Freeman's Blog


There are a number of different gifting strategies available for planned giving. Each has its advantages and disadvantages.

Gifting Strategies - retirement planning with Freeman Owen, Jr.

Instead of making an outright gift, you could choose to use a charitable lead trust. With a charitable lead trust, your gift is placed in a trust. The recipient of the gift draws the income from this trust. Upon your death, your heirs will receive the principal with little or no estate tax.

If you prefer to retain an income interest in your gift, you could use a pooled income fund, a charitable remainder unitrust, or a charitable remainder annuity trust. With each of these strategies, you receive the income generated by your gift, and the recipient receives the principal upon your death.

Finally, you could purchase a life insurance policy and name the charitable organization as the owner and beneficiary of the policy. This would enable you to make a large future gift at a potentially low current cost.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges. Most have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the policy; plus, there could be income tax implications. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

 AdvantagesDisadvantages
Outright GiftDeductible for income taxes.No retained interest.
Charitable Lead TrustA current gift to charity.

Current income tax deduction.

Pass assets to heirs at a future discount.
The transfer of assets is irrevocable.

If the current income tax deduction is taken, future income is taxable to the donor.

Donor gives up the use of income for life of the trust.
Pooled Income FundCurrent income tax deduction.

Income paid to beneficiary for life.

Non-income-producing assets can be converted to income-producing assets
Income is unpredictable from year to year.

Income received is taxed as ordinary income.

Remainder interest will usually go to only one charity.
Charitable Remainder UnitrustCurrent income tax deduction.

Avoids capital gains tax on appreciated property.

Reduce future estate taxes.
The transfer of assets is irrevocable.

Qualified appraisal generally required.

Complex administration and setup.

Distributions to noncharitable beneficiaries are generally subject to income tax.
Charitable Remainder Annuity TrustCurrent income tax deduction.

Avoids capital gains tax on appreciated property.

Fixed income.
Fixed payment cannot be limited to the net amount of trust income.

Qualified appraisal generally required.

Complex administration and setup.

Distributions to noncharitable beneficiaries are generally subject to income tax.
Gifts of InsuranceCurrent income tax deduction is possible.

Enables donor to make a large future gift at a small cost in the future.
May require annual premiums.

In some cases, the death benefit could be part of the donor’s taxable estate.

While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.

Planning for retirement is like planning a birthday party. You need a little foresight and knowledge to make the most of your retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. 

Contact me 1-833-313-7233.

Retirement Specialist Freeman Owen, Jr.