax on appreciated property;
2) provide an immediate charitable deduction on your income tax return;
3) include an annuity for you and/or your spouse;
4) reduce your liability for gift and estate taxes.

Because there are costs associated with establishing and maintaining a CRT, it is appropriate for contributions for substantial amounts; $100,000 is usually the recommended minimum.

Charitable Gift Annuity

An alternative form of deferred giving is the charitable gift annuity. Similar to a commercial annuity, a gift annuity is a gift to charity in return for which you receive a lifetime annuity. Because the annuity payments will be less than those received from a commercial annuity, a portion of the payment to the charity is considered a gift and results in a charitable income tax deduction.

From the donor's point of view, a gift annuity offers greater security than the other options, since the annuity payment is an obligation of the issuing institution. Unlike a pooled income fund or charitable remainder trust, the annuity payment is not dependent upon the investment results of the fund in which the donation is deposited, but is a fixed amount which is guaranteed by the institution.

Summary

As shown above, individuals have a number of options for making deferred gifts. The option you choose depends upon both the amount and type of property you wish to contribute, as well as the nature of the income you would like to receive following your gift.