The Many Ways of Giving
Charitable giving can take a variety of forms: you can make an outright gift, give a deferred gift where you retain an income stream from the gifted property or transfer assets
to your family with discounted dollars, or you can create and operate your own charity. An understanding of the various options can help you find the right vehicle to express your
values and bring positive change to your community. Of course, significant tax considerations often result from charitable gifts that also affect which giving vehicle you choose.
Simplicity describes this mode of giving. You write a check or transfer assets (such as stocks or real estate) directly to the charity. Or, you can wait until you no longer need
the asset and make a gift through a bequest in your will, living trust, or beneficiary designation. The charity can be a public charity (such as your alma mater, house of worship,
hospital, museum, social service agency, or donor-advised fund) or your own family charity (private foundation, operating foundation, or supporting organization). You still control
how the outright gift is used: you can restrict the use of the gift to meet your objectives, or offer an unrestricted gift allowing the charity to designate the use of funds.
An endowment ensures that your gift will continue in perpetuity by keeping the principal intact and spending only the income. You create an endowment within the charity so that
only the income from the gifted funds is used.
If you want to entice others to join in your effort, you can make a matching gift. A matching gift is a gift that is contingent upon a certain level of funding from another source,
either to assist the charity in generating new sources of genera support or for a specific project or program.
You can also create an "exit strategy" with charitable organizations by making a term gift. This provides a series of gifts designed to fund a specific program or project, but
with the expectation that at the end of the term, the charity will either find other sources for funds or the project will come to completion. This strategy allows you to set parameters
for future solicitations from a charity.
Donor Advised Fund
Donor Advised Funds allow you to make a gift to an intermediary that holds and invests the funds for distribution at a later date. Although distributions may be spread out over
a number of years, you receive the full charitable income tax deduction in the year the gift is made to the intermediary. This option is attractive when you need a significant
charitable income tax deduction for a given year, but your giving commitments extend over a longer period of time. You may advise the intermediary as to the recipient of the funds,
the timing of the gift, and the uses of such funds. However, the intermediary has the legal right to disregard your advice and make distributions to other charities in keeping
with their stated mission. Choosing an intermediary with a similar mission statement to your own is important to insure that funds go to charities that reflect your values.
Another option, called a deferred gift, enables you to retain an income stream from a gifted property while contributing to a charity, or to transfer assets to your family with
discounted dollars. When you transfer highly appreciated assets using this option, you can avoid capital gains taxes and take a charitable income tax deduction at the time of the
transfer. Three ways to obtain such benefits are via a charitable remainder trust, a charitable gift annuity, and a charitable lead trust described below.
Charitable Remainder Trust
A charitable remainder trust (CRT) is a highly flexible instrument. It provides current income to you and then irrevocably transfers the remainder interest of the assets to your
favorite charity upon your death, the death of named income beneficiaries, or at the end of a specified term of years. Highly appreciated assets contributed to these trusts can
be sold without triggering capital gains, thus increasing the amount of funds available for future investment and growth. And you receive a charitable income tax deduction for
the remainder interest in the year the trust is established.
There are many varieties of charitable remainder trusts available to meet your personal financial goals. Two of these are charitable remainder annuity trusts and charitable remainder
unitrusts. Charitable remainder annuity trusts provide a fixed payment to the income beneficiary, and charitable remainder unitrusts provide variable payments based on the value
of the assets in the trust, determined each year.
Charitable Gift Annuity
A charitable gift annuity transaction is very simple; you transfer assets to the charity in return for the charity's agreement to pay you a fixed annuity for your lifetime. Most
individuals who select this vehicle do so because of the security that such a transaction provides. The payments you receive are not dependent on the specific asset transferred
to the charity, but rather on all assets of the charity. And the payments will always be the same, which helps your financial planning. There are three types of charitable gift
annuities: immediate, deferred, and flexible start date annuities.
Charitable Lead Trust
A charitable lead trust enables you to help a charity now, and give to a family member or other designee later, at a discount. It is a gift plan where you transfer income-producing
assets to a charity for a certain period of time. The charity receives a portion of the income stream during the term of the trust. When the term ends, the remaining assets are
returned to you or to someone designated by you. By delaying the transfer of your assets to your intended beneficiaries, you can transfer significantly more assets at a substantial
discount, with fewer transfer taxes.
Creating Your Own Charity
You may have decided to create your own charity in order to focus your philanthropy on specific programs and interests, and to create a legacy for the family. A family foundation
provides many opportunities to express your values and to change the charitable community, while offering a platform to transfer values to the next generation. Once you have identified
your goals and objectives, selecting the appropriate charitable entity is critical for success.
A private foundation gives you the broadest control over your gift. This type of entity, which can be created as a trust or as a corporation, is generally supported by families
and is designed to give you maximum control over the use of your charitable dollars. The cost of such control is that such entities do not bring the highest tax benefits and there
are complex rules that must be followed in order to retain a tax-exempt status. But where there is a need for absolute control-, control of the board and grant or investment decisions-,
a private foundation will satisfy that need.
You may decide that the lesser tax benefits and complexity of the private foundation do not meet your personal and financial goals. If so, a supporting organization may be the
solution for you. A supporting organization is treated as a public charity for tax purposes, generating more financial benefit for you. However, the tradeoff for getting a better
tax result and less complexity is giving up direct control of the charity. Supporting organizations are generally designed to have a connection with a particular public charity;
an organization "supports" one or more designated charities. How close your relationship is to the public charity depends on the type of supporting organization you select.
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For more information:
If you'd like more information about how diversified investment advisors can help you achieve your financial objectives through personalized wealth or retirement and risk management strategies, please contact us. We welcome the opportunity to discuss your unique needs and how we may best meet them.
This page (formatted for versions 10.0 and higher
of Internet Explorer) is updated regularly so check in
from time-to-time to see new articles and updates.
You can click on any underlined words on each
page to see a specific wealth management topic in the
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Charles M. Bloom, Registered Principal offers securities
and advisory services through Centaurus Financial, Inc. - Member FINRA and SIPC - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - CA Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
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