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A Guide to Planned Giving
This comprehensive guide explores seven powerful methods of planned giving that can help you create a lasting legacy through endowment support. Below you will find clear explanations, practical examples, and strategic considerations for each approach. While this document highlights some of the most common planned giving options, there are many others, and this is not intended to serve as an exhaustive list
Understanding Your Options
Planned giving offers a variety of powerful tools for donors to leave a lasting legacy while achieving their financial goals. Understanding these options is the first step in identifying the approach that best aligns with your philanthropic intentions and personal circumstances.
Seven Common Planned Giving Options
Bequests through a Will or Living Trust
A simple and flexible way to leave a legacy without impacting your finances during your lifetime. Bequests can be a specific amount, a percentage of your estate, or the remainder after other distributions.
Retirement Plan Beneficiary Designations
A highly tax-efficient method to direct your IRA or 401(k) assets to charitable causes. This can help bypass potential income and estate taxes that might otherwise apply to heirs.
Qualified Charitable Distributions (QCDs)
An option for IRA holders aged 70½ and older to give directly to nonprofits, satisfying their Required Minimum Distribution (RMD) while minimizing taxable income..
Gifts of Appreciated
Securities
Maximize your giving power by donating stocks or mutual funds held for over a year. This strategy allows you to avoid capital gains taxes on the appreciation and receive a charitable deduction..
Charitable Remainder Trusts (CRTs)
Provide income to yourself or a loved one for a specified term or lifetime, while leaving a meaningful gift to charity later. This can convert appreciated assets into an income stream.
Charitable Lead Trusts
(CLTs)
Support the nonprofit today by providing income payments for a set period, while ultimately transferring wealth to your heirs with significant tax efficiency at the end of the trust term.
Gifts of Real
Estate
Turn properties you no longer need, such as a home or land, into transformative gifts with substantial tax advantages, including avoiding capital gains tax on the property’s appreciation.
Requests Through a Will or Living Trust
Each section that follows will delve deeper into these options, offering plain-language explanations, strategic insights, and real-world examples. This comprehensive guide aims to equip you with the knowledge to make informed decisions about how these philanthropic tools can best serve your financial and charitable objectives.
A bequest represents one of the simplest yet most impactful ways to create a lasting legacy gift. By including a nonprofit in your will or living trust, you designate a gift that will be distributed after your lifetime, ensuring your values continue to make a difference long after you’re gone. This approach gives you complete flexibility and control. You can structure your bequest in multiple ways:
A specific dollar amount (e.g., “$50,000 to XYZ Foundation’s endowment”)
A percentage of your estate (e.g., “10% of my estate to support the endowment”)
The remainder after other bequests are fulfilled (e.g., “After providing for my children, I leave the remainder to the endowment”)
Specific property such as artwork, collectibles, or other valuables
Bequests are ideal for donors who want to maintain full access to their assets during their lifetime while still planning for a significant future gift. Many donors use this option to make a substantially larger gift than would be possible during their lifetime, or to support multiple causes through a carefully structured estate plan.
Flexibility
Retain full control and access to your assets throughout your lifetime, with the ability to modify your plans if circumstances change..
Simplicity
A straightforward process that can be accomplished through a basic will provision or trust amendment with minimal paperwork.
Legacy Impact
Create a gift that may be significantly larger than what you could give during your lifetime, establishing a lasting legacy that reflects your values..
Retirement Plan Beneficiary Designations
Retirement assets are among the most tax-efficient assets to leave to charity, yet many donors overlook this powerful giving opportunity. When you designate a nonprofit as a beneficiary of your IRA, 401(k), 403(b), or other qualified retirement plans, you can make a significant impact while potentially preserving more of your estate for your heirs.
Tax Efficiency Alert
Retirement assets are among the most heavily taxed assets when left to non-spouse heirs, who must pay income tax on distributions. Charities, however, pay no income tax, allowing 100% of your retirement assets to support your chosen cause.
Strategic Benefits
This approach is especially attractive to individuals who:
Have sufficient assets outside of retirement accounts to meet the needs of loved ones
Wish to give highly taxed assets to charity while leaving other tax-advantaged assets to heirs
Want to make a significant gift without affecting current income or lifestyle
Seek to reduce the potential tax burden on their estate and heirs
Specific property such as artwork, collectibles, or other valuables
Unlike some planned giving vehicles, beneficiary designations remain completely flexible throughout your lifetime. You can change beneficiaries, adjust percentages, or revoke the designation entirely if your circumstances change, giving you ongoing control over your retirement assets.
Qualified Charitable Distributions (QCDs) from an IRA
For donors aged 70½ or older with traditional IRAs, Qualified Charitable Distributions (QCDs) offer a powerful way to support endowments while satisfying Required Minimum Distribution (RMD) obligations and potentially reducing tax burdens. This unique giving vehicle allows you to contribute directly from your IRA to qualified charities without counting the distribution as taxable income.
QCD Basics
Individuals aged 70½ or older can donate up to $100,000 annually directly from their traditional IRA to qualified charities without triggering taxable income. Married couples filing jointly can each transfer up to $100,000, potentially doubling the impact.
RMD Satisfaction
QCDs count toward satisfying your Required Minimum Distribution (which begins at age 73 for most people), but with a significant tax advantage: the amount transferred to charity is excluded from your gross income.
Tax Benefits
QCDs count toward satisfying your Required Minimum Distribution (which begins at age 73 for most people), but with a significant tax advantage: the amount transferred to charity is excluded from your gross income.
Real-World Example
Consider a 75-year-old retiree with a $500,000 IRA and an annual RMD of $20,000. Without a QCD, she would withdraw $20,000, report it as income, and pay taxes according to her tax bracket.
If she makes a $20,000 QCD to an endowment instead, the retiree fulfills her entire RMD requirement while excluding $20,000 from her taxable income. This could save thousands in taxes depending on her tax bracket, potentially prevent Medicare premium increases, and reduce Social Security benefit taxation; all while making a significant contribution to the endowment.
Important QCD Rules
The transfer must be made directly from the IRA custodian to the qualified charity. Withdrawing funds first and then donating them doesn't qualify as a QCD. Additionally, donor-advised funds, private foundations, and charitable gift annuities are not eligible to receive QCDs.
Gifts of Appreciated Stock or Securities
Donating long-term appreciated securities, including stocks, mutual funds, exchange-traded funds (ETFs), and bonds, represents one of the most tax-efficient ways to support an endowment. This approach provides a dual tax benefit that can significantly increase your giving power while helping you manage your investment portfolio.
The Double Tax Advantage
When you donate appreciated securities that you’ve held for more than one year directly to a nonprofit organization:
- You avoid capital gains tax on the appreciation of the asset, which could be as high as 20% federal tax plus state taxes and the 3.8% net investment income tax.
- You may receive a charitable income tax deduction for the full fair market value of the securities at the time of the gift (if you itemize deductions).
This combination allows you to potentially give 20-37% more than if you sold the securities and donated the cash proceeds after paying taxes on the gains.
Strategic Considerations
This giving strategy is particularly valuable for:
Portfolio Rebalancing
Donors looking to diversify or rebalance their portfolio without triggering capital gains taxes
Concentrated Positions
Individuals with large positions in a single stock who want to reduce risk while supporting causes they care about
Tax Planning
Strategic philanthropists seeking to offset a high-income year or reduce the tax impact of other financial events
To qualify for these tax benefits, the securities must have been held for more than one year, and the donation must be made directly to the charity rather than selling the securities first and donating the proceeds.
Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust (CRT) represents a sophisticated planned giving vehicle that provides both income to the donor and a future gift to an endowment. This “split-interest” arrangement creates a win-win scenario, allowing you to support causes you care about while potentially enhancing your financial position.
How a CRT Works
Creation and Funding: You transfer appreciated assets (stocks, real estate, business interests) into an irrevocable trust.
Income Stream: You or your designated beneficiaries receive income payments for life or a term of years (up to 20).
Tax-Free Sale: The trust can sell appreciated assets without immediate capital gains tax.
Reinvestment: Proceeds are reinvested to provide income to the income beneficiaries.
Charitable Remainder: At the end of the trust term, the remaining assets go to the nonprofit endowment.
Key Benefits
Immediate partial charitable deduction for the projected value that will eventually go to charity
Potential for increased income compared to what the assets were generating
Elimination or deferral of capital gains taxes on appreciated assets
Professional management of assets
Reduction of estate taxes
Creation of a significant future gift to support the endowment
CRT Variations
There are two primary types of Charitable Remainder Trusts, each offering different income structures:
Charitable Remainder Annuity Trust (CRAT): Provides fixed income payments based on the initial value of the trust assets, offering predictable income but no growth in payments.
Charitable Remainder Unitrust (CRUT): Provides variable income payments based on a fixed percentage of the trust’s value, revalued annually. This offers potential for increasing payments if the trust grows, but with less initial income predictability.
CRTs are particularly valuable for individuals approaching retirement, those holding highly appreciated assets with low yields, or donors managing complex estates. While they require more setup and ongoing administration than simpler giving vehicles, they offer unparalleled flexibility for donors seeking both income and philanthropic impact.
Charitable Lead Trusts (CLTs)
A Charitable Lead Trust (CLT) operates as the mirror image of a Charitable Remainder Trust, providing annual support to a nonprofit for a set period, after which the remaining assets transfer to your heirs or other beneficiaries. This sophisticated vehicle allows you to make a significant philanthropic impact now while potentially transferring substantial assets to your family with reduced gift or estate taxes.
Create Trust
Transfer assets to an irrevocable trust, removing them from your taxable estate
Charity Receives Income
The endowment receives regular payments (fixed or variable) for a specified term.
Assets to Heirs
When the trust term ends, remaining assets pass to your beneficiaries, potentially with significant tax savings.
Strategic Estate Planning Benefits
CLTs are particularly powerful for estate planning when:
You expect the trust assets to appreciate significantly during the trust term
You want to support a charity now while preserving wealth for future generations
You wish to reduce gift or estate taxes on assets ultimately passing to your heirs
You have a specific philanthropic vision that requires consistent funding over time
Tax Advantage Example
A donor places $1 million in a CLT that pays 5% annually to an endowment for 20 years. The present value of the charity's interest might be $650,000, meaning the taxable gift to heirs is only $350,000, even though they may ultimately receive far more if the assets grow faster than the 5% payout rate.
CLT Variations
Like CRTs, Charitable Lead Trusts come in two primary forms:
Annuity Lead Trust (CLAT)
Provides fixed annual payments to charity based on the initial trust value. This creates certainty for the nonprofit but allows trust assets to potentially grow significantly for heirs if investments outperform the required payments.
Unitrust Lead Trust (CLUT)
Provides variable payments to charity based on a fixed percentage of the trust’s value, revalued annually. This provides some inflation protection for the charity but less potential for transfer tax savings.
CLTs are sophisticated planning tools that require careful consideration with the help of experienced legal and financial advisors. They are particularly attractive for wealthy individuals with strong philanthropic intentions who also wish to preserve family wealth across generations. The potential tax savings can be substantial, especially in low-interest-rate environments, which increase the present value of the charitable interest and decrease the taxable gift to heirs.
Multiple Approaches to Real Estate Giving
Donors can structure real estate gifts in several ways to align with their financial needs and philanthropic goals:
Gifts of Real Estate
Real estate often represents a significant portion of a donor’s wealth, yet many individuals overlook the powerful philanthropic opportunities these assets present. Whether it’s a vacation home, investment property, farmland, or even a primary residence you no longer need, real estate gifts can provide substantial tax benefits while making a transformative impact on an endowment.
Outright Gift
Transfer complete ownership of the property to the nonprofit organization, potentially receiving an immediate tax deduction for the full fair market value while eliminating capital gains tax on the appreciation.
Bargain Sale
Sell the property to the nonprofit for less than its fair market value, receiving some cash proceeds while claiming a charitable deduction for the difference between the sale price and the property’s value.
Retained Life Estate
Deed your home or farm to the nonprofit while retaining the right to live in or use the property for your lifetime, receiving an immediate tax deduction while maintaining your lifestyle.
Tax Benefits of Real Estate Gifts
Real estate donations can offer multiple tax advantages:
Income Tax Deduction
Receive a charitable deduction for the fair market value of the property (if held more than one year and you itemize deductions), potentially up to 30% of your adjusted gross income with a five-year carryforward for unused deductions.
Capital Gains Tax Avoidance
Eliminate capital gains tax that would be due if you sold a highly appreciated property, allowing you to give the full value rather than the after-tax proceeds.
Reduced Estate Taxes
Remove a valuable asset from your taxable estate, potentially reducing future estate taxes while creating a meaningful legacy.
Elimination of Carrying Costs
Free yourself from property taxes, maintenance, insurance, and management responsibilities associated with property ownership.
Real-World Example
Consider a donor who owns a vacation property purchased 20 years ago for $100,000 that is now worth $300,000. If the donor sells the property, they would potentially owe capital gains tax on the $200,000 appreciation, this could be as much as $47,600 depending on their tax bracket and state of residence.
By donating the property directly to support an endowment:
The donor avoids all capital gains tax on the appreciation
They may receive a $300,000 charitable income tax deduction (subject to AGI limitations)
The full $300,000 value benefits the endowment
The donor eliminates ongoing property expenses and management responsibilities
Real estate gifts do require careful planning and coordination. Working closely with the development team of your charity of choice early on in the process ensures a smooth transaction that benefits both the donor and the endowment.
How To Choose The Right Planned Giving Option
While each method offers distinct advantages, the optimal choice often depends on several key factors, including the type of assets you wish to donate, your current financial situation, your tax planning objectives, and the level of flexibility you desire for your charitable contributions. By carefully considering these aspects, you can select a planned gift that maximizes both your charitable impact and your personal financial benefits.
Flexibility & Control
Evaluate how much control you wish to retain over your assets and the degree of flexibility needed for future changes to your plans
Tax Advantages
Understand the immediate and long-term tax benefits each option offers, including income, estate, and capital gains tax deductions./p>
Asset Versatility
Consider which assets; cash, securities, real estate, or retirement funds, are most suitable for each giving method.
Estate Impact
Assess how your chosen gift will affect your heirs and the distribution of your remaining estate, ensuring your family’s financial security.
Simplicity of Setup
Compare the administrative ease and complexity involved in establishing and managing each planned gift, from paperwork to legal requirements.
Comparing Planned Giving Options
As you can see, there are many choices when selecting the right option for you. Navigating the landscape of planned giving can seem complex, but understanding the unique features of each option empowers you to make informed decisions that align with your philanthropic vision, current financial needs and long-term goals.
Key Planned Giving Features
For Simplicity
Bequest through a will or retirement plan beneficiary designations offer straightforward setup with minimal paperwork and complete flexibility to change your mind.
For Current Tax Benefits
Appreciated securities, QCDs from IRAs (if 70½+), and real estate gifts provide immediate tax advantages while supporting the endowment today.
For Income Needs
Charitable Remainder Trusts offer both current income and future philanthropic impact, ideal for retirement planning or diversifying concentrated positions.
For Family Wealth Transfer
Charitable Lead Trusts provide current support to the endowment while potentially transferring assets to heirs with reduced gift/estate taxes.
Matching Options to Life Stages
| Life Stage | Giving Strategies | Why It Fits |
|---|---|---|
| Mid-Career (40s–50s) |
|
High earning years, growing portfolios, and early estate planning goals, allowing for significant tax-advantaged giving. |
| Pre-Retirement (50s–60s) |
|
Time to solidify your legacy, manage future tax liabilities, and ensure access to assets while planning for retirement. |
| Early Retirement (60s–70s) |
|
Opportunity to reduce taxable income, rebalance assets, and create income streams while making substantial charitable contributions. |
| Later Retirement (70s+) |
|
Prioritize tax efficiency, fulfill Required Minimum Distributions (RMDs), and complete legacy planning with minimal disruption to current finances. |
While these comparisons provide general guidance, the optimal planned giving strategy often involves combining multiple approaches to maximize both philanthropic impact and personal financial benefits. For example, a donor might use QCDs to satisfy RMDs during their lifetime, donate appreciated securities during high-income years, and include a bequest in their will to create an enduring legacy.
Working with both a financial advisors and the nonprofit’s development team can help you design a personalized giving strategy that aligns with your complete financial picture and philanthropic vision.