Dooley: Charitable giving opportunities for investors

When choosing the most advantageous charitable giving strategies, individuals must evaluate a number of factors, such as their need for current income, their desire to control and preserve assets during life and after death, their specific charitable intent, as well as important tax management issues. Charitable estate planning techniques can help achieve many of these objectives. Donor-advised funds, family foundations, and charitable remainder trusts/charitable leads trusts are available to individuals and their families.

• Donor-advised funds. A donor-advised fund is a tax-advantaged charitable giving vehicle that offers maximum flexibility to take tax deductions and recommend grants to charitable organizations. By definition, donor-advised funds are public charities under Section 501(c) (3) of the Internal Revenue Code, and contributions to such funds are tax deductible.

Donor-advised funds are particularly family-friendly, as parents and children can consolidate their giving activities through a single fund account. In addition, children can be named as successors to a fund, ensuring the continuation of a family’s giving legacy.

Another significant advantage of a donor-advised fund is its capacity to accept any one of a variety of assets as a charitable contribution. Checks/wire transfers, commercial paper, mutual fund shares, securities, bonds, and restricted stocks are acceptable assets. In addition, the account has the potential to grow over time, increasing the donor’s giving power.

Lastly, the donor-advised fund is a non-complex vehicle. There is virtually no administration involved in a donor-advised fund – no tax forms, complex giving formulas or attorney or accounting fees. If you plan to go this route, it can be set up by a financial adviser in a couple hours. The McHenry County Community Foundation also has donor-advised funds available.

• Family foundations. Build a legacy while reaping the tax benefits. A family foundation derives its assets from the members of a single family, in which the donor and the donor’s relatives play a significant role in managing the foundation. Aside from helping families channel their philanthropic ambitions, family foundations can form a legacy of community involvement and responsible citizenship for generations to come. As their founders soon realize, family foundations offer potential tax and estate planning benefits.

• Private foundations vs. supporting organizations. There are two types of family foundations: private foundations and supporting organizations. Private foundations, the most common of the two, offer more flexibility and control (i.e., they can select and oversee their own board of directors and grant-making decisions), while supporting organizations enjoy more favorable tax treatment.

Gifts made to either type of family foundation are generally tax deductible from the donor’s annual income tax, yet these deductions differ depending on the foundation’s structure, the type of property or asset contributed, and the donor’s income level. As a general rule, all gifts to a family foundation are removed from the donor’s estate, avoiding estate or gift taxes.

• Balance giving goals and financial planning. While the tax benefits associated with charitable giving help reduce the cost of making charitable gifts, an individual’s income or wealth transfer needs determine the ability to give. To address both goals, vehicles such as charitable remainder trusts and charitable leads trusts are available.

A charitable remainder trust can guarantee a lifetime income stream for a donor and a spouse, while minimizing current income taxes. Donors generally may deduct the fair market value of a charity’s remainder interest in the CRT during the year the CRT is funded. A CRT also can be an integral part of a family business succession plan. A donor can transfer stock to a CRT, and a closely held corporation may redeem the shares. The redemption funds the CRT with tax-free monies that subsequently can be invested to provide an income stream to the business owner and the spouse.

A charitable lead trust provides control over and enjoyment of a donor’s assets during the donor’s lifetime, an estate tax deduction at death equal to the present value of the charity’s future income interest, and a legacy to family heirs with potentially little or no estate tax consequences.

Including charitable giving strategies within your estate plan can be an effective way for you and your family to enjoy an income stream during your lives, earn tax savings, and maintain a significant degree of control over assets. Be sure to consult an attorney or a financial adviser who can help you identify the strategies that are most appropriate for your situation.

Happy planning!


• Timothy J. Dooley , a certified financial planner, is president of Comprehensive Retirement Resources Inc., an Independent firm in Woodstock; phone 815-337-4217. He offers securities through Raymond James Financial Services Inc.


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