Charitable Gift Planning

What to consider when building a legacy.

By John S. Niles On Dec 14, 2021

Each person has a different vision or aspiration for the legacy they create in their lifetime. From simple bequests or outright donations to more complex tax, trust or estate planning, a personal philanthropic strategy can be constructed to be most advantageous to both the donor and the charities he or she supports. Strategies should reflect personal charitable goals, unique tax situations, legislative environments, and wealth circumstances.

On the simpler side of charitable gift planning are bequests and beneficiary designations. A bequest is the act of naming a charity as a beneficiary in one’s will. Similarly, individuals can name a charity as a beneficiary on a retirement account or life insurance policy. In both instances, one can designate if the charity receives a fixed dollar amount or percentage of the total. These decisions require minimal outside guidance and can be adjusted easily.

Qualified Charitable Distributions (QCDs) allow individuals to make up to a $100,000 annual distribution from most types of IRAs directly to a charity if they are over age 70 1/2. Depending on one’s age and amount, these gifts can be tax-free and count towards a Required Minimum Distribution (RMD). This strategy is beneficial for individuals with substantial retirement assets or high RMDs. This is the most tax-efficient use of retirement plan dollars as QCDs exclude the amount donated from one’s taxable income, which could have additional tax benefits.

More complex strategies that include the creation and funding of trusts can be leveraged with guidance from trusted advisors. A Charitable Lead Annuity Trust (CLAT) is a vehicle where a fixed annual amount is paid to one or more charitable beneficiaries through a trust. At the end of the trust term, the remainder is paid to non-charitable beneficiaries, such as family heirs. Using a CLAT may reduce estate and gifting taxes while preserving the assets for future generations. Conversely, a Charitable Remainder Trust (CRT) is a vehicle where once funded, a fixed annuity amount or a set percentage of the trust assets as valued on a specific date each year is paid back to the donor or other non-charitable beneficiary. At the end of the trust term, the remainder is paid to the charities that have been designated in the trust document. Using a CRT has the potential to reduce or eliminate capital gain or estate taxes, while providing income for the donor during their lifetime.

These are just a few examples of strategies that can be considered to maximize the impact of a donation to charity while providing additional benefits to the donor. Individuals should discuss these concepts with their trusted advisors to help select the charitable gift plan that works best for their unique situation to create a lasting legacy.

About the Author

John S. Niles is vice president, trust and estate administration, at The Haverford Trust Company. He also is the chairperson of the Trust Administration Committee for The Haverford Trust Company.

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