What kind of legacy do you want to leave?
Planning for Success: What kind of legacy do you want to leave?
Aside from direct, out-of-pocket gifts, or gifts made through your IRA, there are three primary vehicles that can be utilized to achieve your charitable giving goals. We are here to educate and guide you in selecting an appropriate solution.
Before reviewing charitable giving vehicles, it is important to review the IRA Qualified Charitable Distribution. A Qualified Charitable Distribution (QCD) can be made from an Individual Retirement Account (Traditional, Rollover, Inherited, SEP and SIMPLE) to a charity or charities and be excluded from income up to $100,000 annually for those 70 ½ or older. These qualified distributions can count as all or part of your required minimum distribution, but they are not taxable to you and are not added to your adjusted gross income; qualified distributions are not deductible on your personal income tax return. Keeping your taxable income lower may reduce the impact of certain tax credits and deductions, including Social Security and Medicare.
Donor Advised Funds (DAFs):
- A donor-advised fund is a charitable giving account designed to invest, grow, and give assets to qualified charitable organizations for meaningful and lasting impact. We utilize donor-advised funds through Charles Schwab’s industry leading platform, which allows us to minimize costs associated with charitable giving, thus maximizing your charitable impact.
Charitable Remainder Trusts (CRTs):
- A charitable remainder trust is an irrevocable trust designed to reduce the estate tax of the grantor and support charities. A charitable deduction for income tax purposes is available in the year of funding. Essentially, it is a split-interest giving vehicle that enables the grantor to pursue philanthropic goals while still generating income. They operate by dispensing income to either the grantor or one or other beneficiaries for a specific period or death. Upon completion of this timeframe, the remainder of the trust assets will be transferred to one or more designated charitable beneficiaries.
- Notably, annual payouts from the trust can be based on either a fixed percentage of the trust’s initial value or a fixed percentage of the trust’s value recalculated annually. We would be happy to provide you with additional information on charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs).
- The inverse to a Charitable Remainder Trust is a Charitable Lead Trust (CLT), which is designed to provide immediate support to one or more charities for a fixed period. Upon completion of this timeframe, the remainder of the trust assets will be transferred to one or more individual beneficiaries as set forth in the trust agreement.
Private Family Foundations: (Ideal for developing and managing a family-based giving legacy)
- A private family foundation is a structure set up by a family, funded with the family’s assets and often run by family members who can also participate in its charitable grantmaking. It can last as long as the family would like it to serve its philanthropic ambitions; as well as, adapt to the family’s composition and evolution of charitable goals.
Summary of Giving Vehicles:
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Private Family Foundations |
Charitable Remainder Trusts (CRTs) |
Donor-Advised Funds (DAFs) |
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Initial Expenses |
Professional fees (Attorney & CPA) |
Professional fees (Attorney & CPA) |
No start-up costs |
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Income Stream |
Exempt from income tax, but most are subject to a 1.39% excise tax on net investment income. |
Yes, income taxable to grantor |
None |
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Income Tax Deduction Limitations |
Up to 30% of AGI for cash contributions
Up to 20% of AGI for contributions of appreciated securities |
Up to 60% of AGI for cash contributions
Up to 30% of AGI for contributions of appreciated assets |
Up to 60% of AGI for cash contributions
Up to 30% of AGI for contributions of appreciated assets
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Income Tax Deduction* |
Immediate tax deduction, depending on contribution amount in year of funding |
Equal to present value of charitable remainder interest in year of funding |
Equal to value of gift |
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Estate Tax Benefits |
Contributions are excluded from the donor’s estate and are not subject to either federal or state estate taxes |
Contributions are excluded from the donor’s estate and are not subject to either federal or state estate taxes |
Contributions are excluded from the donor’s estate and are not subject to either federal or state estate taxes |
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Administration, Annual Filings, Compliance Responsibility |
Set up and administration can be complex and costly.
Will need to consult a CPA or lawyer to set up the foundation, draft and file its articles of incorporation or trust agreement, mission statement and other documents |
The trustee is responsible for all reporting and compliance.
Fees may apply |
The non-profit that created the DAF is responsible for all reporting and compliance
Small fees may apply |
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Control of investments |
The Family Governance system can recommend investments
Assets include: Cash, publicly traded securities, private stock, real estate, or other family-controlled assets
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The trustee manages investments pursuant to the trust document |
Depending on DAF platform provider |
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Private Family Foundations |
Charitable Remainder Trusts (CRTs) |
Donor-Advised Funds (DAFs) |
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Control on how funds are granted to nonprofits |
Family directors or trustees have complete control over which non-profits they would like to benefit and can be changed at any time. |
Donors identify benefiting charity or charities when the fund is established, but trust document can provide for changes |
The donor can recommend nonprofits to receive grants on an ongoing basis and the frequency of distributions. |
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Immediate Tax Benefit |
Yes |
Yes |
Yes |
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Capital Gains Impact |
*Excise tax: foundations must add net capital gains to the net investment income to calculate excise tax
Current tax rate is 1.39% |
Unrealized appreciation on assets passed to the CRT are not taxed as capital gains to the grantor |
Unrealize appreciation on assets passed to the sponsoring charity and are not taxed as capital gains to the grantor |
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Opportunity to establish family legacy |
Best option for managing family-based legacy giving for a large body of assets |
Yes: limited ability to change charitable remainder beneficiaries |
A DAF can be set up as the charitable beneficiary of a trust |
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Privacy |
Grants are required to be reported publicly |
Gifts are public at the time of termination of the CRT |
Gifts can be given anonymously |
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Required Distributions |
At least 5% of assets annually |
At least 5% but no more than 50% of the trust assets.
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None, unless the entity managing the DAF has its own requirement.
Could have limitations on the number of years before complete distribution. |
Footnotes: *Income Tax Deduction: Carryforward of excess charitable deduction for up to 5 years until used up.
As outlined above, each of these vehicles come with its advantages, limitations, and different tax deductions. It is important that your unique situation and goals are thoroughly discussed so appropriate solutions can be implemented in tandem with your holistic financial plan. At the end of the day, we want to make sure your charitable gifts are having the impact that you so intend. Oftentimes, legacy planning can be a powerful way for families to pass along their shared beliefs and values. We welcome the opportunity to discuss your philanthropy and legacy planning goals, both short and long term.
