They say that the giving of a gift is its own reward, and this is certainly true. But the nice thing about giving as it applies to estate planning is that there are often tax rewards involved. So even if you choose to engage in an act of giving without expecting anything at all in return, you can still benefit because the reward for your generosity is built-in.
Many people choose to include charitable giving as a part of their legacies, and this is a great way to give something back when you are making final plans. It is a good feeling to know that you are making an effort to make the world a better place, and in accordance with the above principle you also gain some tax advantages.
There are those who start a private foundation as a charitable giving vehicle, but there are pitfalls in going this route. These foundations are expensive to set up and maintain, and this overhead is money that could have otherwise gone to a charitable cause. For this reason many people who do have the resources to start a private foundation look for alternatives. And there are others who simply can’t afford to start a private foundation who do have the means to give something to charity.
The solution lies in donor advised funds. These funds are administered by public charities and some for-profit financial services companies. You make a single donation into the fund, but you can then make recommendations requesting that the fund bestow grants to multiple different charities. This makes your accounting much easier, and the fund itself has the infrastructure necessary to make charitable giving possible for many different donors in an affordable and efficient manner.
You are entitled to a charitable deduction for your contribution into the donor advised fund. In addition, appreciated securities donated into the fund are not subject to capital gains tax. So if you donate appreciated securities you in essence wind up giving money to charity that would have otherwise been consumed by taxation.
- The Magic of Grantor Trusts - November 1, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - October 26, 2023
- Understanding the Importance of the Simultaneous Death Act - October 19, 2023
