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Transferring Wealth: Charitable Giving Vehicles Thumbnail

Transferring Wealth: Charitable Giving Vehicles

Wealth Transfer

When transferring wealth, charitable giving is an excellent way to support causes that you care about and make a meaningful impact in the world.

Whether you want to donate money, assets, or time, there are many charitable giving strategies available that provide both tax benefits and flexibility in your retirement planning.

Giving to Charity During Your Lifetime

The most familiar and straightforward way to support a charitable organization is though giving cash or appreciated securities, but you may be missing out on tax benefits by not considering a more strategic approach.

A Donor Advised Fund (DAF) is a charitable giving vehicle that allows individuals to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to their favorite charities over time. DAFs work by allowing you to contribute cash, securities, or other assets to the fund and then invest those assets for potential growth. You can then recommend grants to any qualified public charity from the fund at any time, as long as the charity meets the IRS's guidelines for tax-exempt status. DAFs are a popular giving strategy because they offer flexibility, convenience, and tax benefits. You can use a DAF to support multiple charitable causes, consolidate your giving, and potentially reduce your tax liability. Additionally, DAFs can be used to create a legacy of charitable giving by involving family members or naming successor advisors to continue making grants after you pass away.

Another charitable giving strategy is using Qualified Charitable Distributions (QCDs). A QCD is a tax-efficient way to donate to charity directly from your Individual Retirement Account (IRA). If you are 70 ½ or older, you can donate up to $100,000 per year from your IRA directly to a qualified charity. This donation counts towards your Required Minimum Distribution (RMD) and reduces your taxable income for the year, which may help you avoid or reduce taxes on Social Security benefits, Medicare premiums, and other forms of income. Another reason to use a QCD is to simplify your charitable giving. Instead of taking an RMD and then donating cash to charity, you can combine the two actions into one by making a QCD. This can save time and reduce the administrative burden of managing multiple charitable donations.

Charitable Trusts or Annuities are another way to support a cause or organization. Charitable trusts are legal instruments that allow you to donate money or assets to a charitable organization while also providing financial benefits for yourself or your heirs.

  • Charitable Remainder Trusts (CRTs): A CRT is a type of trust that allows you to donate assets to a charity while retaining the right to receive income from the trust during your lifetime. When you pass away, the remaining assets in the trust are donated to the charity.
  • Charitable Lead Trusts (CLTs): A CLT is a type of trust that allows you to donate assets to a charity while also providing income to a non-charitable beneficiary for a set period of time. When the trust term ends, the remaining assets are donated to the charity.
  • Charitable Gift Annuities (CGAs): A CGA is a contract between you and a charity in which you donate assets in exchange for a fixed income for life. CGAs can be a good option if you want to support a charity while also receiving income in retirement.

While these strategies are more complex and require more cost and administration, they can be beneficial to include in your financial planning if you have more specific legacy goals and the desire to incorporate income planning for yourself or your family.

Charitable Giving in Your Estate Plan

Planned giving is a type of charitable giving that involves making a gift to a charity as part of your estate plan. Planned gifts can be made through your will or trust, and they can include assets such as cash, securities, real estate, or personal property. Planned giving allows you to support a charity that is important to you while also potentially reducing your estate taxes. Below are several options to benefit charity after you pass:

  • Bequests: A bequest is a gift made to a charity in your will or trust. Bequests can be for a specific dollar amount, a percentage of your estate, or for a specific asset. Bequests are a simple and popular form of planned giving.
  • Life Insurance: You can name a charity as the beneficiary of your life insurance policy. This is a simple and tax-efficient way to support a charity while also providing financial protection for your loved ones.
  • Retirement Accounts: You can name a charity as the beneficiary of your retirement account. This is a tax-efficient way to support a charity while also potentially reducing your estate taxes.

Charitable giving is a powerful way to make a positive impact in the world.

Charitable giving is a powerful way to make a positive impact in the world, and there are many strategies available to help you support the causes that you care about. Whether you choose to donate cash, securities, real estate, or your time and skills, there are many ways to give back and make a difference in your community. If you're considering charitable giving, be sure to consult with a financial advisor or tax professional to understand the tax implications and to ensure that your charitable giving strategy aligns with your overall financial plan.

At GW Financial, Inc., our mission is to translate wealth into personal significance.  We work with clients to help them give away $1 million during their lifetime. Which charitable giving vehicle would work best for you and your unique situation? Let’s figure it out together! Click here to schedule a Getting Acquainted Call today.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by GW Financial, Inc. to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 GW Financial, Inc.