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Vegetarian Journal May/Jun 2000

Gifts to Charity Can Cut Income and Estate Taxes

By Allen N. Jones of Merrill Lynch


You may deduct from your taxable income contributions or gifts to organizations that are religious, charitable, educational, or scientific in purpose. The Salvation Army, United Way, Girl Scouts, nonprofit schools, and The Vegetarian Resource Group are all examples of charitable organizations.

Contributions may be made by cash, check, or out-of-pocket expenses incurred in doing volunteer work for qualifying organizations. If you donate used items, such as clothing or furniture, your deduction is based on their fair market value at the time of the gift.

To deduct single charitable contributions of $250 or more, you need a receipt or acknowledgment letter from the recipient. You must have the receipt before the due date for filing your annual taxes, so don't wait until you are audited to ask for a receipt. If you contribute regularly to an organization such as a church, ask for a year-end summary of your giving and check it for accuracy against your own records.

A receipt must state whether or not the charity provided any goods or services in return for the gift. If you contribute to a charity and also receive a benefit from it, you may deduct only the amount that exceeds the value of the benefit you received. For example, say you pay $100 to attend a charity's fundraising dinner. If the value of the dinner can be pegged at $40, your deductible contribution would be only $60.


You can also donate assets such as stock or other marketable securities. If you have owned the security for more than a year, your tax deduction is its market value at the time of the gift and you don't pay tax on any appreciation. If you have owned the security for one year or less, however, the deduction is limited to the cost of the stock.


Charitable giving can be a part of your will or estate plan. Such giving can not only benefit your chosen charity, but provide you or your heirs with income during your lifetime or theirs. One such strategy is to make a deferred gift using a charitable remainder trust.

When you set up a charitable remainder trust, you or your family members receive income from the trust for life or for a term you specify of up to 20 years. In the year the trust is established, you can receive a charitable deduction on your income tax return equal to a portion of the value of your gift. Often, such trusts are funded with highly appreciated assets such as stock or rental property, because the sale of assets in the trust is not subject to capital gains taxation. When the trust ends, the remaining assets pass to the charity. These trusts are a good way to benefit from an income or estate tax deduction.


Another strategy is a charitable lead trust, in which you place assets in trust and the income is paid to your chosen charity for a period of time. After that time, the principal passes to your children or grandchildren. This technique allows you to give assets to family members at a greatly reduced transfer tax and any appreciation on the principal passes to your heirs tax-free. Consult with your tax adviser about any trusts you consider establishing.


A charitable remainder trust is an innovative way to minimize taxes on the sale of an appreciated property, such as a home, when other strategies may not be sufficient to avoid taxes on the appreciation. Funding a charitable remainder trust with your home allows your home to be sold tax-free and provides you with a lifetime of income on the proceeds of the sale that can be used for retirement income or to pay the mortgage on a home of lesser value. After the death of you and your spouse, the trust assets are transferred to your chosen charity.

You can also make a gift of a remainder interest in your personal residence or vacation home to charity. You are allowed to continue to live in the property and are entitled to a current income tax deduction for a portion of the fair market value of the property. The property is transferred to charity at your death. You should consult with your tax adviser regarding the gift of a remainder interest in a residence. Real estate can also be deeded outright to charity during your lifetime.


One of the fastest growing sectors of charitable giving today is the community foundation. These foundations are publicly-supported charitable institutions that ad-minister individual funds contributed by or bequeathed to it by individuals, other foundations, agencies, corporations, and other sources.

A community foundation is governed by a local board of private citizens chosen to be representative of the public interest. The board invests its assets and distributes income each year in the form of grants either at the board's discretion or with advice from the donor.

In 1997, almost 550 community foundations held $21.27 billion in assets, an increase of about 24 percent from the previous year. These foundations received $2.4 billion in gifts and gave approximately $1.25 million in grants, according to the Columbus Foundation's annual Community Foundation Survey.

There may be no cost to establishing a charitable fund with a community foundation. In addition, as a donor, you are assured that your gift will improve the lives of individuals within your chosen community for generations to come. Merrill Lynch has recognized these tremendous benefits by forming an alliance with community foundations across the country to allow our clients to participate in these philanthropic funds.


Consult with your tax adviser about how best to make contributions to charities in ways that can cut your tax bill. Your financial consultant can talk with you about trusts and estate planning as part of your long-term plans to give charitably. With a little knowledge, you can contribute to society's good, as well as your own.

Allen N. Jones is Senior Vice President and Director of the Merrill Lynch Private Client Marketing Group. This article was submitted by Robert Orchanian, Financial Consultant. If you have questions about this article or other financial needs, you can call Rob Orchanian at (800) 937-0386, or e-mail him at: Rob is the author of The Race Against Junk Food.

This article is not meant to give specific legal or financial advice or endorsement of any one approach. Please consult your own legal, tax, or financial advisor. If you would like to leave a donation to The Vegetarian Resource Group, and wish to discuss future projects, you can contact Charles Stahler, Debra Wasserman, or Brad Scott at The Vegetarian Resource Group, PO Box 1463, Baltimore, MD 21203.

For a copy of a Merrill Lynch brochure on The Charitable Remainder Trust, contact Charles Stahler at the above address. Or you may send an e-mail to:, or call (410) 366-8343 to request the brochure, or other information.


The Vegetarian Resource Group depends on the generous contributions of our members and supporters to continue our educational projects. Though the world may not become vegetarian in our lifetimes, we realize that we are planning and working for future generations.

Your will and life insurance policies enable you to protect your family and also to provide a way to give long-lasting support to causes in which you believe. Naming The Vegetarian Resource Group in your will or life insurance policy will enable us to increase our work for vegetarianism.

The Vegetarian Resource Group is a tax-exempt organization. Your bequests are tax deductible for federal estate tax purposes. One suggested form of bequest is: I give and bequeath to The Vegetarian Resource Group, Baltimore, Maryland, the sum of ___________________ dollars (or if stock, land, or insurance policy, please describe).

To be sure your wishes are carried out, please speak with your attorney specifically about writing the correct information in your will. If you would like to discuss the types of future projects you wish to support, contact Debra Wasserman, Charles Stahler, or Brad Scott at The Vegetarian Resource Group, PO Box 1463, Baltimore, MD 21203 or call (410) 366-8343.

Excerpts from the May/Jun 2000 Issue

The Vegetarian Journal published here is not the complete issue, but these are excerpts from the published magazine. Anyone wanting to see everything should subscribe to the magazine.

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