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Advanced Gifting Strategies: Reducing Tax Burdens with Appreciated Assets

Wealth management isn’t just about accumulating assets; it’s also about ensuring they are used effectively to benefit you, your loved ones, and the causes you care about. Advanced gifting strategies, such as donating appreciated assets, offer a powerful way to reduce your tax burden while making a meaningful impact.

By gifting assets like stocks, real estate, or other investments that have grown in value, you can bypass the capital gains taxes you’d owe if you sold them. This strategy also allows you to lower your taxable estate and maximize the value of your wealth transfer. Whether your goal is to support family members, fund a charity, or enhance your estate planning, understanding how to use appreciated assets as part of a gifting strategy can provide significant financial and tax benefits.

Understanding Appreciated Assets

Appreciated assets are investments that have increased in value since their purchase. Instead of selling these assets and incurring capital gains taxes, you can gift them directly to others.

Examples include:

  • Stocks and Mutual Funds: These are among the most common types of appreciated assets. Transferring ownership can be done quickly and efficiently.
  • Real Estate: Gifting property that has appreciated over time can significantly reduce your taxable estate.
  • Collectibles and Art: Items such as antiques, rare coins, or artwork that have increased in value are also viable options for gifting.
  • Business Interests: For business owners, gifting a portion of business equity can serve as a strategic method for transferring wealth while maintaining operational control.

Who benefits? Both individuals (e.g., family members) and charitable organizations can gain from these gifts.

Tax Advantages for the Giver

The primary benefit of gifting appreciated assets lies in the significant tax advantages for the giver. These include:

  1. Avoiding capital gains tax: By gifting an appreciated asset instead of selling it, you sidestep the capital gains tax that would otherwise be due.
  2. Reducing taxable estate: For high-net-worth individuals, gifting can help reduce the value of your estate, potentially lowering estate tax liabilities.
  3. Maximizing annual gift exclusions: Each year, you can give up to $19,000 (as of 2025) per recipient without triggering gift tax filing requirements. This amount is adjusted periodically for inflation, so it’s essential to check current IRS limits.

Tax Advantages for the Recipient

Recipients of appreciated assets also benefit, but it’s essential to understand the nuances:

  • Stepped-Up Basis for Inheritances: While gifts do not receive a step-up in basis, inherited assets often do. Understanding the differences between gifting and inheritance is crucial for long-term tax planning.
  • Lower Capital Gains Tax Rate: If the recipient is in a lower tax bracket, their tax liability when selling the asset may be much less than yours.
  • Charitable Organizations: Nonprofits are exempt from paying capital gains taxes. This means they can sell gifted assets and use 100% of the proceeds for their mission.

Charitable Giving with Appreciated Assets

For philanthropically inclined individuals, gifting appreciated assets to charitable organizations provides a unique opportunity to maximize your impact while reducing your tax liability.

Benefits for the Donor:

  • Fair Market Value Deduction: When donating appreciated assets to a qualified nonprofit, you can deduct the fair market value of the asset from your taxable income, subject to IRS limits (typically 30% of your adjusted gross income for appreciated assets).
  • No Capital Gains Tax: You avoid paying taxes on the appreciation, which increases the overall value of your donation.

Benefits for the Charity:

  • Full Use of Proceeds: Charities can liquidate the asset without incurring taxes, ensuring they can use the full amount to further their mission.

Best Practices for Gifting Appreciated Assets

To maximize the benefits of gifting appreciated assets:

  1. Consult Financial and Tax Advisors: Ensure your gifting strategy aligns with your overall financial goals and complies with current tax laws.
  2. Select Appropriate Assets: Choose assets that have appreciated significantly and consider the recipient’s tax situation.
  3. Understand IRS Limits: Be aware of annual and lifetime gift tax exclusions to avoid unintended tax consequences.
  4. Maintain Proper Documentation: Keep detailed records of the gifted assets, including their fair market value and date of transfer, to substantiate tax deductions.

Common Pitfalls and How to Avoid Them

Despite its advantages, gifting appreciated assets can come with challenges. Avoid these pitfalls to ensure a smooth process:

  • Overlooking Recipient Tax Implications: Recipients may be subject to capital gains taxes when they sell the asset. Discuss this aspect beforehand to prevent surprises.
  • Exceeding Gift Tax Limits: Gifts exceeding the annual exclusion limit may require filing a gift tax return and could reduce your lifetime exemption.
  • Neglecting to Update Your Estate Plan: Ensure your gifting strategy aligns with your overall estate and wealth management plans.
  • Failing to Consult Advisors: Without professional guidance, you may inadvertently create tax complications for yourself or the recipient.

Final Notes

Gifting appreciated assets is an advanced strategy that combines financial savvy with generosity. By understanding the tax advantages, planning carefully, and seeking expert advice, you can reduce your tax burden, benefit loved ones or charitable causes, and maximize the impact of your wealth.

Whether you’re looking to support your family or make a meaningful difference in your community, appreciated assets are a powerful tool for reducing taxes while preserving your legacy.

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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NIM-CRUT: Sophisticated Charitable Giving Strategies for High-Net-Worth Individuals

NIMCRUTs, or Net Income with Makeup Charitable Remainder Unitrusts, are advanced charitable giving strategies designed specifically for high-net-worth individuals. These trusts allow donors to make significant charitable contributions while also providing a stream of income for themselves or their beneficiaries. NIMCRUTs offer a number of benefits, including tax advantages, potential for increased income, and the ability to support favorite causes while also meeting financial goals.

In this blog, we will explain what NIMCRUTs are, how they have evolved over time, and how high-net-worth individuals (HNWIs) can use them as part of their financial planning.

What are NIMCRUTs?

A Net Income Makeup Charitable Remainder Unitrust (NIMCRUT) is a charitable trust that allows an individual(s) to make a donation while receiving an income from the trust for a specified number of years or for the lifetime of the individual(s). 

The income received by the individual(s) is based on the net income generated by the trust, usually from investments in a diverse portfolio of assets. At the end of the trust term, the remaining assets are distributed to the charities determined by the donor. We’ll get more into the benefits of NIMCRUTs in a second, but let’s first look at how Charitable Trusts came to be. 

A Historical Legislative Landscape for Charitable Giving

Knowing how Charitable Trusts have been shaped by legislation over the years will give you a better understanding of NIMCRUTs and how to receive the best tax benefits.

Tax Reform Act of 1969: The first national policy on charitable planned giving is created.

Revenue Rule 77374 (1977): The probability test for charitable remainder annuity trusts is established. There now has to be less than a 5% probability that you’re going to exhaust the initial capital contribution. 

Tax Relief Act of 1997: A maximum payout rate of 50% is established, as well as a 10% minimum remainder requirement. 

Tax Relief Healthcare Act of 2006: A Charitable Remainder Trust (CRT) will no longer lose its tax-exempt status for having an unrelated business taxable income (UBTI)  in the trust. However, there is now a 100% excise tax on the UBTI in the trust.

Knowing the rules that have been established over the years for Charitable Trusts will allow you to get the most out of their benefits while also being aware of potential pitfalls. 

How High-Net-Worth-Individuals Can Utilize NIMCRUTs To Save Money

One of the most valuable features of a Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT) is its ability to facilitate tax-free growth of funds over a set period or lifetime. This characteristic sets NIMCRUTs apart from simple Charitable Remainder Unitrusts (CRUTs), and may make them particularly attractive to certain individuals due to the added benefit of a “makeup” feature.

What is the NIM-CRUT Makeup Feature?

With a NIMCRUT, if the trust produces more income than it’s supposed to pay out, the excess money will go back into the trust’s principal. Likewise, if the trust produces less income than it’s supposed to pay out, the beneficiaries may receive less money that year but will have it “made up” to them from an excess year. This feature can lead to the same amount of income over time but without ever attacking the principal. With a CRUT, no matter what kind of year the trust has financially, you’re getting the same amount which can lead to the trust’s principal decreasing gradually.

Donating assets to a Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT) can be a beneficial way to reduce taxable income and avoid capital gains tax. By contributing assets to the trust, an individual is able to diversify their holdings while also mitigating the risk associated with certain types of assets, such as stocks or real estate. This approach to charitable giving allows individuals to make significant donations while also receiving favorable tax treatment and potentially enhancing their financial situation. It is important to note that the specific tax implications of donating to a NIMCRUT will vary based on individual circumstances and the laws governing charitable giving in the donor’s jurisdiction.

It’s important to consult with trusted and professional financial planners when setting up a NIMCRUT as there are potential benefits and drawbacks that should be evaluated with expertise before making a decision. 

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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QPRT Trusts and Gift Tax Efficiency: Transferring Real Estate with Reduced Tax Implications

Transferring real estate to future generations can be a complex process, often accompanied by significant tax implications. However, with careful planning and the right strategy, you can minimize the estate tax burden and efficiently pass on your real estate assets to your loved ones. One effective tool for achieving this goal is the Qualified Personal Residence Trust (QPRT). 

In this blog post, we will explore QPRT trusts, their benefits, and how they can help you transfer real estate with reduced tax implications.

Understanding QPRT Trusts

What is a QPRT?

A Qualified Personal Residence Trust (QPRT) is an irrevocable trust that provides a unique opportunity to transfer interest in your primary or secondary residence (i.e. vacation home) to your beneficiaries while still maintaining the right to live in the property for a predetermined period. The trust is established for a fixed term, typically ranging from 10 to 20 years. The QPRT can only own interest in one property, however, that interest can be a fractional interest in the property. An individual can only own 2 QPRTs at a time – primary residence and secondary residence.

Establishing a QPRT:

To set up a QPRT, you create the trust and transfer the ownership of the property into it. As the grantor, you can designate your chosen beneficiaries, who are typically family members, loved ones, or a trust. The trust agreement outlines the specific terms and conditions, including the length of the trust term and the rights and responsibilities of all parties involved.

Retaining the Right to Reside:

During the trust term, you retain the right to live in the property, preserving your ability to enjoy the comforts and memories of your home. This benefit can be especially valuable if you have a strong emotional attachment to your residence.

Transfer of Property:

If you were to pass-away during the trust term, the QPRT is unwound and the asset reverts back into your estate. However, you are no worse than if you never did the QPRT in the first place. If you live through the trust term, then at the end of the trust term, ownership of the interest in the property is automatically transferred to the remainder beneficiaries. This seamless transition ensures that your loved ones receive the property according to your wishes. However, once the trust term expires, you no longer have the right to reside in the property unless a separate agreement is reached with the beneficiaries and you may need to pay rent to continue living or using the residence.

Benefits of QPRT Trusts

Reduced Gift Taxes

By transferring the property to a QPRT, you are effectively making a gift to your beneficiaries. The value of the gift is determined by the fair market value of the property and the length of the trust term. Since you retain the right to live in the property for a specific period, the value of the gift is reduced for gift tax purposes, potentially resulting in significant estate tax savings.

Future Appreciation

One of the key advantages of a QPRT is the ability to transfer the future appreciation of the property to your beneficiaries. As the property appreciates in value over time, that growth occurs outside of your taxable estate. This can provide substantial estate tax savings and ensure that your beneficiaries receive the full benefit of any appreciation.

Continued Use and Control

Even though the property is transferred to the trust, you can still reside in it for the specified trust term. This allows you to continue enjoying your home while making arrangements for its transfer to your beneficiaries. Additionally, you can retain certain control over the property during the trust term, such as the ability to sell or rent it with specific provisions outlined in the trust agreement.

Important Considerations

Trust Term:

The length of the trust term is a crucial factor to consider when establishing a QPRT. The longer the term, the greater the potential gift tax savings. However, the greater the trust term, the greater mortality risk during the trust term. It’s essential to balance this with your own housing needs and goals, ensuring that the trust term aligns with your plans and overall health.

Stepped-Up Basis:

It’s important to note that when real estate is transferred through a QPRT, the beneficiaries receive the property with your original basis. This means that if they sell the property after your passing, they may be subject to capital gains tax on any appreciation that occurred during your ownership. Proper planning and consideration of potential income tax consequences are vital in maximizing the benefits of a QPRT.

Estate Tax Considerations:

While a QPRT can help reduce gift taxes, it does not eliminate estate taxes entirely. The value of the property at the time of transfer, minus the retained interest, remains in your taxable estate. It’s crucial to consult with an experienced estate planning attorney or tax professional to understand the overall impact on your estate tax planning.

Final Notes

A Qualified Personal Residence Trust (QPRT) can be a powerful tool for transferring real estate to your beneficiaries while minimizing gift taxes and maximizing tax efficiency. By utilizing a QPRT, you can reduce the taxable value of the gift and retain the right to reside in the property for a specified period. However, it’s crucial to consider factors such as trust term, stepped-up basis, and estate tax implications when incorporating a QPRT into your estate planning strategy. Seeking guidance from professionals specializing in estate planning and tax laws is highly recommended to ensure that you make informed decisions and optimize the benefits of a QPRT. With careful planning and the expertise of professionals, you can transfer your real estate assets to future generations with reduced tax implications, preserving your wealth and securing a lasting legacy for your loved ones.

If you need further assistance or guidance regarding QPRT trusts and estate planning, feel free to reach out to our team at Centura Wealth Advisory. We specialize in providing comprehensive estate planning solutions and can help you navigate the complexities of transferring real estate with reduced tax implications. Contact us today to schedule a consultation and take the first step towards efficient wealth transfer.

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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2023 Updates to Gift Tax and Other Estate Limitations

Our tax system has two critical components that impact the transfer of wealth from one generation to the next: gift tax and estate tax. 

The gift tax applies to the transfer of property from one individual to another during their lifetime, while the estate tax is levied on the transfer of property at death. 

The IRS adjusts the federal estate and gift tax exemption amounts for inflation each year and has announced the exemption amounts for 2023. Let’s take a closer look. 

What Are Gift and Estate Tax Exemptions and Why Are They Important?

Gift and estate tax exemptions are the amounts that individuals can give away during their lifetime or pass on to their heirs at death without incurring any federal taxes. The federal government imposes these taxes on the transfer of property or money.

Understanding these exemptions is crucial for tax planning and managing one’s assets to minimize tax liabilities. Knowing the exemption amounts and how they work can help individuals make informed decisions about their wealth transfer strategies.

The Federal Gift and Estate Tax Exemption

The federal gift and estate tax exemption has increased from $12,060,000 to $12,920,000. This means that married couples can gift up to more than $25 million in assets without incurring federal estate and gift taxes. However, this exemption is set to expire in 2026 and will revert back to the prior exemption amount of $5 million.

For surviving spouses, the unlimited marital deduction for gift and estate taxes remains, except for those who are not U.S. citizens. Non-citizen spouses have a marital deduction of $175,000 for 2023.

Annual Exemption

The annual gift tax exemption, in addition to the lifetime exemption, will increase from $16,000 to $17,000 in 2023 for each person you gift to in 2023.

If you have not yet utilized your 2022 annual or lifetime exemption, now is a good opportunity to do so. Many investment assets have experienced a decline in value of 25%-35% since the beginning of the year, but are expected to recover in the medium to long term. Gifting investments now to your beneficiaries will allow you to do so at a discounted rate.

When the exemption reverts in 2026, it will be crucial to understand how it will be applied. If you gift an amount less than the current exemption amount of $12,920,000 by 2025, you will be limited to the lower exemption amount, which is currently set at $7 million for gifts made after 2025. 

Planning Opportunities

Clients can make lifetime gifts outright to an individual or in a trust to take advantage of the increased exemption amounts. It is crucial to consider making gifts to reduce estate tax before the exemptions decrease at the end of 2025. For those who have already used their gift and estate tax exemption in prior years, the increase from 2022 to 2023 provides an opportunity to avoid or reduce estate tax by making additional lifetime gifts.

Americans increasingly favor a wealth tax on the ultra-wealthy, but despite an uptick in proposals, these policies have struggled to gain traction.

You never know what may happen in the future, so it’s important to consider taking advantage of the current higher exemption amounts while they are still available. There are various planning strategies that can be implemented to make the most of these higher exemption amounts before they potentially revert to lower amounts in the future.

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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Tax Deductible Donations: Rules of Giving to Charity

Donating to charity carries many benefits for taxpayers, such as allowing people to connect with a personal cause and preserve legacy–and it doesn’t hurt that donating to charity can lower your tax bill.  

 If donating to a charity is part of your tax plan, here are a couple of tips so you can maximize your tax-deductible donation before year-end.

What Qualifies as a Tax Deductible Donation?

Tax deductible donations are contributions of money or goods to a tax-exempt organization such as a charity. The IRS states “Contributions must be made to qualified organizations to be deductible.” 

However, donations do not have to be money. In fact, the following donations are eligible for deductions:

  • Cars
  • Clothing
  • Stocks or mutual funds, at the fair market value
  • Collections of valuable items
  • Artwork
  • Jewelry
  • Securities
  • Real estate

If the value of what you donate exceeds $250, you need to obtain and file a written acknowledgement from the qualified organization you donated to. 

If the value of your non-cash charitable contributions is $500 or more, you’ll need to include specific information about the charitable organization and what was donated when you file your tax return. 

What Does Not Qualify as a Tax Deductible Donation?

Taxpayers can maximize potential tax savings by knowing what they can and cannot claim. Let’s take a look at some situations that do not qualify as a deductible donation. 

Gifts to a Non-qualified Charity or Nonprofit

Many taxpayers assume that any charity or nonprofit organization is qualified. However, this is not always the case. Each group must register with the IRS for the section of the law that applies to it. According to TurboTax:

  • Religious and charitable organizations typically fall under section 501(c)(3) and can receive tax-deductible donations.
  • Not every section allows these deductions. For instance, social welfare and civic organizations registered under section 501(c)(4) don’t qualify.
  • However, two types of 501(c)(4) organizations—veterans’ organizations with 90% war vet membership and volunteer fire departments—do qualify for charitable deductions.

If you are unsure whether an organization qualifies, try this IRS search tool. We still recommend asking the organization about their qualifications before making a contribution.

A Promise or Pledge to Pay

Pledges can’t be dedicated until the money is actually paid.

For instance, if you agree to donate $50 a month for a year to a qualified charity, you can only claim the donations you made within the tax year, not the whole $600. 

A Gift That’s Not a Gift

Many organizations use different methods to earn money. However, fundraising tickets are not deductible. For example, bingo games, raffle tickets or lottery-based drawings are not deductible contributions.

Some Community Drives

Another common misconception relates to community drives aimed at helping an individual or family with issues such as: medical costs, loss of a house from fire or funeral expenses.  

Make sure that the cause is sponsored by a 501(c)(3) organization such as the Salvation Army or Red Cross so your financial assistance is deductible.

Political Organizations

The IRS is very clear that money contributed to a politician or political party can’t be deducted from your taxes. 

How Much Do You Need to Donate to a Charity to Get a Tax Deduction?

There is no minimum donation amount necessary to earn a tax dedication. In fact, even if you do not itemize your deductions, qualified cash donations up to $300 can be deducted (or $600 if you are filing married jointly). Why? The IRS wants to encourage taxpayers to give money to charity. 

However, the safe choice is to always itemize your donations. We recommend getting a receipt for any donations to avoid the danger of having them disallowed in case of an audit. 

Is There a Limit on Charitable Donations? How Much does the IRS Allow for Charitable Donations?

Typically, the IRS limits donations to either 50 percent of adjusted gross income for public charities or 30 percent of adjusted gross income for private foundations. Let’s take a look at each of these in more detail.

Public Charities

Contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income computed without regard to net operating loss carrybacks. 

According to the IRS, the 50 percent limitation applies to 

  1. “All public charities (code PC)
  2. “All private operating foundations (code POF)
  3.  “Certain private foundations that distribute the contributions they receive to public charities and private operating foundations within 2-1/2 months following the year of receipt, and
  4. “Certain private foundations the contributions to which are pooled in a common fund and the income and corpus of which are paid to public charities.”

Private Foundations

The IRS states “Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 percent adjusted gross income (computed without regard to net operating loss carrybacks), however. Tax Exempt Organization Search uses deductibility status codes  to indicate these limitations.”

We recommend that taxpayers enlist the assistance of a tax professional or financial advisor before making large contributions to ensure the donations are deductible.

*Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.

What is a Charitable Lead Annuity Trust (CLAT)?

A charitable lead annuity trust (CLAT) is a charitable trust in which a charity, donor-advised fund, or a foundation that the grantor selects, receives annual payments. These payments may be set for a term of years or the grantor’s lifetime.

At the end of this period, the remaining CLAT assets are distributed amongst the trust’s non-charitable beneficiaries. These beneficiaries are typically the grantor’s descendants or trusts for the descendants’ benefit.

Charitable lead annuity trusts provide a tax efficient way for individuals to transfer wealth to heirs while benefiting charities.

However, CLATs are not exempt from income tax. If the grantor wants to claim the immediate income tax charitable deduction, the CLAT must be set up as a grantor trust, or G-CLAT.

How to Make the Most of Your Charitable Donations

At Centura Wealth Advisory, we know how to optimize charitable giving strategies to best benefit your long-term financial goals. 

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth. 

Read on to learn more about sophisticated gifting strategies for affluent individuals.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services. 

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Sophisticated Charitable Giving Strategies for Affluent Individuals

Affluent individuals and families may choose to implement charitable giving strategies for the wealth of benefits these strategies provide.

These benefits allow a family to connect with a personal cause or preserve their legacy while contributing to an efficient wealth strategy.

Charitable giving strategies can help affluent families and individuals to realize financial benefits as well as reduce current and estate taxes. These charitable giving strategies can include:

  • Charitable lead annuity trusts (CLATs)
  • Grantor-charitable annuity trusts, and
  • Qualified charitable distributions

Let’s discuss each of these strategies and their benefits in detail.

Make a Qualified Charitable Distribution (QCD)

According to Investopedia, a qualified charitable distribution “allows owners of a traditional IRA to exclude RMDs from their adjusted gross income (AGI) if they give the money to approved charities, also known as qualified charitable organizations.”

In simpler terms, the QCD guideline allows individuals to deduct the amount they donate from their IRA. The QCD counts as part of their annual RMD amount, and they must pay the distribution directly from their IRA to the qualified charity.  

*Distributions must be made directly to an approved charity and are capped at $100,000 annually per person. Please enlist the assistance of a qualified financial or tax advisor to best navigate the process of making a qualified charitable distribution and earn the associated tax benefits.

Benefits of Making a Qualified Charitable Distribution

This charitable giving strategy can effectively reduce an affluent individual’s adjusted gross income while satisfying their required minimum distribution set by the IRS. Further, this strategy can help offset other taxes, such as social security.

Utilize Charitable Lead Annuity Trusts (CLATs)

A charitable lead annuity trust (CLAT) is a charitable trust in which a charity, donor-advised fund, or a foundation that the grantor selects, receives annual payments. These payments may be set for a term of years or the grantor’s lifetime.

At the end of this period, the remaining CLAT assets are distributed amongst the trust’s non-charitable beneficiaries. These beneficiaries are typically the grantor’s descendants or trusts for the descendants’ benefit.

Benefits of Charitable Lead Annuity Trusts (CLATs)

Charitable lead annuity trusts provide a gift tax efficient way for individuals to transfer wealth to heirs while benefiting charities.

However, CLATs are not exempt from income tax. If the grantor wants to claim the immediate income tax charitable deduction, the CLAT must be set up as a grantor trust, or G-CLAT.

Grantor Charitable Lead Annuity Trusts

In a grantor charitable lead annuity trust (G-CLAT), the trust corpus remaining at the end of the term is given back to the donor instead of the donor’s descendants.

G-CLATs provide a host of advantages, which will improve income tax planning, wealth transfer planning, and charitable planning. Let’s take a look at the benefits of this sophisticated charitable giving strategy.

Income Tax Planning

Individuals participating in the G-CLAT will experience the benefits of both immediate and long-term tax benefits once they’ve successfully implemented this charitable giving strategy.

This will result in an immediate income tax dedication for the individual, which is:

  • Subject to 20 to 30% of adjusted gross income (AGI) limitation
  • Able to be utilized over six tax years
  • Ideally consumed at the highest marginal income tax rates

Wealth Transfer Planning

In addition to the immediate benefits of G-CLATs, these trusts also include wealth transfer tax savings. Through these savings, the taxpayer can experience the benefits of a G-CLAT for years.

Charitable Planning

While the taxpayer does not need to have donative intent, charitable planning benefits G-CLATs if the taxpayer decides to participate.

For instance, as a future benefit, G-CLATs provide satisfying charitable annuity payments with appreciated assets, avoiding recognition of gain on these distributions to 501(c)3s.

How to Get Started With These Charitable Giving Strategies

At Centura Wealth Advisory, we know how to optimize charitable giving strategies to best benefit your long-term financial goals. Our team has successfully implemented over 280 CLAT transactions alone.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services. 

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What is a Charitable Lead Annuity Trust (CLAT)?

Taxpayers, especially high-net-worth individuals, commonly experience the issues of high-income taxes and wealth transfer taxes in their financial planning.

Charitable lead annuity trusts, or CLATs, help taxpayers tackle these issues through advantages including tax deductions and wealth transfer planning.

Below, we’ll discuss:

  • How charitable lead annuity trusts (CLATs) work, and
  • How taxpayers can implement a grantor charitable lead annuity trust (G-CLAT) to experience both long and short-term tax benefits

What is a Charitable Lead Annuity Trust?

A charitable lead annuity trust (CLAT) is a charitable trust in which a charity, donor-advised fund, or a foundation that the grantor selects, receives annual payments. These payments may be set for a term of years or for the grantor’s lifetime.

At the end of this period, the remaining CLAT assets are distributed amongst the trust’s non-charitable beneficiaries. These beneficiaries are typically the grantor’s descendants or trusts for the descendants’ benefit.

What is a Grantor Charitable Lead Annuity Trust?

In a grantor charitable lead annuity trust (G-CLAT), the trust corpus remaining at the end of the term is given back to the donor instead of the donor’s descendants.

Does a Taxpayer Need Donative Intent to Implement a G-CLAT?

A taxpayer does not need donative intent to implement a G-CLAT.

In fact, taxpayers can utilize these trusts for a variety of purposes. Let’s review how G-CLATs work and their advantages.

How Does a G-CLAT Work?

Let’s take a look at G-CLAT mechanics. We like to break it down like this:

1.  Grantors fund CLAT with a one-time deposit

2. The taxpayer implements a pre-determined annual charitable payment schedule 

3. Grantor(s) receive income tax dedication to be used up to six years – likely at 99% or more of the deposit

4. All taxable events flow back to the grantor(s)

5. Invest in Limited Partners real estate

6. If structured properly, the remainder interest transfers to the remainder beneficiary, free of estate tax

What Are the Benefits of G-CLATs?

The advantages of implementing a grantor charitable lead annuity trust include, but are not limited to:

  • Income tax planning
  • Wealth transfer planning
  • Charitable planning

Let’s speak about each of these in a bit more detail.

Income Tax Planning

Taxpayers will experience the benefits of both immediate and long-term tax benefits once they’ve successfully implemented a G-CLAT. The trust, for example, will result in an immediate income tax dedication for the taxpayer, which is a present value benefit.

This immediate income tax reduction is:

  • Subject to 20 to 30% of adjusted gross income (AGI) limitation
  • Able to be utilized over six tax years
  • Ideally consumed at the highest marginal income tax rates

Wealth Transfer Planning

In addition to the immediate benefits of G-CLATs, these trusts also include wealth transfer tax savings. Through these savings, the taxpayer can experience the benefits of a G-CLAT for years.

Charitable Planning

While the taxpayer does not need to have donative intent, charitable planning benefits G-CLATs if the taxpayer decides to participate.

For instance, as a future benefit, G-CLATs provide satisfying charitable annuity payments with appreciated assets, avoiding recognition of gain on these distributions to 501(c)3s.

How to Get Started

At Centura Wealth Advisory, we know the minute details of how to optimize a grantor charitable lead annuity trust or a charitable lead annuity trust. In fact, our team has successfully implemented over 280 CLAT transactions.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services. 

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Meet Centura: Not Your Traditional Wealth Advisors

Who We Are

Centura Wealth Advisory deviates from the traditional standards of everyday wealth advisories. Our main focus as a wealth advisor is to liberate your wealth, creating an independent advisory firm that goes above and beyond traditional money management. We aspire to bring only the best value-added solutions to our clients; not be all things to all people. 

As financial advisors, we want to help our clients Liberate their Wealth and shape a future.

Our Purpose

Centura goes beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions. Often, traditional wealth managers lack the knowledge and resources to offer their clients the best financial planning.

 “We believe everyone has a purpose in life, and ours is to help wealthy individuals and families achieve their purpose through a proactive and comprehensive wealth management process called Liberated Wealth®.”

The Centura Foundation

One tangible example of our actions following our words is the Centura Foundation. The goal of the Centura Foundation is to focus efforts on building and sustaining vibrant communities in the areas where we live and work. 

The Centura Foundation was established to harness the charitable nature of our founders and clients for the purpose of directing resources to underfunded established organizations. Built on the concept of Think Global, Act Local, we are dedicated to focusing on community-building activities that address key social issues that create a healthy and vibrant community.

At Centura Wealth, we strive to be the best in our chosen lines of business, not the biggest. Learn more about what liberated wealth means for you today.

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How increased charitable giving can improve your bottom line

Liberating your wealth is achieved with a multifaceted financial plan. Charitable giving is a huge pillar of our Centura Wealth’s mission. Charitable giving is a win-win scenario for everyone. You get to invest in an important cause while improving your bottom line. 

Recently, the IRS also put a temporary suspension of limits on charitable contributions (which is typically 60 percent). This means a greater opportunity for you to enhance your charitable giving contributions. 

Here are a few things you should know as you start incorporating charitable giving into your financial plan.

The Logistics

The first rule of thumb to follow is to always keep records of charitable giving for the tax year. And be warned, there are many forms to fill out.

Keep in mind there are restrictions as to what classifies a charity. There is a list of charitable organizations provided by the IRS as a guideline for individuals, families, and institutions in regards to the CARES act:

  • “A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
  • A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
  • A church, synagogue, or other religious organization;
  • A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
  • A nonprofit volunteer fire company;
  • A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
  • A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
  • A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.”

The IRS has laid out requirements for charitable giving. For each noncash contribution that is more than $500, you have to fill out a 8283 Noncash Charitable Contributions form. 

Gifts

For tax years after 2018-2025, an individual donor may deduct up to 60% of the donor’s contribution base for gifts of cash (and only cash) to a public charity.  To qualify, these gifts must be “to” the public charity, not “for the use of.” The gifts can be subcategorized into short-term or long-term cash flow.

The Bottom Line

If you keep all of your records of charitable contributions, at the end of the year your bottom line will be improved. Today’s low-interest-rate environment affords many charitable planning opportunities that many advisors and donors have never even considered.

While the new 60% limitation may grab headlines, it is limited in its applicability and caution must be paid for donors looking to utilize the 60% limitation in their planning. For example, charitable contribution deductions from prior years, as well as other forms of giving (e.g., household goods, clothing, stocks, bonds, etc.) could void qualification for the 60% limit on cash donations to public charities and reduce it to 50% instead. 

Contact our team at Centura Wealth Advisory so we can work with your tax professional to start incorporating charitable contributions into your financial planning.                                                        

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).   Please read the disclosure statement carefully before you engage our firm for advisory services.

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Charitable Giving: Breaking Down the 60% Deduction

Executive Summary 

The current low interest rate environment affords savvy financial planners certain tax planning strategies that leverage charitable giving. These strategies utilize charitable contribution limits, as a percentage of Adjusted Gross Income (AGI), to plan for and mitigate taxes the current year and up to the next five following years. This article explores the new 60% deduction introduced by Tax Cuts and Job Act (TCJA)5 and highlights the following:

  • Charitable giving in the United States is alive and well
  • Tax Cuts and Jobs Act provides added incentive for taxpayers to give to charity: a 60% deduction
  • Type of gift and recipient organization determine the AGI deductibility percentage
  • Rules for determining deductibility are complex and change over time
  • Only cash gifts to public charities qualify for new 60% deduction
  • 50% limit will still apply on cash gifts to private foundations and gifts including non-cash items

Introduction

Charitable contributions allow taxpayers to deduct gifts of money or property made during the taxable year to nonprofit organizations1. It is generally accepted that these organizations improve society and are afforded the ability to avoid taxation as a result. This avoidance of taxation serves as an incentive mechanism to shift public good to the private sector by encouraging private giving and if done correctly, can help reduce the incentive for politicians to raise taxes in the name of public good.

As such, charitable giving is an integral part of tax and estate planning in the United States. Consider the following statistics from 20172:

  • Americans gave $410.02 billion in 2017 (5.2% increase from 2016)
  • 70% of total giving came from individuals, 16% from foundations, 9% bequests and 5% from corporations
  • Charitable giving accounted for 2.1% of gross domestic product in 2017
  • High net worth donors gave on average $29,269 to charity vs $2,514 for the general population

Based on these numbers, charitable giving is alive and well, with high net worth individuals leading the charge. However, many rules affecting tax incentives have changed with introduction of the TCJA including one notable change to charitable giving thresholds; a 60% AGI limitation.

Charitable Giving Thresholds: Spirit & Letter of the Law

Charitable contribution deductions are outlined under Section 170 of the Internal Revenue Code (IRC) and IRC Section 170 has been through countless changes since being enacted in 19173. The spirit of the law has been to allow “wealthy” taxpayers to receive a deduction for charitable giving, but the letter of the law has evolved into a complex set of rules. These rules are designed to maintain an equitable statutory scheme that encourages charitable giving but prevents tax abuse and are therefore purposefully complex3.

Charitable Giving Thresholds: Tax Cut & Jobs Act 2017

When taxpayers make charitable donations, they may utilize those donations as deductions against AGI, to reduce taxable income6.  The caveat being that the amount of charitable deduction which could be recognized in any one year was limited to a certain percentage of AGI (e.g., 20%, 30%, 50%) based on the type(s) of assets contributed and the type of organization receiving the benefit. The top AGI percentage limitation was 50% until in 2017, the TCJA introduced a new figure, 60%.  But what does it mean and when is it applicable?

Types of Gifts4

To understand when the 60% limit is applicable, it is necessary to understand how the IRC classifies gifts as not all gifts are created equal. Per section 170(b)(1) of the IRC, there are 5 distinct types:

  • Subparagraph G Gifts
  • Subparagraph A Gifts
  • Subparagraph B Gifts
  • Subparagraph C Gifts
  • Subparagraph D Gifts

Subparagraph G Gifts

This is where the calculation now begins, and this is the newest section added by the TCJA. Under a new temporary rule enacted under the TCJA, for tax years after 2018-2025, an individual donor may deduct up to 60% of the donor’s contribution base for gifts of cash (and only cash) to a public charity.  To qualify, these gifts must be “to” the public charity, not “for the use of”.

Subparagraph A Gifts

These include all gifts “to” (not “for the use of”) a public charity and taxpayers may deduct up to 50% of contribution base, reduced by amount of any subparagraph G deduction allowed, for subparagraph A gifts.

Subparagraph B Gifts

Gifts of cash or short-term capital gain property to a private foundation, and for gifts that are “for the use of” rather than “to” a public charity. Taxpayers may deduct up to the lesser of:

  1. 30% of contribution base  – or –
  2. Excess of 50% (not 60%) of the donor’s contribution base for the year reduced by the combined amount of subparagraph G gifts and subparagraph A gifts.

Subparagraph C Gifts

This subparagraph operates as a limitation on deductibility of subparagraph A gifts involving long-term capital gain property and sets forth that except for gifts of conservation easements, an individual may deduct up to 30% of contribution base for gifts of long-term capital gain property to a public charity.

Subparagraph D Gifts

Include gifts of long-term capital gain property to a private foundation of which taxpayers may deduct the lesser of:

  1. 20% of contribution base – and –
  2. Excess of 30% of contribution base for the year over the amount of subparagraph C gifts

For all types of gifts, excess contributions can be carried forward for up to 5 tax years but may only be used within the same category (i.e., AGI % limitation) in those future years.

Exhibit 1 shows the AGI limitations as percentages of contribution base for each category of gift.

Exhibit 1- AGI Limitations4

The primary takeaway is that the new 60% limitation is only applicable on cash contributions to public charities; period. This means that the 60% limit will be reduced to 50% on cash donations when the taxpayer also donates any non-cash property to any type of charity, whether public or private, or when the taxpayer donates cash to a private foundation.

Conclusion

A donor must rely solely on cash gifts to public charities in order to reach the higher 60% limitation afforded by subparagraph G.  While the new 60% limitation may grab headlines, it is limited in its applicability and caution must be paid for donors looking to utilize the 60% limitation in their planning. For example, charitable contribution deductions from prior years, as well as other forms of giving (e.g., household goods, clothing, stocks, bonds, etc.) could void qualification for the 60% limit on cash donations to public charities and reduce it to 50% instead. These rules and limitations are incredibly complex, and ever changing, which means that working with knowledgeable tax professionals is of paramount importance.

At Centura Wealth Advisory, we utilize charitable giving strategies in tax and estate planning, which requires us to be up to date on current tax law and on the cutting edge of tax planning innovation.  As a result, we work with select tax, legal and financial planning professionals who keep us armed with intricate knowledge of strategies, related sections of IRC code and applicable case law. In addition, these professionals allow us to seamlessly implement, manage, and if necessary, defend such strategies. We believe that this coordinated approach to advanced tax planning is what sets us apart.

Finally, today’s low interest rate environment affords many charitable planning opportunities that many advisors and donors have never even considered. If you are interested in utilizing charitable contributions to mitigate income taxes for you or your clients, contact us today for a tax planning evaluation.

References

  1. Internal Revenue Code 170(a)
  2. National Philanthropic Trust – Charitable Giving Statistics 
  3. Marquette University Law School – The Charitable Contribution Deduction: A Historical Review and a Look to the Future
  4. Bedingfield, Brad & Dempze, Nancy – The disappearing 60% deduction: new charitable giving limits are not as generous as they appear
  5. Congress.gov – Tax Cut & Jobs Act
  6. Section 7520 interest rate

Disclosures

Centura Wealth Advisory (“Centura”) is an SEC registered investment adviser located in San Diego, California.  This brochure is limited to the dissemination of general information pertaining to Centura’s investment advisory services.  Investing involves risk, including risk of loss.

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).   Please read the disclosure statement carefully before you engage our firm for advisory services.

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Our planning fee pricing for income tax planning services is determined using a standardized matrix based on Net Worth, Income, and Meeting Frequency. This base planning fee price may be adjusted to account for increased complexity or the occurrence of a future income event. To project tax savings, we analyze prior year tax returns to determine their past tax liability to project out the following year’s tax liability. Based on facts collected and confirmed by the client, we then identify and evaluate applicable tax strategies and the estimated annual tax savings they would produce if implemented. The estimated annual tax savings are then divided by the annual engagement price proposed to/agreed to by the client to determine the multiple on estimated annual tax savings generated as it relates to the planning fees paid. Please note, these initial projections are preliminary and based on our current understanding of the client’s situation. Outcomes may vary based on client’s decisions or chosen course of action regarding the implementation of recommended strategies, their specific goals, and risk tolerance.

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