Understanding the Ins and Outs of Charitable Giving

Posted by Cheri Dorsey in Charitable Giving, Estate Planning, Trusts
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For many, charitable giving provides tangible and intangible benefits throughout your lifetime, while also establishing a legacy after you die. There are several ways to structure a charitable gift. Determining how to share your assets with others is dependent on your own financial situation, your interests, and to what extent you wish to see, first-hand, the benefits of your charitable donations. In addition to paying it forward for others, some gifting options can also result in tax benefits and alternative sources of income for you and your family.

Below are a few of the charitable giving solutions for which we can provide the tools and resources:

Charitable Gift Annuity

If you wish for your investments to benefit charity, while retaining a stream of income for yourself, charitable gift annuities may be an attractive solution. A charitable gift annuity is a contract between you (the “donor”) and the non-profit organization to which you donate.

Your donation is invested by the charity, and then, depending on the terms of the agreement, you receive regular payments and income tax benefits in return. Factors such as the age of the donor and the size of the contribution impact the income stream and tax benefits.

Charitable gift annuities are particularly useful for retirees seeking to increase their cash flow and save on income taxes. However, the payments you receive from charitable gift annuities are not income tax-exempt and will therefore be subject to income tax by the IRS.

Charitable Foundations

Private, charitable foundations may be appealing to those who prefer a direct hand in how their donations and assets are dispersed among various non-profit organizations. Charitable foundations can be managed by a Board of Directors, which can include the donor’s family members, or by a trusted professional manager who takes on the role of a Chief Operations Officer.

Notable examples of privately established charitable organizations include the Bill & Melinda Gates Foundation and the Walton Family Foundation. The donations received by foundations are a matter of public record.

Charitable foundations may provide individualized grants, scholarships and award programs, and regular donations to the organizations you care about, like religious institutions and private universities. While private charitable foundations can be quite beneficial even when they do not approach the size of the above-referenced foundations, because of the administrative burdens and regulatory rules, private charitable foundations are typically best suited for more substantial charitable wishes.

Charitable Trusts

Charitable trusts primarily exist in two forms: Charitable Lead Trusts and Charitable Remainder Trusts.

Charitable Lead Trusts (“CLTs”) provide a stream of distributions to one or more charities for a set term. After the term is completed, the remaining trust assets are distributed to the individual trust beneficiaries (often the donor or the donor’s family). Thus, the charity is the lead beneficiary.

Inversely, Charitable Remainder Trusts (“CRTs”) provide regular income to the individual trust beneficiaries for a set time before the remaining trust assets are transferred to charities. Thus, the charity is the remainder beneficiary. Both types of charitable trusts are irrevocable, and therefore cannot be changed or amended after they are established.

The assets within a charitable trust can range from cash, real estate properties, certain types of private stock, and publicly traded securities.

Many charitable giving solutions are complex and require a lot of time and investment to establish. However, these solutions provide worthwhile opportunities to share your well-earned assets with those in need and to give back to the organizations and institutions which have shaped your life.

Before you decide on a charitable giving solution, remember to always speak with an experienced estate and trust attorney who can help guide you in the right direction.

At Sessa & Dorsey, we consider the bigger picture at hand and advise our clients on the best estate planning techniques for their specific needs and desires. If you have questions about estates and trusts, please contact us at (443) 589-5600.