Weighing Gifting Vehicles
There are a number of strategies and vehicles that can be employed to make charitable gifts. Below, we review eight of the most common methods of donating.
Donor-Advised Funds (DAFs) are a low-cost, simple method to administer your charitable giving. DAFs provide the opportunity to engage family members who may serve as advisors and successor advisors. Advisors can recommend grants when they choose, in the amount they choose, to qualified charities. For those who itemize, DAFs provide an immediate tax deduction.
Charitable Lead Trusts let a benefactor make contributions during their lifetime by providing a non-profit(s) with an income stream. These trusts are frequently used as a technique to delay gifts to family members. They are also used to shelter appreciation and capital gains. Depending on the donor’s unique financial situation, use of charitable lead trusts may reduce the donor’s estate and gift taxes.
Charitable Remainder Trusts allow a donor to receive an income stream and make a charitable gift when the trust term ends. These trusts are frequently used to shelter highly appreciated assets. They are also commonly used to minimize capital gains. Depending on the donor’s financial circumstances, the donor may receive an estate deduction as well as reduced estate and capital gains taxes.
Private Foundations are tax-exempt entities that fulfill a charitable purpose by making grants to charitable organizations. Family foundations are typically classified as private foundations. They provide the directors/ trustees with flexibility and control of the foundation, its investments, and grant distributions. A private foundation can potentially exist in perpetuity, helping to achieve family legacy. For those who itemize, donations to a private foundation may provide an immediate tax deduction.
Bequests are a provision in a giver’s will providing for a specific dollar amount, item of property, or share, or percentage of the donor’s estate to be distributed to a named non-profit. The full amount of the charitable gift, at death, may be deducted from a donor’s estate.
Beneficiary Designated Gifts are a very simplistic way to give back to organizations. Various types of accounts, including retirement plans, life insurance policies, brokerage accounts, and other assets can transfer on death to a specified charity. The transfer is not included in the donor’ estate.
Charitable Gift Annuities serve as an agreement between a donor and a nonprofit organization, where the donor contributes assets to a charity, which in turn pays a lifetime income stream to the donor or an individual selected by the donor. This allows a donor to support a charity while receiving an income stream. Donors who itemize may receive an income tax deduction for a portion of the gift.
Qualified Charitable Distributions (QCDs) permit individuals aged 70 ½ and older to make qualified distributions up to $100,000 annually from the donor’s IRA to qualified charities. Rollover distributions must be made directly from the IRA to the charity. These distributions are not taxable income for the donor and count toward the IRA’s annual minimum required distribution.
Donors should work with their professional advisors to confirm which vehicle(s) are best for their situation.