Financial Planning

Charitable Giving Planning Options

Methods Benefits Other Considerations
Direct Gift
  • Simple
  • Charity can put gifts to work immediately
  • Another alternative: a gift to a community foundation
  • May need a professional appraisal to qualify for a tax deduction
  • Keep receipt or bank record to validate income tax deduction
Charitable Bequest at Death
  • Easy to set up through will, trust, or beneficiary designation
  • May be a good choice for retirement funds (e.g., IRAs); charity won’t pay income taxes on monies
  • Income and estate tax deduction deferred until your death
Donor-Advised Fund
  • May be appropriate for modest gifts
  • You recommend which charities receive grants
  • You have no administration responsibilities
  • Administration fees can reduce the amount available for grants
Private Foundation
  • You decide which charities receive grants
  • Opportunity for family involvement for many years
  • Subject to annual excise tax
  • Limit on charitable income tax deduction
  • More expensive to set up and administer
Split-Interest Gift Through Charitable Remainder Trust, Pooled Income Fund, or Charitable Gift Annuity
  • Pays income to you or your heirs Can delay recognition of taxable gain
  • Can provide income tax deduction at the time of gift, even if charity must wait to take possession
  • Cannot change plan after gift is made
  • Provides smaller income tax deduction than other methods
  • Income can be predictable but not guaranteed
  • Cannot invade principal
Split-Interest Gift Through Charitable Lead Trust
  • Pays income to charity
  • At end of the trust term, the asset passes to your heirs
  • May reduce gift taxes
  • No income tax deduction unless you recognize the trust’s taxable income yearly
  • Trust is irrevocable
Bargain Sale
  • Charity buys property from you at a bargain price
  • May allow you to recover your investment
  • May provide an income tax deduction
  • You may pay income taxes on money received
Wealth Replacement Trust Funded with Life Insurance
  • Replaces family wealth donated to charity
  • Trust is irrevocable
  • Cost of insurance depends on your age and health


Charitable Giving Planning Options Glossary

Bargain Sale: A bargain sale occurs when you sell an asset to a charity for less than its fair market value. The excess over the sale price is considered a donation to the charity, and a charitable income tax deduction for the excess value is potentially available.

Charitable Gift Annuity: A charitable gift annuity is a split-interest gift made directly to a charity that provides you, your spouse, or a family member with fixed income payments for life. Unlike a charitable remainder trust, the charitable gift annuity is managed by the charity.

Charitable Income Tax Deduction: You can deduct between 20 percent and 60 percent of your adjusted gross income, depending on the type of asset donated and whether the asset is donated to a qualified public or private charity, assuming that you itemize your deductions on Schedule A. Any unused deduction in one year can be used in five consecutive years.

Charitable Lead Trust: A charitable lead trust is a special type of split-interest gift that pays its income to the charity for the term of the trust. When the trust is terminated, the remaining assets are distributed to the donor’s heirs. This type of trust is often used to reduce the potential gift or estate taxes your estate might incur if an asset were directly transferred to your heirs. The value of the transfer is reduced by the present value of the income anticipated to be paid to charity. Unlike other charitable gifts, the charitable income tax deduction is available only if the donor recognizes the trust’s taxable income annually.

Charitable Remainder Trust: A charitable remainder trust is a split-interest gift to a special trust that provides you, your spouse, or a family member with income payments for a term of years or for life. Unlike a direct gift to charity, the charity’s receipt of the donation is deferred until the end of the term. This type of trust is often used to allow the donor to defer capital gain taxes when the donated asset is sold and reinvested.

Community Foundation: A community foundation is a nonprofit charity established to meet the needs of its local community. Donations are held in a collection of individual funds, which can be named after the donor or the donor’s family. The donor can put restrictions on the fund’s grants or provide regular advice to the fund’s managers—much like a donor-advised fund.

Donor-Advised Fund: A donor-advised fund gives the donor the right to advise the charity about the grants made from the fund. Donor-advised funds can be established during your lifetime or at your death by making a bequest in your will or trust or naming the fund the beneficiary of retirement accounts, life insurance, or annuities. You can name a family member or members to advise the fund after your death. Donor-advised funds are easy to set up and usually require a minimum donation of as little as $5,000 or $10,000.

Pooled Income Fund: A pooled income fund is a split-interest gift made directly to a charity that provides you, your spouse, or a family member with variable income payments for life. Unlike a charitable remainder trust, the pooled income fund is managed by the charity.

Private Foundation: A private foundation is a charity set up by an individual, family, or corporation. A well-known example is the Bill and Melinda Gates Foundation. A private foundation can serve as a great vehicle for implementing the donor’s charitable vision. One principal advantage is the donor’s ability to control how the donations are invested and used. Because of the level of control by its founder, a private foundation is subject to more regulation than a public charity. It must distribute a minimum amount of charitable grants each year, pay a 2 percent excise tax on its net investment income, and guard against benefiting its founders or participating in certain banned activities.

Split-Interest Gift: A split-interest gift describes the donation of an asset to charity or to a special trust in return for the promise of income to be paid to you, your spouse, or a family member for a period of years or for the rest of the recipient’s life. Your possible charitable income tax deduction is reduced by the present value of the income you are expected to receive. Pooled-income funds and charitable gift annuities are split gifts administered and controlled by the charity itself. With a charitable remainder trust, a trustee holds and invests the donation and distributes the agreed income payments to the beneficiary. The charity does not benefit from the donation until the end of the trust term.

Wealth Replacement Trust: Pairing a charitable gift with a wealth replacement trust may allow you to make a substantial gift to charity and still leave an inheritance for your heirs. An irrevocable life insurance trust is set up to purchase life insurance on the life of the donor (i.e., you). At your death, the life insurance proceeds are distributed to your heirs or held in trust for their benefit. Thus, life insurance replaces the wealth given away during your lifetime.


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This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.



About Christopher Walsh, CFP®

I’m a Wealth Manager with Keystone Financial Partners, who has created a financial planning platform dedicated to helping young professionals make better decisions with their money. I was born and raised in the Hudson Valley region of New York, just north of New York City. I moved to Raleigh in 2010 with my wife, Lauren, our daughters, Aubrey and Ella, and our golden retriever, Duncan. When I’m not keeping up on financial news or meeting with clients, you’ll find me checking out local breweries with friends, hitting the golf course, taking trips to the beach, or spending time with my family. I started my financial planning career in 2006. I became a CERTIFIED FINANCIAL PLANNER™ professional in 2012. I chose this career because I absolutely love it – I truly enjoy taking complex issues and helping clients understand them. We help our clients reduce taxes, invest smarter, and retire on their terms.

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