Wise Ways to Transfer Wealth

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“He who gives while he lives also knows where it goes” -Percy Ross Americans are among the most generous individuals in the world. In fact in 2010, according to the Giving USA Foundation, total charitable giving grew to $291 billion. While philanthropy is as American as Apple Pie, many high net worth individuals want to ensure that they are optimizing the most efficient tools available for giving away their assets. As Benjamin Franklin said, “An investment in knowledge pays the best interest”.

With that in mind, I have created an informative review of ways individuals can familiarize themselves with the best practices for a lifetime of giving that not only benefits heirs, charities and alma-maters, but also enables donors to ensure their money is allocated appropriately. With the end of the year approaching, now is an excellent time to reevaluate your giving plan.

Outright Gifts to Charity

Making outright gifts to charities are often considered among the easiest forms of charitable giving. Generally, these types of gifts offer a charitable income tax deduction of up to 50% of adjusted gross income (AGI); and any unused portion of the deduction can be carried forward for five years. There are, however, some potential disadvantages one should consider when making an outright gift, such as: the loss of control over the future use of the gift by the charity, as well as the chance that the contribution will be co-mingled with the charity’s “general fund.”

Designating A Charity As Beneficiary of Life Insurance

This strategy incorporates naming a particular charity or group of charities as the beneficiaries of a donor’s life insurance. Not only is this strategy easy to execute, but it can also allow for more control as the donor often continues to retain the right to revoke the gift by changing the named beneficiary of the insurance.

A Charitable Remainder Trust (CRT)

A charitable remainder trust (CRT) is a tax-exempt way to distribute income from the trust to its beneficiaries for a period of time after which the remaining assets are distributed to your charities of choice. You determine the time frame of the trust— it can last a lifetime or for a fixed term of up to 20 years— as well as the amount of annual payouts.

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Charitable Lead Trusts (CLT)

Ideally, charitable lead trusts (CLT) are funded with assets that are expected to appreciate over time. The charity of your choice receives a fixed annual payout from the trust, and the remainder goes to your family members or other beneficiaries of the trust at the end of the charity’s payout term. Unlike charitable remainder trusts, charitable lead trusts are not tax-exempt.

A CLT is similar to a charitable remainder trust (CRT), but different in that the initial beneficiary is the charity, as opposed to the donor. Also, unlike a CRT, the remainder beneficiaries are the donor’s descendants, not the charity.

Charitable Gift Annuity (CGA)

A charitable gift annuity (CGA) is among the oldest and most simple methods of making a charitable gift, which also provides for a cash flow to the donor or another party designated by the donor. A CGA is a method of making a charitable gift to a charity, while retaining a cash flow for yourself or others. Put simply, it’s an agreement between a donor and a charity, whereby the charity in return for a gift, agrees to pay a fixed sum of money for a period of time that is typically measured by the age of the donor.

Donor Advised Fund (DAF)

A donor advised fund is another simple technique whereby one can make a charitable contribution to a charity, while continuing to be able to make grant or spending recommendations for these funds in the future. Typically, these types of funds are considered easy to establish, low cost and flexible methods for charitable giving. These funds are often used instead of a private foundation because they are simpler and offer potential tax advantages.

Private Foundation A private foundation is a legal entity set up by an individual, family or group of individuals for the purpose of philanthropy; management and grant-making are supervised by its own trustees or directors.

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