Planned Giving

Planned Giving: Securing Future Charitable Contributions

Planned giving is a financial strategy that allows individuals to make charitable donations during their lifetime or as part of their estate plan. This type of giving is typically arranged in advance and involves a commitment to contribute a significant amount of wealth to charity, often through bequests, trusts, or other estate-planning tools. Planned giving enables individuals to support causes they care about while potentially receiving tax benefits and leaving a legacy for future generations.

Types of Planned Giving

1. Bequests:

   • A bequest is one of the simplest forms of planned giving, where a donor specifies in their will that a portion of their estate will go to a charitable organization upon their death. Bequests can be a specific amount, a percentage of the estate, or a residual amount after other bequests have been fulfilled. This type of planned gift allows the donor to maintain control of their assets during their lifetime, with the charity benefiting later.

2. Charitable Gift Annuities (CGAs):

   • A charitable gift annuity is a financial arrangement where a donor makes a gift to a charity in exchange for a fixed income for the donor’s lifetime. The charity agrees to pay the donor a set annual amount, and upon the donor’s death, the charity receives the remaining funds. CGAs provide the donor with a steady income stream while benefiting a charitable cause in the future.

3. Charitable Remainder Trusts (CRT):

   • A charitable remainder trust allows donors to donate assets (such as real estate or stocks) to a trust while retaining the right to receive income from the trust for a specified period or for the rest of their lives. After the trust term ends or the donor passes away, the remaining assets are given to the designated charity. CRTs can provide significant tax benefits, including charitable deductions and capital gains tax avoidance.

4. Charitable Lead Trusts (CLT):

   • A charitable lead trust works in the opposite way of a CRT. In this arrangement, the charity receives income from the trust for a certain number of years or for the donor’s lifetime, and the remaining principal is passed on to the donor’s heirs. This allows the donor to make a significant charitable gift while minimizing estate taxes for their heirs.

5. Retirement Account Gifts:

   • Donating retirement account assets such as IRAs or 401(k)s to a charity is another form of planned giving. When an individual passes away, the funds in their retirement accounts are typically subject to taxes if left to heirs. However, retirement accounts transferred directly to a charity can avoid both income and estate taxes, making them a tax-efficient method of planned giving.

6. Life Insurance Policies:

   • Life insurance can also be a tool for planned giving. A donor can name a charity as the beneficiary of a life insurance policy, or they can transfer ownership of an existing policy to a charity. This allows individuals to leave a larger gift to a charitable organization than they might be able to afford during their lifetime. Donors may receive a charitable deduction for the gift, and the charity will receive the death benefit when the donor passes away.

7. Donor-Advised Funds (DAFs):

   • A donor-advised fund is a charitable giving account that allows the donor to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund to various charities over time. Although DAFs are not technically part of estate planning, they can be part of a planned giving strategy, as donors can set up the fund to continue making gifts to charity after their death.

Benefits of Planned Giving

1. Tax Advantages:

   • Planned giving offers a range of tax benefits for donors. These can include charitable income tax deductions, estate tax reductions, and capital gains tax savings. For example, gifts made through a charitable remainder trust can allow the donor to receive a charitable deduction based on the present value of the gift, and appreciated assets donated through planned giving can avoid capital gains taxes.

2. Legacy Creation:

   • Planned giving allows donors to create a lasting legacy by supporting causes that are important to them. These contributions can fund scholarships, research, humanitarian efforts, or other long-term projects. By including a charity in their estate plan, individuals can leave a meaningful impact on their community or the world at large.

3. Control Over Assets:

   • Planned giving enables donors to retain control over their assets during their lifetime. For example, in the case of charitable remainder trusts, donors can enjoy income from their assets while also ensuring that their chosen charity will benefit in the future. This type of giving allows individuals to balance their philanthropic goals with their financial needs.

4. Philanthropic Impact:

   • Planned gifts enable charities to secure significant long-term funding. These donations often help charities plan for the future, ensuring the sustainability of programs and initiatives. Charitable organizations rely on planned gifts to support their missions and expand their reach.

5. Support for Financial Goals:

   • In some cases, planned giving can align with the donor's broader financial goals. For example, donors may wish to reduce the value of their taxable estate or provide for future generations while supporting charitable causes. Structured properly, planned giving can help achieve these objectives in a tax-efficient manner.

Considerations for Donors

1. Financial and Estate Planning:

   • Planning for charitable contributions requires careful consideration of one's financial situation and estate plans. Working with financial advisors, tax professionals, and estate planning attorneys is essential to ensure that the planned giving strategy aligns with both the donor’s goals and the tax implications of the gifts.

2. Choosing the Right Charity:

   • Donors should carefully select the charities they wish to support, considering the long-term impact of their gifts. This may involve researching organizations, understanding their missions, and ensuring that the charity’s objectives align with the donor’s values. Many organizations offer planned giving programs to help donors navigate this process.

3. Impact of Inflation:

   • Donors should also consider how inflation may affect the value of their planned gifts over time. For example, in the case of charitable gift annuities or trusts, inflation could reduce the real value of the income provided. Donors may need to consider adjusting their giving strategy to account for potential changes in the economy.

4. Potential Restrictions:

   • Some forms of planned giving, such as charitable remainder trusts, may come with certain restrictions or conditions on how the funds can be used. Donors should ensure that they understand these terms before committing to a planned gift to ensure their charitable intent is fulfilled.

How to Get Started with Planned Giving

1. Consult with Professionals:

   • To make informed decisions about planned giving, donors should consult with financial advisors, tax professionals, and estate planners. These experts can help identify the most suitable planned giving vehicles based on the donor’s financial goals, charitable preferences, and tax situation.

2. Communicate with Charities:

   • Many charitable organizations have dedicated staff or programs for planned giving. Donors can contact charities directly to learn more about how to structure their planned gift and receive guidance on how to include the organization in their estate plans.

3. Review and Update Plans:

   • Planned giving is not a one-time decision. Donors should review their estate and charitable plans periodically, especially after significant life events such as marriage, the birth of children, or changes in financial circumstances. Regular updates ensure that the planned gift remains aligned with current goals and priorities.

Conclusion

Planned giving provides an opportunity for individuals to make a meaningful impact on the causes they care about while receiving potential financial and tax benefits. By incorporating planned giving into their estate plans or financial strategies, donors can leave a legacy that supports charitable organizations for generations to come. Whether through bequests, charitable trusts, or life insurance policies, planned giving allows individuals to balance their philanthropic aspirations with their financial needs, ensuring that their contributions have a lasting effect on society.