Making Philanthropy a Part of Your Estate Plan


How will you choose to allocate your accumulated wealth during the course of your lifetime? The decisions are complicated and very personal. Philanthropic giving can create an opportunity to balance the obligation of providing for your heirs with your interest in contributing to the future of a favorite organization or institution. As an estate planning tool, charitable gifts can be used to manage taxes, shift assets, and transfer wealth inter-generationally — while simultaneously making a significant contribution to a charitable organization.

Charitable Trusts Offer Many Benefits

While there are several different types of charitable trusts, all provide the donor with a tax deduction, a stream of income, and the knowledge that they have created a substantial philanthropic gift.

If you are interested in making a major gift to an organization, you might consider creating a charitable remainder trust. The contribution of a marketable asset to a properly executed charitable remainder trust allows you to receive income from the investment during your lifetime and take an immediate charitable deduction for the anticipated value of the assets to your estate. The value of the deduction is calculated from the current fair market value of the asset and the planned annual payout, using a discount rate supplied by the IRS.

In addition to stocks, bonds, and cash, you can also fund a charitable remainder trust with closely held stock, real estate, and art. Be forewarned, however, that all of these transactions are complicated and require counsel from skilled professionals, including tax advisors, attorneys, and appraisers.

Private Foundations Are Still an Option

All capital gains taxes associated with the transfer of appreciated assets to a charity are waived. Therefore, a private foundation offers yet another opportunity for putting a large amount of assets to work for what the IRS calls “any qualified purpose” while preserving some measure of control for the donor.

With skilled management and family involvement, a private foundation can exist in perpetuity and provide ongoing assistance for any appropriate educational, scientific, social, or cultural effort.

Proceed With Caution

Philanthropy can complement your overall estate plan and make a meaningful difference to the organizations and institutions that are important to you and your family. Due to the complexity and irrevocable nature of many philanthropic gifts, you should consult with a skilled financial planner before committing to a charitable giving program.

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