Michael's brother James, a priest and local activist, had been dropping hints for years about a South-Boston based charity he was involved with. Finally James asked outright if his brother and sister-in-law would consider making a major gift to the charity, which had developed community programs in child care, affordable housing and neighborhood safety.

The O'Shaunesseys liked the idea and decided to take a hard look at their finances to see what they could afford. Through stock options and investing, they had amassed $6 million in stocks and mutual funds, which were yielding about $240,000 a year. They also had a traditional retirement plan with $2.5 million in assets. On the expense side, they faced mortgage payments, maintenance fees, and property taxes on their Boston brownstone and summer home totaling $150,000 a year.

After income and capital gains taxes, that left $90,000 in annual cash flow to cover living costs. They could imagine giving away 10 percent of this comfortably, but that would amount to only $9,000-not the sort of gift that would make a visible difference.

Solution: The problem is the way the O'Shaunesseys are looking at their wealth: they see only income, not principal, as a source of charitable funds. All told, the O'Shaunesseys have a net worth of more than $8.5 million. If they were to give just 2 percent of their assets to the charity through a bequest, the gift could be as much as $170,000. And with the right approach, the family's tax savings could be well into six figures.

The key is for them to make the gift with their pension plan assets. The type of wealth that resides in traditional retirement plans is ideal for charitable giving, because it is particularly difficult to pass on to heirs. In fact, it's not unusual for income and estate taxes to consume 75 percent of a wealthy estate's retirement assets.

To make a gift of a pension or retirement plan to a charity at death, name the charity (on the plan's beneficiary designation form) as the beneficiary of the plan. Married donors may need to get written consent from their spouses for the gift. The rules governing gifts of pension or retirement plans to charity are complex, so donors should consult their advisor before making a major gift like this.

Because of the charitable deduction, the O'Shaunessey family would not have to pay either income or estate taxes on the $170,000 bequest to the charity. For their part, the children might otherwise have received as little as $40,000.

The issues examined in this column are based on both real and hypothetical situations. All names and identifying details are fictitious. But it illustrates how complex but advantageous a properly structured gift can be for everyone.

Adapted from an article for Community Foundations of America, Inc., copyright 2004.