December 23, 2009

This year, it’s time to give smarter

Special to the Denver Catholic Register

As you review your year-end tax planning, it makes sense to consider making good use of the income tax charitable deduction. A year-end charitable gift may significantly reduce your income taxes, while providing meaningful support to those most in need.

Many families and individuals want to make a charitable gift by year-end but are not quite sure which ministry or mission of the Church they wish to support at this busy time. Below are some solutions to this problem.

Donor-advised fund. With a donor-advised fund, donors gain the advantage of a year-end charitable deduction and the ability to recommend recipient organizations throughout the coming years. If you itemize deductions, you can lower your 2009 income taxes simply by opening a donor-advised fund by Dec. 31. The Catholic Foundation, which exists to provide donor and endowment services and grant-making to the Catholic community in northern Colorado, offers donor-advised funds. To open such a fund, simply write a check and mail it to the foundation by year’s end.

Stock or real estate. Most of us are familiar with the benefits of giving appreciated stock or real estate instead of cash—your charitable deduction is the current market value of the securities or real estate, but you’re not liable for capital gains tax on the appreciation.  But what if you hold stock that has declined in value since you purchased it?  If you have recognized capital gains in your brokerage account this year, there’s a two-step process that may benefit you as it benefits the Catholic community:  first, sell the stock and claim the resulting tax loss to offset your gains; second, donate a portion or all of the sale proceeds.  Depending on your tax situation, your donation will be eligible for a charitable income-tax deduction, further offsetting taxable income for the year. 

Roth IRA account. This year and next, the Internal Revenue Service will allow a qualifying donor to make an outright gift to a qualifying charity from his or her traditional or Roth IRA account without incurring income tax on the withdrawal.  Although donations from IRA rollover to donor-advised funds are not eligible for this treatment, if you are over 70-and-a-half and need to take withdrawals from your IRA, this provision may provide a creative source of funds for your charitable giving to a designated parish, school or seminary fund.

Life insurance. Another hidden asset that you can give instead of cash is a paid-up life insurance policy whose coverage you no longer need.  You’ll be able to claim a charitable deduction for the value of the policy and make a substantial year-end gift to a donor-advised fund or designated fund without affecting your cash-flow in any way.

Endowments. Parishes, Catholic schools and seminaries are also focused on their long-term financial strength, which will help sustain them year after year.  The Catholic Foundation enables donors to establish parish, school and seminary endowments. Such endowments are a crucial element in securing the Church’s future stability and effectiveness. This year’s uncertain economy has made it clearer than ever that these ministries need an assured, predictable source of income independent from their day-to-day revenues.  Endowment growth will assure the Church’s future financial well-being and its ability to carry out her mission to future generations.
As you think about your year-end annual giving, consider directing some of your support to the long-term financial goals of your parish, Catholic schools and the seminaries.  As an incentive, you can take advantage of two financially sensible, near-painless techniques to make an endowment gift.

First: if you are holding securities whose price, you fear, may soon decline, you can freeze their current value by contributing them to a foundation in return for a charitable gift annuity.  Your annuity will be based on the value of the securities at the time you donate them.  You’ll gain the assurance of stable, lifetime payments in return for your gift.  When the annuity terminates, its balance will be added to an endowment to be applied to the purposes you designate when you make your gift.

Second: a charitable gift to a foundation through your will, revocable trust, retirement plan, or life insurance policy, doesn’t require you to part with your gift during your lifetime.  Because bequests are revocable, you can change your beneficiary designations if your needs or your family’s needs change over time.  Bequests are the essential building blocks of a successful endowment and ensure the transmission of faith from generation to generation.