You probably give money away for tax purposes, rather than to feel good about yourself. Still, you might consider doubling your donation, by giving it again. Yes, that’s right: You can donate money and then donate it again. The second time around, the gift is known as a charitable-trust gift or a charitable remainder trust. It can be structured to have little upfront cost while still allowing you to get back some cash later on. If you’re thinking of using a trust to support a charity and also get some future benefit in return, here are five tips on how to make donating interest money worth it…
Educate yourself
First of all, you should educate yourself about charitable trusts. There are lots of different types, and some can be better than others. You don’t want to jump in without knowing the ins and outs. You should also learn about the charity you want to donate to. If you’re not sure the charity will still be around in 10, 20, or 30 years, consider another organization that will be around for a long time. Beyond that, you’ll want to consider your financial situation. Every donor should sit down and have a long, honest conversation with themselves about their needs and goals. Being honest with yourself is the only way you’ll truly know if a charitable-trust gift is right for you.
Look for a reputable group
Before you select a charity, look at its reputation, track record, and financials. You’re essentially giving that group an interest-free loan. You don’t want to end up funding an organization that’s not working for the public good. Be careful about how much money goes to administrative costs and salaries. You want to be confident that the money is being used as you intended. You also want to make sure you’re providing the charity with enough money to do meaningful work. If you want to build a new building, for example, make sure the gift is large enough to cover the cost.
Don’t be in a rush
Some people create a charitable trust right away. However, if you start early enough, you can put off contributing to the trust. You may need cash or other assets now, but you may not when the trust is due. You may also want to wait so you can see the current rates of return and make an educated decision on the best time to fund the trust. You may also want to see how the economy is doing before making a charitable-trust gift. If you have economic concerns, it might be better to wait and fund the trust during better economic times.
Be wary of the tax benefit
The IRS allows you to deduct the fair market value of the gift from your income. It’s not a deduction for the gift itself, but rather for the amount you could have gotten if you had kept the money. The gift is deducted over years, with a certain percentage subtracted from your income each year. The catch is that you can’t deduct the entire amount at once. Instead, you must make payments to the trust every year. If you put the money in a charitable remainder trust, you’ll likely receive an upfront payment that can be used to cover the taxes on your gift.
Check out the benefits you’ll receive
If the trust is large enough, you’ll receive annual payments from the trust. Those payments will likely depend on the interest rate of the trust, which fluctuates. If rates are lower, you’ll get a smaller payment. If they’re higher, you’ll get more. The payment amount likely won’t be enough to live on. However, you’ll have the option of withdrawing more money — subject to paying taxes on it. So, if you need the cash, you can take it out. You may also be able to get an immediate annuity payment from the trust. In that case, you’d receive a fixed amount — depending on the rates when the trust was created — for the rest of your life. If you’re worried about outliving your money, that’s a great way to keep it safe.
Final words: Be sure it’s worth it
The truth is that no one can predict the future. You may lose money on a charitable trust. Alternatively, you may make a significant return. That’s why it’s important to educate yourself and make sure it’s worth it. If you do your research and choose wisely, you should be able to maximize your donation.
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