Charitable Giving and Foundations

Estate Planning: Charitable Giving and Foundations

When discussing the tax consequences of charitable giving with a client, we usually advise, if possible and affordable, that they should make donations during their lifetime, rather than at death. The purpose of this advice is two-fold:

  • If you donate during your lifetime, you can enjoy the blessings of giving and the gratitude of those to whom you give.
  • Secondly, not only are you removing these funds from your taxable estate, but they also qualify for a deduction on your personal income tax return. If such gifts are made subsequent to your death, there is only an estate tax savings, and hence the government’s share of the gift-giving burden is far less.

If you are not ready to make an outright gift during your lifetime, you may consider establishing a charitable remainder trust (CRT). With the CRT you can make a charitable contribution to the trust at any time. The assets in the trust will go to the charities of your choice after your death, but during the remainder of your lifetime you will retain income from the donated asset! Still, you are permitted to take an income-tax deduction for the year in which you make the donation.

Another vehicle for making charitable gifts, either during your life or subsequent to your death, is the charitable foundation. Although the benefits of foundations are significant, there are considerable administrative and regulatory requirements. Large foundations are subject to yearly audits. All foundations must file IRS Form 990 each year, which includes both financial and administrative information. Furthermore, there are restrictions on self-dealing, conflicts of interest, political activities, etc.

A way to enjoy many of the benefits of a charitable foundation while avoiding the administrative hassles is Donor-advised funds (DAF). DAFs are charitable accounts that you establish in your name (like naming your own foundation), but the funds are held by an organization such as a community foundation, university, religious federation, public charity, hospital, or trust company. Your DAF is a component of the organization, which administers the funds and makes the grants to charities.

To schedule your free initial consultation, email or call us today! 847-325-5559

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