Establishing a Charitable Legacy

When preparing an estate plan, many individuals wish to include a charitable component in their planning.  From a personal perspective, a charitable bequest allows an individual to benefit a group, institution or cause important to them and their families.  From a tax perspective, charitable planning can provide significant benefits to an individual and his estate.

The benefits of charitable or philanthropic planning can range from the tangible to conceptual.  Charitable contributions can reduce the size of a taxable estate while also providing a 100% charitable deduction for the value of the contribution.  Certain charitable vehicles can also create a guaranteed stream of income for the donor Charitable giving is also personally rewarding to donor and his or her family.  By using their wealth to help others, the donor establishes a legacy of giving that can continue from generation to generation in the donor’s family.

Charitable giving in an estate-planning context can take several forms.  Among the most common:

1)    Specific and General Charitable Gifts-Under the terms of a donor’s Will or Trust, a donor may leave a specific amount or specific percentage of their estate to charity.  The donor may choose a specific charity or leave the choice up to their fiduciaries.  The donor’s estate will be able to deduct the value of the gift from the value of his or her taxable estate.

2)    Charitable Annuities-Many public charities have established charitable annuities to provide donors with a steady stream of income for the rest of their lives.  The donor contributes a gift to the charity and receives an income payment for the rest of their life.  The annuity amount is determined by using the donor’s age, the value of the gift and the annuity rates used by the charity.  Using charitable annuities reduces the value of the donor’s taxable estate while creating a tax deduction equal to the gift less the present value of the annuity payments.

3)    Charitable Trusts-These trusts come in two main forms, charitable remainder trusts and charitable lead trusts.  Each includes an interest for a term of years and a remainder interest.  Charitable remainder trusts provide a lifetime income stream to a specific individual and leaves the remaining assets to a charity.  Conversely, a charitable lead trust provides a lifetime benefit to a charity and the remainder interest to the donor’s heirs.  The charitable deduction for both trusts is based on the value of the interest that the charity receives.

4)    Private Foundations-A private foundation is a nonprofit organization administered and controlled by a private individual or family.  The foundation is required to pay 5% of its corpus every year to qualified charities that are chosen by the foundation’s directors or trustees.  Families looking to make a long-term charitable investment may prefer the flexibility that a foundation provides.  A foundation can also serve as a source of family pride for the continued philanthropic work that a family engages in.

5)    Donor-Advised Funds-Donor Advised Funds provide similar benefits to a private foundation without the corresponding complexities.  The funds are run through a public charity and allow the donors to determine how the funds are distributed and what purposes the contributions are used for. Using donor advised funds can maximize a donor’s charitable deduction without the cost of a direct gift or the regulation of a private foundation or trust.

The goals behind any charitable gifting strategy may be different for each donor, but the benefits are universal.  After ensuring that your family is cared for financially, it is a great way to further enhance the legacy you leave behind to your family, friends and community.

Please contact for more information about charitable planning.

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