Charitable Giving Options

Irrevocable nontrust gifts

  • Cash. A gift of cash is the simplest method of giving. The value of the gift is easily known. A cash gift is deductible within the 60% or 30% of adjusted gross income limitations, depending on the type of the recipient organization. Generally, the 60% limit applies.

  • Securities. The contribution deduction for stocks and bonds held long-term (held 12 months or more), is the mean between the highest and lowest selling prices on the date of the gift where there is a market for listed securities. The contribution deduction is limited to cost for securities held short-term.

Example: An individual taxpayer plans to make a gift of $50,000 to a college. To provide the capital, the taxpayer planned to sell stock that had cost $20,000 some years earlier yielding a long-term capital gain of $30,000. The taxpayer decides to donate the stock itself instead of the proceeds of its sale. The taxpayer receives a contribution deduction of $50,000 and the unrealized gain on the stock is not taxable. By contributing the stock, the taxpayer’s taxable income is $30,000 less than if the stock were sold.

  • Real estate. The contribution deduction for a gift of real estate is based on the fair market value on the date of the gift. If there is a mortgage on the property, the value must be reduced by the amount of the debt.

  • Life insurance. The owner of a life insurance policy may choose to give it to a charitable organization. The gift will produce a tax deduction equal to one of several amounts. The deduction may equal the cash surrender value of the policy, its replacement value, its tax basis or its “interpolated terminal reserve” value (a value slightly more than cash surrender value). The deduction cannot exceed the donor’s tax basis in the policy.

  • Bargain sale. A bargain sale is part donation and part sale. It is a sale of property in which the amount of the sale proceeds is less than the property’s fair market value. The excess of the fair market value of the property over the sale’s price represents a charitable contribution to the organization. Generally, each part of a bargain sale is a reportable event so the donor reports both a sale and a contribution.

  • Remainder interest in a personal residence or life estate. A charitable contribution of the remainder interest in a personal residence (including a vacation home) or farm creates an income tax deduction equal to the present value of that future interest.

  • Charitable gift annuity. With a charitable gift annuity, the donor purchases an annuity contract from a charitable organization for more than its fair value. This difference in values between what the donor could have obtained and what the donor actually obtained represents a charitable contribution. The contribution is tax-deductible in the year the donor purchases the annuity.

  • Donor-advised funds. Donor-advised gifts may be made to a donor-advised fund (DAF). A DAF is defined as a fund or account that is separately identified by reference to contributions of a donor or donors, is owned and controlled by a charitable sponsoring organization, and to which a donor (or any person appointed or designated by the donor) has advisory privileges with respect to the distribution or investment of amounts in the fund.

    A donor makes an irrevocable contribution of cash and/or securities to the separate fund or account. The donor is eligible for a tax deduction at the time of the contribution to the DAF even though the DAF may distribute the funds to one or more charities in a subsequent tax year. The donor makes recommendations to the trustees for grants to be made out of his or her separate fund with the DAF. The representatives of the DAF then review these recommended grants to verify whether the target organization is a qualified charity.

    The right of a donor to make recommendations to the trustees of a DAF generally does not constitute a restricted gift. However, if a gift to a DAF is restricted by the donor as to purpose or time, with the right to make recommendations as to the eventual charitable recipient(s) of the funds, this gift is temporarily or permanently restricted, based on the nature of the restriction.

Irrevocable gifts in trust

  • Charitable remainder annuity trust. With an annuity trust, the donor retains the right to a specified annuity amount for a fixed period or the lifetime of the designated income beneficiary. The donor fixes the amount payable by an annuity trust at the inception of the trust.

  • Charitable remainder unitrust. The unitrust and annuity trust are very similar with two important differences: (1) the unitrust payout rate is applied to the fair market value of the net trust assets, determined annually, to establish the distributable amount each year, as contrasted to a fixed payment with an annuity trust, and (2) additional contributions may be made to a unitrust compared to one-time gifts allowable to annuity trusts.

  • Charitable lead trust. The charitable lead trust is the reverse of the charitable remainder trust. The donor transfers property into a trust, creating an income interest in the property in favor of the charitable organization for period of years or for the life or lives of an individual or individuals. The remainder interest is either returned to the donor or given to a noncharitable beneficiary (usually a family member).

  • Pooled income fund. A pooled income fund consists of separate contributions of property from numerous donors. A pooled income fund’s payout to its income beneficiaries is not a fixed percentage. The rate of return that the fund earns each year determines the annual payout.

Revocable gifts

  • Trust savings accounts. A trust savings account may be established at a bank, credit union, or savings and loan. The account is placed in the name of the depositor "in trust for" a beneficiary, a person, or organization other than the depositor.

    The depositor retains full ownership and control of the account. The beneficiary receives the money in the account either when the depositor dies, or when the depositor turns over the passbook.

  • Insurance and retirement plan proceeds. A nonprofit organization may be named the beneficiary of an insurance policy or retirement plan. The owner of the policy or retirement plan completes a form naming the nonprofit as the beneficiary, and the company accepts the form in writing. The gift may be for part or all the proceeds.

  • Bequests. By a specific bequest, an individual may direct that, at death, a charity shall receive either a specified dollar amount or specific property. Through a residuary bequest, an individual may give to charity the estate portion remaining after the payment of other bequests, debts, taxes, and expenses.

Reproduced by permission from
The Church and Nonprofit Tax & Financial Guide
by Dan Busby and Michael Martin

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.