Understand the differences between giving vehicles.
If giving is in your heart, charitable planning vehicles have likely been a topic of conversation with your advisor. There are a variety of options and each has its own benefits, from tax advantages to grant control.
By using these planned giving vehicles, you can maximize your impact to charitable causes and see your generosity going further. Consider these common charitable giving vehicles as part of your financial plan.
A private foundation might be the most recognized charitable giving vehicle among wealthy donors. To have your own private foundation is often looked at as a sign of success.
They can be funded with assets like cash, private equity, publicly traded securities, tangible assets, real estate and intangible personal property. All foundations are required to distribute at least 5% of their assets to charities or qualifying individuals each year.
Private foundations can engage in philanthropic activities that are not available through other giving vehicles, including distributing donations to individuals, for example. Donors have complete control over granting (as long as is it charitable in nature) and investment decisions.
A foundation can exist in perpetuity, creating an enduring family legacy, and the collaborative board structure encourages family engagement. Invite your family members to become board members or vote on where charitable funds are distributed. Depending on the level of involvement your family members want, you may be able to hire one of them to manage the foundation.
Alternatively, you can hire a professional operating partner to look over the administrative tasks associated with the foundation, as such tasks can become complex. Private foundations are a great possible solution for those who want to run their own charity, employ staff, and have greater flexibility on grant-making.
A DAF is like having a designated bank account for charitable giving. You can contribute to the DAF as often as you like, with cash, securities or even other illiquid assets. You receive a tax deduction upon funding the account for the full fair market value, but don’t have to distribute the contributions until a later date.
DAFs are a popular choice because they offer great tax benefits and flexibility. The tax deduction for contributing cash can be up to 60% of adjusted gross income and 30% for long-term appreciated assets. (That compares to 30% and 20% respectively, for a private foundation.) And you can involve your family in charitable giving through a DAF by requesting grant nominations from family members – like a private foundation, but without the formalities of board meetings and minutes.
There are no mandatory annual distributions, and you can even remain anonymous. DAFs also have less of an administrative burden than that of a private foundation; however, you are limited to disbursing funds to only qualifying charitable entities. If you want a simple solution with low costs and the potential to grow tax-free, a DAF might appeal.
A CRT is an ideal option if you’re interested in earning income over a period or for life while also contributing to a charity (or charities) of your choice. This irrevocable trust provides you or your beneficiaries with regular income. At the time of your death, the remaining assets are given to the designated charity.
You contribute assets to the trust and obtain a current-year personal income tax deduction, based on the estimated value set to go to charity. In the case of a charitable remainder annuity trust (CRAT), you’ll get a fixed annuity amount every year for the term; for a charitable remainder unitrust (CRUT), the annual distribution is a percentage of the trust, typically between 5% and 50%.
In most cases, a donor advised fund can be named as the charitable beneficiary as well. A scenario that might lend itself well to a CRT is when you want a trust that can generate income for heirs or charities.
A CLT is an irrevocable trust that lets you donate money to charitable organizations for a specific period before giving the remaining assets to your family or other beneficiaries – essentially the reverse of a CRT. It’s an efficient way to transfer assets and can help reduce your taxes while making a positive impact through charitable giving.
You donate assets to the trust, choose one or more charitable organizations and distribute regular donations to them from the trust. The assets that remain in the CLT upon its termination go to your family, free of estate and gift taxes. Similar to a CRT, a CLT can benefit investors who wish to generate income for a cause.
Incorporating charitable giving in your planning is a noble effort and one that allows you to leave a legacy of generosity and goodwill with your wealth. Speak to your advisor about your philanthropic goals so you can determine which charitable giving vehicle is best matched to help you achieve them.
Sources: foundationsource.com
Donors are urged to consult their attorneys, accountants or tax advisors with respect to
questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.
Raymond James Trust, N.A. is a subsidiary of Raymond James Financial, Inc. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Trust.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.
Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.
