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Increase Interest in Split-Interest Giving for Tax Advantages

By Holly SwanExecutive Director, Advisor Institute

These are uncertain times for taxes. The combination of the Tax Cuts and Jobs Act sunset and an upcoming election has tax laws hanging in the balance. Clients likely feel the uncertainty and wonder what they should do to prepare for different outcomes.

This is a prime opportunity for you to position yourself as an After-Tax Advisor by discussing income and estate tax-minimization strategies with your clients. Two split-interest giving strategies are charitable remainder trusts or pooled income funds. With each of these strategies the donor will contribute assets, often highly appreciated securities, retain or gift an income stream for life or a term of years and then leave the remaining assets to charity at the end of the term.

Let's explore the key benefits of split-interest giving and how it can be a win-win for both donors and charitable organizations:

Upfront Income Tax Deduction

Donors may be eligible to claim a tax deduction for the actuarial value of what will eventually pass to charity. This deduction can help reduce the donor's taxable income and lower their overall tax liability. Strategically planning split-interest gifts can help donors maximize their tax benefits while supporting causes they care about.

Income Generation

Perhaps the most significant benefit of split-interest giving is the ability to generate income for the donor or the beneficiaries of their choice. Donors can structure their gifts in a way that allows them, or their beneficiaries, to retain an income stream for a specified period or for the remainder of their life. This can be a tax-efficient way to convert a highly appreciated non-income producing asset into an income stream.

Legacy and Estate Planning

Split-interest giving also allows individuals to leave a lasting charitable legacy while reducing the size of their taxable estate. This is particularly appealing to those who wish to instill an ongoing tradition of generosity in their family's younger generations.

Philanthropic Flexibility

Split-interest giving offers donors the flexibility to support multiple charitable causes. Donors can allocate their split-interest gifts to different organizations or even to their own donor-advised fund. This flexibility allows donors to adapt their philanthropic giving over time in response to changing needs and priorities. It's a dynamic approach to giving that empowers donors to make a difference in areas they are passionate about while maintaining control over their charitable assets.

Bottom Line: Bring greater value to clients in uncertain tax times by proactively exploring tax-minimization strategies such as split-interest giving. Doing so creates a beneficial situation for both their charitable causes and financial goals.