Common Charitable Giving Techniques

Below are four common techniques for structuring your charitable giving program:

1. Charitable Remainder Trusts can be set up by donors who do not want to relinquish the entire interest in an asset during their lifetimes. CRTs are designed to convert appreciated assets into an income stream without generating estate and capital gains taxes. To qualify as tax-exempt, the trust must annually distribute at least 5% of its assets to individual beneficiaries, with the charity receiving 10% of the remaining assets. CRTs are irrevocable trusts. There are two types:
   • A charitable remainder unitrust pays the beneficiary a fixed percentage of the fair market value of the trust assets, determined annually.
   • A charitable annuity trust pays the beneficiary a fixed amount annually regardless of the value of the assets.
   • The charity receives the trust’s remaining assets with the last beneficiary dies; the donor receives a deduction when the trust is established.
2. Pooled Income Funds are trusts that pool assets from multiple donors but are simpler to administer than CRTs.
   • Each donor receives an annual distribution for the lifetimes of the donor and the spouse.
   • Donors can claim a deduction for the value of the charity’s remainder interest when property is transferred to the pool. At death, the charity receives the remainder.
3. Private Foundations with a managing board can be set up by donors who want to maintain control over assets gifted to a charity.
   • Private foundations can be either a corporation or a trust. They are subject to complex tax regulations, and the rules regarding income tax deductions for private foundation gifts are less favorable then those for gifts to public charities.
   • Private foundations are required to distribute 5% of the value of their non-charitable assets annually, must file a tax return and are subject to a 2% excise tax.

Choosing the appropriate technique is an important element in income and estate tax planning.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.