Charitable gifts can help many people. Of course, they help the beneficiaries of charities. Well-planned gifts also can help the donor by reducing income taxes and by providing a stream of income from an asset that previously generated no income.

There are several charitable giving strategies that help donors generate income from their gifts. Each is appropriate in different situations.

Charitable remainder trust. This is the classic vehicle for converting an appreciated asset into a stream of income while helping others.

In the CRT, you donate appreciated capital gain property to a trust you created. The trust sells the property and invests the proceeds to generate income or to achieve a combination of income and capital gains. The trust pays you (or other beneficiaries you name) income for either a period of years (up to 20 years) or for life, whichever you designate. After the income period ends, the remainder of the property in the trust goes to the charity or charities you designated when creating the trust. The charities can be changed during the income payout period.

When you transfer property to the trust, you receive a charitable contribution deduction. The deduction is for less than the full value of the property. The deduction is based on current interest rates and your age (or the term of years the income is paid) and is computed using tables issued by the IRS. The older you are, the higher the percentage of the property’s value you can deduct. There’s a limit to the amount that can be deducted each year, and it depends on the type of property donated and the type or charity. Unused deductions generally can be carried forward to future years.

You don’t owe income or capital gains taxes on the appreciation that occurred while you owned the property, and the trust doesn’t pay any taxes when it sells the property since it is a charitable trust. So, the full value of the property after transaction costs can be invested.

The value of the property also is excluded from your estate for federal tax purposes. So, the CRT is a valuable estate planning vehicle for those whose estates are large enough to worry about estate taxes.

The annual income payouts are based on a formula you set within limits set by the IRS. You can have the trust pay you a fixed percentage of the value of trust assets each year (known as a unitrust), or you can have the trust pay a fixed dollar amount (known as an annuity trust). You set the formula when creating the trust and can’t change it.

The unitrust has the potential for the payouts to increase as the value of the trust’s portfolio increases, giving you an inflation hedge. But there’s no guarantee the trust value will increase each year, so payouts can fall or stagnate, depending on what the trust’s value does. The annuity trust gives you a fixed payment you can plan on, though its value will lose ground to inflation over time.

There are some possible variations to consider on the payout for a unitrust. You can say there won’t be an income payout in a year when the trust doesn’t have enough income (interest, dividends, and rent) to make the payout. Known as a net income trust, this allows a younger person to set up the trust and take the tax deduction today but defer most of the income until later by having the trust invested so it doesn’t generate much income. Later, the portfolio can be shifted to generate income.

This type of trust also can have a makeup provision so distributions that weren’t made in some years because of the lack of income can be paid in future years when the trust has enough income. Finally, the net income trust can flip, so that it pays little or no income for a number of years, but then on a designated date its mandate changes to pay out a flat rate each year regardless of the amount of income earned. This is known as a FLIP CRUT.

The FLIP CRUT can be advantageous when you want a charitable contribution today for an asset that might not be sold for years. You can put land, private company stock, art, or collectibles in the trust. Years from now when you want income or believe the asset has appreciated enough, the trust sells the property and begins paying you income. Of course, this trust also is valuable when you want the charitable deduction now but don’t want additional income for a few years.

There’s a ceiling to the amount of payout you can receive from a CRT. The payout has to be set so, using assumptions set by the IRS, the charity is estimated eventually to receive at least 10% of the original trust value.

When you receive income from the trust it is included in your gross income. It is ordinary income to the extent of the trust’s interest and dividend income. Distributions above that amount are capital gains until the gain that was inherent in the property when you transferred it to the trust is exhausted.

CRTs aren’t without disadvantages, with the main one being the costs. You have to set up the trust, and it needs a trustee and someone to manage the portfolio. It also will have to file annual tax returns. Most advisors say a CRT probably doesn’t make sense unless you’re transferring at least $250,000 worth of property.

Charitable gift annuity. The charitable gift annuity is simpler than the CRT, but it’s  another way charitable contributions generate income while providing a tax benefit.

You transfer cash or property to a charity. In return it promises to pay you a stream of income for life or a period of years, whichever you select. Again, you don’t pay capital gains taxes on the appreciation the property accrued during your ownership. You receive a tax deduction for part of the value of the property you transferred to the charity. As with the CRT, IRS tables determine your tax deduction, and the older you are the greater your deduction.

Each income payment you receive from the charity is partially tax-free as a return of principle and partially ordinary income, as with standard annuities, until the amount of your contribution to the charity is recovered. Details of how to compute the deduction are in IRS Publications 939 and 575, available free on the IRS web site www.irs.gov. Most charities also will provide tax information for you.

The charitable annuity provides you a steady, known flow of income for life while also helping the charity. You will receive a lower payout than you would from a commercial annuity from an insurer, because the charity takes part of the payment as a contribution. That’s why you get a tax deduction.

You might receive a higher income payout from the charitable annuity, however, if you’re donating appreciated property to the charity. To convert the appreciated property into a commercial annuity you’d have to sell the property, pay capital gains taxes on it, and invest the after-tax amount in an annuity. With the charitable annuity, you give the property to the charity and get credit for its full value. The charity doesn’t have to pay taxes when it sells the property. The annuity also doesn’t burden you with the administrative costs of a CRT, which is another reason it might give you higher income than some alternatives.

Keep in mind that all you’re receiving from the charity is a promise to pay you money. You have no equity and no separate account at the charity. Even if the charity uses your contribution to buy a commercial annuity that funds your payout, you have no legal right to that annuity. If the charity has financial troubles, you’re a general creditor. Some people lost part of their retirement incomes when they created charitable annuities with charities that invested their portfolios with Bernie Madoff. So, you want to deal only with an established charity that’s been around for a while and has financial stability.

You aren’t likely to get a better deal by shopping among charities. Most charities belong to a national group that sets the annuity payout rates and agree to adhere to those rates.

Suppose you also want to leave something for your heirs. Neither of these strategies will allow that. What some people do is use part of their tax savings from the charitable contributions to pay a life insurance policy and put it in what’s known as a wealth replacement trust.

Charity and IRA conversions. You can combine a charitable contribution strategy with an IRA conversion.

Suppose you have a large traditional IRA you’d like to convert into a Roth IRA. You want to avoid those large required minimum distributions after age 70½ and help you or your heirs receive tax-free income in the future.

If the charitable remainder trust or charitable annuity already is a good idea for you, the benefits might be multiplied when you convert all or part of a traditional IRA into a Roth IRA in the same year you execute one of those strategies.

Here’s how it works. You transfer property to either the CRT or charity, depending on the strategy you select. That generates a large tax deduction. If you don’t have enough other income that will be offset by the tax deduction, consider converting enough of your IRA so that all or most of the conversion is tax free after being offset by the charitable deduction. That sets you up for tax-free income down the road from the Roth IRA and also reduces the RMDs as times goes on.

Combining one of the charitable strategies with an IRA conversion ensures that the tax benefits will last for many years.

These charitable strategies are ideal for people with highly appreciated assets that don’t generate income. You don’t want to incur the capital gains taxes now from selling the assets and converting them to income-paying investments. If you’re already charitably inclined, consider these strategies as a way to generate income and avoiding the big tax bill.

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