Understanding the goals that are important to you and your family will allow you to select a charitable vehicle that fits within your overall wealth transfer plan. You can structure your giving in many ways. It’s helpful to start by asking yourself three simple questions:
- When do I want to give (during life or upon death)?
- How much do I want to give?
- How much control do I want over my gift?
Your answers to these questions will allow you to choose a charitable giving vehicle that fits your needs, interests and desired level of involvement. If your philanthropic goals are relatively straightforward, you may find that the best approach is to simply write a check each year to your favorite charities. If your aspirations are more complex and far reaching you may want to consider an alternative means of giving, such as a donor advised fund, private foundation or charitable trust.
A private foundation allows you to give a substantial amount to charity while retaining a high degree of control over the investment and distribution of the funds. Along with greater control comes the necessity of greater involvement. The donor can play an active role in directing the mission of the foundation and in imparting family values through his/her role as a board member or trustee. Due to the higher costs, regulatory and administrative complexity, tax filing requirements and mandatory payouts of at least 5% annually, private foundations are generally most appropriate for donors making gifts in excess of $3 million.
A donor advised fund allows you to make a significant charitable contribution with a lower administrative burden as compared to a foundation. A donor advised fund provides you with streamlined record keeping and administrative services along with professional investment management. They can be established with a much smaller initial contribution. A contribution to a donor advised fund will generate an immediate income tax deduction, but the assets can be distributed over multiple years to multiple charities in accordance with the donor’s wishes. It also provides the opportunity for the family to strengthen family ties and plan its charitable activities together.
A charitable trust offers the ability to set up split interests to meet family and charitable objectives. A charitable remainder trust allows the donor or another family member to receive a stream of income for a specific period of years or lifetime with the remainder passing to the charity on death. A charitable lead trust provides the opposite structure. The income goes to the charity for a period of time with the remainder passing to the family on death.
Comparing Alternative Ways of Giving |
| |
Direct Gift to Public Charity |
Gift to Donor Advised Fund |
Gift to Private Foundation |
| Deduction limit relative to AGI |
|
|
|
| Cash |
50% |
50% |
30% |
| Stock |
30% of FMV |
30% of FMV |
20% of FMV (or cost basis*) |
| Control over grant-making |
Low |
Moderate |
High |
| Control over investments |
None |
Moderate |
High |
| Relative administrative burden |
None |
Low |
Moderate |
| Mandatory annual distributions |
N/A |
No |
Yes (min. 5%**) |
| Avoids capital gains and losses |
Yes |
Yes |
Yes |
| Minimum suggested funding value |
None |
None |
$5 million |
Note: AGI= adjusted gross income, FMV=
fair market value
* If restricted stock; must meet the
Internal Revenue Code definition of "qualified appreciated stock"
to qualify for FMV deduction.
** Of the average stock market value of
the foundation's total assets.
Source: JP Morgan |
Regarding the funding of a charitable vehicle, during your lifetime a gift of appreciated assets (marketable securities, real estate, privately held stock, life insurance) is most beneficial as the donor is often entitled to a deduction of the full value of the gift without recognizing the capital gain on the appreciation. A variety of strategies are available. The decision of which method - or combination of methods - is best for any given situation should be done in consultation with your tax and legal advisors.
Written by:
Leah Taylor, Vice President and Investment Advisor and Thayer Herte, Managing Director and Regional Fiduciary Executive, with JPMorgan
"For informational purposes only. JPMorgan Chase & Co. and its subsidiaries do not render accounting, legal or tax advice. Estate planning requires legal assistance." |
