We were in a team meeting recently, and a story of an incredible estate gift came up in conversation.
It was early 2021, almost a year after COVID-19 shut down so much of normal life, bringing the entertainment industry to a grinding halt. A lifelong supporter of the arts, and Johnson & Johnson heir, in White Bear Lake, Minnesota, passed away and left a $2M home to the local Lakeshore Players Theatre. At 99, the donor had given significantly to the arts during life, including supporting the theatre’s recent capital campaign. But the home, left at her death, would help ensure financial stability for the small arts organizations for decades to come.
In our work, we talk to families all the time who are shocked when they see their total net worth. They think of their wealth in terms of income: their liquid assets, or what’s in their checking or savings account and readily available to give. Through our signature legacy planning program, we help them open their eyes to the myriad possibilities for supporting their loved ones and causes they love: options that are often much more tax-efficient and strategic than giving cash. It just takes a little creativity!
Here are some creative estate giving options to consider:
Fund a Charitable Trust
Consider putting assets into a charitable trust at your death! This is a clean, flexible, and efficient way to give heirs a stream of income, but with a bonus gift to charity as well. I recently worked with a single woman who set up a charitable trust to pay out to her nieces and nephews after she’s gone. Another couple has several kids, some of whom aren’t great money managers! A charitable trust—like a charitable remainder unitrust, charitable remainder annuity trust, charitable lead annuity trust—simplifies the estate by consolidating assets quickly into one tax-efficient trust entity. It eliminates fighting over a house and maintenance, for example. And it also keeps things private by avoiding the probate process, which goes on public record!
Gift Equipment (Like a Tractor or Combine, for Example!)
They often say farmers are “cash poor, but land rich”….they often scrape by in life, with much of their liquid capital being invested back into the farm, but they retire as millionaires! If someone is ready to retire from farming, or if they have no heirs who will take over the farm someday, it can be a great idea to gift equipment to a favorite charity! Equipment is “spendy” (as we Midwesterners like to say), and you can get an immediate charitable deduction for its entire value when it changes hands. Of course, the charity will have to figure out a way to sell the equipment in order to fund its mission (and not all charities can or want to accept these types of donations). But to the family, it’s like gifting pre-tax dollars without impacting liquid estate assets.
Give a Gift That Moos!
Yes, you can gift livestock! There’s no cost basis on live animals, so the sale of them is treated as straight income…which triggers relatively high tax! By gifting livestock directly to a charity, before a sale happens, the charity gets the full pre-tax value of those head. This doesn’t trigger a charitable dedication, because livestock are a short-term capital gain asset, but it’s still very tax-efficient. Livestock can be held in a living trust, simplifying an estate and eliminating disagreements between family members. Livestock can also be sold to fund a charitable trust, creating a stream of income for you or your family, with a substantial gift going to a charity, too. Win-win-moo.
Consider Gifting Land
Let’s say you have 1,200 acres of your grandparents’ farmland. You’ve retired, and nobody in the family lives close enough to actively farm it going forward. You’ll be lucky to get a 1% return on the property by renting it out, while property tax rates climb.
One option could be to gift it to a foundation. Hypothetically, that foundation would sell it. The family bypasses capital gains on the land—which may have doubled or tripled in value since it was purchased generations ago—and receives an immediate charitable deduction for the full value of the land. A charitable trust, funded with the land sale proceeds, creates a stream of income for your lifetime and/or your spouse’s lifetime, then funds a donor-advised fund when you’re gone. Your heirs will get to have a hand in giving charitably, following any instructions or guidelines you set up, and your land will have given you peace of mind in retirement and instilled a spirit of generosity in those you love.
We also recently worked with someone who had a rental property that was becoming cumbersome to care for. Similar to the farming scenario, she decided to gift the property to a foundation to fund a charitable remainder unitrust. It avoided triggering capital gains tax on the property, created income for her for the rest of her life, created a stream of income for her children for 20 years after that, and left an incredible gift to charity down the road.
Give a Gift in Kind
One client family recently gifted art to their alma mater as they downsized their personal collection. They get a charitable tax deduction for the appraised value of the art, and also know that young people are being inspired and enriched by having that beautiful art in their lives each day. It’s possible to gift crops (more on that in a separate post soon), furniture, or any tangible item that’s of value to an organization.
There are a lot of ways to define planned giving, but the most important thing is that you and your family consider all the assets available to you, and give to charity from the spot that makes the most sense for your family and life stage. As these examples show, it might even significantly minimize tax along the way!
Let us know if we can help you review your plan and identify ways you can give creatively.