Fulfilling Your Philanthropic Vision With the Appropriate Giving Vehicle

Andrew Carnegie, perhaps the most celebrated American philanthropist, was credited with having said, "The man who dies rich, dies disgraced." Indeed, Carnegie lived by these words, amassing an enormous fortune and then giving away more than $350 million. Through his supreme acts of charity, Carnegie set the standard for generations of philanthropists.

Today's philanthropists are as diverse and unique as the causes they support. Family groups may work together to channel their charitable goals and build a philanthropic legacy that can be passed down through the years. Entrepreneurs may approach philanthropy with the same drive and commitment they apply to building their businesses. Other generous souls may simply adhere to "checkbook philanthropy," informally supporting various causes with direct cash donations.

Whatever their charitable aspirations, when selecting giving vehicles, donors of significant wealth must evaluate a number of factors, such as their need for current income, the desired level of involvement for the donor and other family members currently and in future generations, as well as important tax considerations.

Charitable Giving Vehicles: A Sampling

There are many ways for an individual or family to build or expand upon their philanthropic legacy. Take a moment to review a few of the more popular ways to give below.

Family Foundations -- Creating a Legacy

For those who desire direct, long-term involvement in philanthropic endeavors for themselves and their families, a private family foundation may be the best choice. Family members work together to create the foundation's charitable mission, determine how the assets will be invested, and select the charitable organizations that will receive grants from the foundation.

Family foundations are afforded favorable tax treatment However, they are subject to many complex IRS rules, including the requirement that they distribute a minimum of 5% of their assets each year and pay an excise tax of 1% to 2% on their investment income. Many families find that they benefit from professional advice to assist them in complying with these rules and managing their foundations.

CRTs/CGAs -- Combining Charitable Intent With the Need for Income

Whether you are able to pursue a charitable agenda may depend largely on your current income needs and those of your dependents. To address both goals, you may want to consider vehicles such as a charitable remainder trust (CRT) or charitable gift annuity (CGA).

With a charitable remainder trust, the donor transfers assets to a trust that provides an income stream to the donor and/or other beneficiaries for life or a period of years, after which the remaining assets in the trust pass to one or more charities selected by the donor. In some cases, the donor's family foundation is selected to receive the balance. Generally, this vehicle is attractive for donors who have significant appreciated assets to fund the trust.

With a charitable gift annuity, the donor transfers assets to a charity that agrees to pay the donor or other beneficiaries a guaranteed income for life. The interest rates on CGAs are often quite attractive to donors. This vehicle is easy to set up and has minimal administrative costs.

In both cases, the donor may receive an immediate income tax deduction for a portion of the contribution. If the balance passes to the charity at the donor's death, it will not be subject to death taxes.

CLTs -- Benefiting Charity Now and Family in the Future

Charitable lead trusts essentially operate like CRTs in reverse: they pay income to one or more charities for a designated period of time, after which the remaining assets in the trust pass to beneficiaries selected by the donor. In some cases, the CLT income is used to fund a family foundation and then pass assets to children or grandchildren, often with significant transfer-tax savings.

DAFs -- Providing a Flexible Foundation Alternative

Donor advised funds (DAFs) provide many of the benefits associated with private family foundations, particularly for gifts of less significant amounts. To set up a DAF, the donor makes an irrevocable gift to a qualified public charity, such as a community foundation or a charitable gift fund sponsored by a private financial institution. The public charity creates a separate fund in the name of the donor from which the donor may recommend grants over time for charitable purposes. This flexibility allows donors to spread out their grantmaking over months or even years in accordance with their overall giving strategy. In addition, some public charities allow children to be named as successors to a fund, thereby ensuring a continued legacy of giving.

For more information, please contact a Washington Trust advisor today.