Estate Planning Strategies for Charitable Giving

The act of giving can create a sense of personal fulfillment, but a well-structured charitable plan will benefit organizations in the long term. When deciding how to provide large-scale monetary gifts to nonprofits, there are a myriad of options to consider. Jennifer Guimond-Quigley, managing attorney at the Law Office of Jennifer Guimond-Quigley, shares advantages and disadvantages of commonly used estate planning strategies for making donations.

Donor-Advised Funds

A donor-advised fund works as a personal investment devoted to a charity of choice. Rather than donating to separate nonprofits individually, a donor-advised fund collects all contributions and distributes them to a donor’s specifications, with the help of a financial manager. These cash or asset contributions may be eligible for an immediate income tax deduction at the time of contribution. These funds benefit from tax-free growth and are not subject to estate taxes. It is important to remember the donor does not have authority over a financial manager on the distribution and formation of trusts. Legally, a manager is entitled to disregard a donor’s input.

Charitable Trusts

Charitable trusts, also known as split-interest trust, are used to manage assets for one or more charities over a period of time. There are two types of charitable trusts – charitable remainder trusts (CRT) and charitable lead trusts (CLT) – and each will reflect the priorities of the donor. The key difference between the two is when the charitable and non-charitable beneficiaries receive the payment. In addition, similar to a donor-advised fund, CRT and CLT donors do not influence how trust assets are distributed after the trust is formed.

Private Family Foundations

Operating similar to a trust or corporation, a private family foundation consists of a donor and family members who act as a board of directors to manage contributions. This fund provides an ongoing legacy to the family and future generations. Private funds are not under the control of a bank or a community foundation, meaning a donor is free to manage assets and select the charities. However, depending on the size, a private family foundation may be subject to complex regulations and accounting requirements, which can lead to substantial administrative and startup expenses. A full-time staff of financial advisors may be recommended for larger-scale operations.

In any case, when considering which strategy to pursue, keep in mind the option of a direct contribution. Donating money or items within a person’s lifetime or through a will or trust, no matter how small, can impact the lives of many. For help finding which strategy would work best, it is recommended to consult with an estate planning professional.