Philanthropy & Giving
Everyone has their own reason for gifting their assets or a portion of their income to charitable organizations. Some find comfort in helping others who are less fortunate, while others simply want to share their good fortune. Many institutions including art, sciences and education are supported in large part by those who want to give something back in appreciation for their contributions to the community or the individuals themselves.
Presently, the tax code offers incentives for gifting of one’s assets or income. Tax deductions are given for current contributions and, for estate owners, charitable gifts can reduce the size of the estate to help minimize estate taxes.
Often times, an individual will designate a charitable beneficiary in their will to benefit the organization after the individual dies. By using charitable gifting techniques, a donor may be able to benefit the charity while living without having to sacrifice the income that an asset can generate. Understanding how properly structured charitable gifts can provide current benefits for both the donor and the charity is essential for the charitably inclined.
Donor Advised Fund
A donor advised fund (DAF) could be best described as a charitable investment account that provides simple, flexible, and efficient ways to manage charitable giving. The money or assets that go into a donor advised fund becomes an irrevocable transfer to a public charity with the specific intent of funding charitable gifts. DAFs are increasingly the most popular charitable giving vehicle because they are simple to create and use, there is a minimal fee to establish and maintain them, and are a very efficient way to make grants to your favorite charities.
Charitable Remainder Trust
A remainder trust enables the donor to transfer an asset while retaining the right to the income it generates. The asset becomes the “remainder” which is owned by the charity. Remainder trusts, if properly structured, can qualify for a current tax deduction. There are two types of remainder trusts:
- Unitrust: A unitrust the income the donor receives is based on a percentage of the current fair market valuation of a trust asset. Each year, as the asset is valued, the income is adjusted based on the new valuation.
- Annuity Trust: Instead of a percentage of the asset value, the donor is paid a fixed amount annually.
Charitable Lead Trust
Also known as an Income Trust this vehicle transfers the income rights to the charitable organization. Generally, the income rights are assigned for a specified period of time after which the remainder passes to the donor.
Charitable planning involves tax issues that should be discussed with a qualified tax or financial professional.
