Total charitable impact

 

The right giving tool for you

There are many giving tools available to you—such as private foundations, donor-advised funds (DAFs), trusts, and others—to assist you in reaching your giving goals. The main purpose of these giving options is to transfer assets to charitable causes, but choosing the right tool for you and your mission can be a complex process.

Evaluating your giving options

Rather than debate which giving tool is best, we urge you to focus on what best supports your charitable giving preferences and goals. Keep in mind that picking a giving tool is not an “either/or” decision. Many giving options make excellent complements to one another. Together they can optimize your charitable impact. The following elements are key to understanding your needs when it comes to a giving tool.

Tax efficiency represented by a gray calculator over green dollar bills on a teal background

Tax efficacy:

What types of assets do you typically give to charity? At what times of the year are you giving? Select a giving tool that allows you to optimize tax deductions for the way you give.

Cost represented with a white piggy bank with green coins going in on a teal background.

Cost:Cost:

How much do you want to spend on your giving tool? Most giving options have associated administrative fees. These fees cover necessary costs associated with running a giving tool. Cost is an important factor to consider because over time, it may decrease your charitable impact.

Level of input or control over the account represented by a form or document on a teal background.

Control or level of input:

How much direct oversight and decision-making power do you want over each aspect of your giving? Another way to think of this is, how much work do you want to put in yourself?

legacy options represented by icons of people showing the passing of wealth from one generation to the next generation on a teal background.

Legacy options:    

Leaving a legacy is a personal decision that can take various forms, from bestowing assets to others, to naming a charity as a beneficiary in a will, to continuing a family tradition of giving. What will your legacy be?

 

Direct Giving

Giving Tool
  • Donation made directly from individual to charity, usually via cash.
  • Donor responsible for any paperwork and other administrative details for each gift, though administrative details are generally limited.
  • Can be any amount.
  • May be limited in type of assets that can be donated.
For donors who want…

a fast and easy way to give and maximum control over donations.

Tax features

In lifetime: Full income tax deduction based on value of gift.

As estate bequest: Full value removed from estate, reducing estate tax for heirs.

Cost

None or low

Control/ level of input
  • Donors manage all decisions and can donate to any charity.
  • Chose when and how donation is represented.
  • No legacy options, unless a deferred gift is established through estate.
Complexity

Low

Donor-advised fund (DAF)

Giving Tool
  • Donors contribute to account and take immediate tax deduction.
  • Recommend investment options and DAF sponsor invests assets, which grow tax-free.
  • Recommend grants, DAF sponsor conducts due diligence, issues check, and performs other administrative duties.
  • Accounts are generally not subject to annual spending requirements, although many require at least 1 grant every few years.
  • Minimum initial contributions vary, but are typically $5,000-$25,000.
For donors who want…

to consolidate their giving, contribute all types of assets, and separate contribution from grants.

Tax features

In lifetime: Full income tax deduction based on value and type of gift.1

As estate bequest: Full value removed from estate, reducing estate tax for heirs.

Cost

Low

Control/ level of input
  • Recommend investments and grants but no direct control over assets once contributed.
  • Support generally any public charities in good standing with IRS.
  • Choose recognition or anonymity.
  • Create a personalized succession plan.
Complexity

Low

Charitable gift annuity (CGA)

Giving Tool
  • Contract established with a charity, allows individuals to transfer assets to that charity in return for income and estate tax deduction and fixed income stream for lifetime of up to 2 people.
  • Charity keeps remainder of gift after donor passes.
  • Established for as little as $10,000 with some charities.
For donors who want…

to receive income while supporting charity.

Tax features

In lifetime: Immediate partial income tax deduction equal to amount of contribution minus present value of payments to donor during life. Income stream subject to tax, but no capital gains tax on assets transferred to annuity.

As estate bequest: Full value removed from estate, reducing estate tax for heirs.

Cost

Moderate

Control/ level of input
  • Choose charity to receive donation, charity controls assets and decision-making.
  • Can remain anonymous to public but not to charity.
Complexity

Moderate

Private foundation (PF)

Giving Tool
  • Independent charitable organization with governing body and legal documents.
  • Governing body has complete control over investment and grantmaking decisions.
  • IRS requires 5% distribution of net investment assets yearly.
  • Generally started with $5 million-$10 million or more.
For donors who want…

maintain control over charitable activity, wish to involve family members in management or governance, and are comfortable following strict compliance and granting regulations.

Tax features

In lifetime: Full income tax deduction based on value of gift for some assets.Subject to stricter deductibility limits than other charitable organizations. Must file annual tax return and subject to 1%-2% excise tax on annual net investment income.

As estate bequest: Full value removed from estate, reducing estate tax for heirs. Full value removed from estate, reducing estate tax for heirs.

Cost

High

Control/ level of input
  • Manage contributions, investments, grants, and legal documents.
  • Support any charitable cause that falls within scope of mission.
  • Subject to certain tax regulations.
  • Required to publicize information about trustees or directors, certain employees, grants, income, and investments. 
  • Create succession plan to involve future generations, or give remaining assets directly to public charity.
Complexity

High

Charitable remainder trust (CRT)

Giving Tool
  • Assets are transferred to trust for income and estate tax deduction.
  • Receive income from trust for set period.
  • Name a charitable beneficiary to receive residual principal of trust. 
  • Startup costs and minimums vary, contributions typically exceed $100,000.
For donors who want…

to receive income while fulfilling charitable goals and give to charity after they pass away.

Tax features

In lifetime: Immediate income tax deduction for actuarial value of remainder interest. Income stream subject to tax; must include on annual tax return. Deferred capital gains tax on assets transferred to trust.

Cost

High but varies by the type of trust

Control/ level of input
  • Choose level of income, remainder beneficiary, and trustee.
  • Can change charitable beneficiary, in some cases.
  • Can remain anonymous to public but not to charity.
Complexity

High

Charitable lead trust (CLT)

Giving Tool
  • Transfer assets or property to trust and grant income from trust to designated charity for fixed period.
  • Remaining funds pass to non-charitable beneficiaries.
  • Often require $500,000-$1 million to establish.
For donors who want…

to pass assets to beneficiary in future and charity in meantime.

Tax features

In lifetime: Grantor CLT: If established as grantor CLT, immediate income tax deduction equal to present value of income stream paid to charity at time trust is funded. Trust must file annual tax return, but no capital gains tax on assets at the time transferred to trust.

As estate bequest: Entire amount donated to trust and subsequent growth removed from estate.

Cost

High but varies by type of trust. Generally, more expensive than CRT.

Control/ level of input
  • Determines terms of trust and distribution.
  • Can change charitable beneficiary, in some cases.
  • Can remain anonymous to public but not to charity.
  • Choose family member or other non-charitable beneficiary to receive remaining funds.
Complexity

High

This list is not comprehensive and doesn’t include all giving tools available or all aspects of those listed. Tax information pertains to tax law in effect as of tax year 2018. For more details on the tax features associated with each tool, please consult a tax advisor if you are not one

You may find that a single giving tool does not meet all your giving needs. It’s common to utilize two or more giving tools to achieve your giving goals.

As an example, private foundations and DAFs both support strategic giving. They allow donors to contribute assets for a tax benefit, invest for growth over time, and give to a wide range of causes. In 2005, Michelle and Jeff were working through some estate planning with their advisor, who encouraged them to establish a private foundation. At the time, the startup costs, administrative burden, and giving restrictions were unappealing. Instead, Michelle and Jeff opened a DAF with a $2 million contribution, and has been growing the account steadily.

Michelle and Jeff, now with adult children, have come to see a private foundation as a good vehicle for engaging their children in charitable giving. They established a private foundation a few years ago and find that it complements their donor-advised fund well for meeting all their giving needs. The family developed a mission statement for their private foundation and uses those funds to meet the mission’s long-term goals. They use their donor-advised fund to select shorter-term giving goals and choose charities that match.

When donors embrace the unique opportunities and benefits of each giving tool and use them to complement one another, their charitable impact can grow exponentially.

More on donor-advised funds

DAFs are a tax-effective way to donate, accrue, and recommend grants to 501(c)(3) public charities. You can think of a DAF as a charitable giving account. You can grant out to charities in response to real-time need, while meeting long-term giving goals. DAFs allow you to contribute appreciated securities and illiquid assets without recognizing capital gains on these assets. A DAF is a reliable option for individuals who want to consolidate their giving in a tax-effective way and have the option to contribute all types of assets.

If you find that a donor-advised fund is the right giving tool you, we are here to help.

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1Donors may take a full income tax deduction up to a certain percentage of their adjusted gross income (AGI), if they itemize their deductions. This limit is generally 60% for contributions of cash (up from 50% previously), but is lower for certain types of contributions and for certain types of recipient organizations, including some of these giving tools. For example, contributions of capital gains property are limited to 30% of AGI. Cash contributions made to private non-operating foundations are also limited to 30% of AGI. Contributions of capital gains property to private non-operating foundations, meanwhile, are limited to 20% of AGI. Any charitable contribution exceeding an individual’s AGI limitation may be carried forward and used over a five-year period.

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