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Charitable Vehicles

• Charitable Remainder Trusts

  To benefit a charity while helping ensure your own financial future, consider a charitable remainder trust (CRT). CRTs, which have always offered benefits to individuals, could become very attractive. Since the appreciated assets that are transferred to a CRT are not taxed, the full value of these assets is available to provide an income to the donor. For a given term, the CRT pays an amount to you annually (some of which generally is taxable).

  • When you fund the CRT, you receive an income tax deduction for the present value of the amount that will go to charity.
  • The property is then removed from your estate.

  A CRT is tax-exempt, it can sell the transferred assets without paying tax on the gain at the time of the sale. It will then invest the proceeds in a variety of stocks and bonds. Although capital gains taxes will be due when you receive CRT payments, but possibly only a portion of each payment will be attributable to capital gains; some may be considered tax-free return of principal.

• Charitable Lead Trusts

  A charitable lead trust is an irrevocable trust that makes payments to a charitable organization annually and then transfers the remaining funds to other beneficiaries, such as family members.

  • For a given term, the CLT pays an amount to one or more charities.
  • At the term’s end, the CLT’s remaining assets pass to one or more loved ones you name as remainder beneficiaries.
  • When you fund the CLT, you make a taxable gift equal to the present value of the amount that will go to the remainder beneficiaries.
  • The property is removed from your estate.

• Donor Advised Fund

  A donor-advised fund is a charitable investment account, administered by a third party, for the sole purpose of supporting charitable organizations. When you contribute cash, securities, or other assets to a donor-advised fund, you can take an immediate tax deduction in the year of the contribution. Then make grant recommendations, of all or part of the fund, to support to any eligible IRS-qualified public charity.  While you’re deciding which charities to support, your donation can potentially grow, making available even more money for giving.

• Private Foundation

  Private Foundations are established as a nonprofit corporation or charitable trust.  They are funded by an individual, family or group and, in many cases, they bear the family name.  Private Foundations are tax exempt under the IRS code 501(c)3, offer tax incentives to the donor and require a distribution on 5 percent of its assets annually to a charity. 

  To set up a private foundation, you start by establishing the foundation and appoint a board of trustees, which may include family members.  Once assets are transferred to the foundation, the board members will manage the day-to-day affairs, which include choosing the charities the annual gifts will be made to.  

  Many times, younger family members are also included in foundation meetings as a way to prepare them for the day that they take over control and the decision making as future board members.  This involvement can create a truly meaningful and lifelong philanthropic experience.  

  Today there are thousands of foundations in the United States who’s gifts to charitable organizations amount to about 40 percent of all charitable grants.  They are not only for the famous or the ultra-rich, but if you ask around you will likely recognize the names of families in your local community that have their own private foundations.   

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