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Charitable Gifting Strategies

Hamada Wealth Management Group, LLC was founded to assist our clients in every aspect of their financial lives. We’ve provided the most personal service available, thus earning a reputation for excellence in our industry. We strive to help our clients reach financial stability while guiding them towards financial independence.

The Importance of Charitable Giving

At Hamada Wealth Management Group, we encourage our clients to give back no matter their stage of life. We hold this belief for several reasons:

  • Charitable giving allows you to pay it forward.
  • Giving can help you accomplish your own goals.
  • Giving can provide a future legacy from you, your family, and loved ones.
  • Giving can help you protect and advance your local community.
  • Giving can re-energize you and make you a better person and a better role model.
  • Giving can lead to a happier and more rewarding over all life.

Charitable Gifting Strategies and Tax Treatment

We believe that it is wise to have a charitable giving strategy regardless of your tax bracket. While we think giving to charitable organizations is the right thing to do from an ethics and community standpoint, we can’t ignore the fact that charitable giving can reduce your taxes. There are several ways in which this is done. Let’s take a look at those now.

Charitable Contribution Deduction

A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. However, it is essential to remember that you must itemize to take the deduction and to itemize the total of your deductions; they need to be higher than the standardized deduction.

Charitable Contribution Tax Year

The day you mail your contribution to a qualified charity is considered the date of payment. Therefore, whatever year that is done in is the year in which you can deduct that contribution on your taxes.

Qualified Charitable Organizations

Most, but not all, charitable organizations qualify for a charitable contribution deduction. You can deduct contributions only if they are made to or for the use of a qualified recipient, so it is critical to ensure that the organization(s) you choose to donate to count as eligible charitable organizations.

Fulfilling Your Charitable Goals Through Charitable Gifting Strategies

Your charitable goals are an essential part of your legacy, and they don’t have to be limited to after you pass away. There are several ways in which the Hamada Wealth Management Group can help you create a legacy plan:

  • Identify which assets you would like to set aside for charitable purposes.
  • Identify the charities important to 
  • Create tax-efficient charitable gift strategies
  • Establish a trust, private foundation, or donor-advised fund
  • Manage foundations, trusts, or funds you may have

Let’s review some of the options available to you for fulfilling your charitable gifting needs.

Charitable Remainder Trust (CRT)

A charitable remainder trust (CRT) is an irrevocable trust arrangement where property or money is donated to a charity. Still, the donor (you) continues to use the property or receive income while living. You can transfer cash or assets to the trust and then receive payment for life or a certain number of years, not exceeding 20 years. The charitable remainder trust is written to comply with federal tax laws and regulations and is tax-exempt.

Charitable Lead Trust (CLT)

A charitable lead trust (CLT) is an irrevocable trust that pays a specified amount (at least annually) to a charitable organization for a certain number of years or the life span of the designated individual(s). The remainder interest either reverts to you (the donor) or is paid to one or more non-charitable beneficiaries when terminated.

Donor Advised Fund

A donor-advised fund is an alternative to direct giving or creating a private foundation. The benefits of doing your charitable giving through a donor-advised fund include:

  • They are easy to establish
  • They have flexibility
  • Cost savings
  • Tax advantages
  • Administrative convenience

With a donor-advised fund, you will receive the maximum tax deduction at the time of the gift. The foundation administering the fund will have full control over the contribution but grants you advisory status. The foundation is not legally bound to you, but grants are made to other public charities upon your recommendation.

*We recommend you seek professional tax advice prior to investing in any charitable donor-advised fund.

Legacy Income Trust

A Legacy Income Trust (formerly known as pooled income fund) are next-generation charitable planned-giving instruments. A legacy income trust is an alternative to direct giving, the setting up of a Charitable Remainder Trust - (CRT), or creating a private foundation. The benefits of utilizing your charitable giving through a legacy income trust include:

  • They are easy to establish.
  • They have flexibility.
  • Cost savings
  • Tax advantages
  • Provide monthly income immediately to you and/or your spouse.
  • Avoid recognition of capital gains on contributions of appreciated assets.
  • Grants donor the possibility of designating income to other beneficiaries. 
  • Flexibility to name multiple charities.
  • Flexibility to change the charities in the future.
  • Lower ongoing Trust fees and administrative expenses
  • Administrative convenience.

With a legacy income trust, you will receive a percentage tax deduction based upon the charitable remainder portion of contributed value. You may be able to rollover into future years any unused portion up to five years, based upon a percentage of your AGI - Adjusted Gross Income at the time of the gift. The foundation administering the fund will have full control over the contribution but grants you advisory status. The foundation is not legally bound to you, but grants are made to other public charities based upon your recommendation and direction upon your passing.

*We recommend you seek professional tax advice prior to investing in any charitable legacy income trust (formerly known as a pooled income fund).

Private Foundations

A private foundation is typically set up as a nonprofit corporation named after the donor(s). However, it can also be created as a trust. Sometimes these private foundations are informally called family foundations because members of one family fund them. As the donor, you decide the charitable purpose of the foundation. Some examples are:

  • Grants for cancer research or other illnesses
  • Scholarships for the underserved segments of the population
  • Support for religious organizations

While you are living, you may continue your charitable giving by making tax-deductible contributions to the foundation instead of directly to the charity. The foundation may also be funded with a bequest from your will or trust or receive funds as the primary or secondary beneficiary of a qualified plan or IRA.

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