In this Section:

8 Strategies to Maximize Your Clients’ Charitable Giving

The last few months of the year are commonly referred to as the “season of giving,” a time when charitable donations increase dramatically.


As advisors, we can work with our clients to develop a plan for their charitable giving that aligns with their financial goals and overall wealth management. Here are eight common charitable giving strategies.


[1] Charitable Lead Trusts

Charitable lead trusts are one of two trust-based donation agreements. Charitable lead trusts provide an income flow to a charitable organization for a period of time, after which the donated assets may be returned or distributed to other noncharity beneficiaries. This is one of the few charitable giving techniques that can generate income tax, gift tax and estate tax deductions for clients.


[2] Charitable Remainder Trusts

A charitable remainder trust provides income to donors for life or for a specified number of years, up to 20. Like a charitable lead trust, this option is not contract-based. Based on the discounted value of the future gift to charity, the contributions will generate a current income tax deduction for clients.


Both the charitable lead trust and the charitable remainder trust are ideal for clients who have a strong charitable commitment and who wish to minimize estate tax or income taxes, or who have significant illiquid assets that are not generating income.


[3] Pooled Income Funds

These are created and managed by a charity, into which a donor transfers assets. In return for the donation, the client (or their designee) receives a lifetime income paid from the earnings of the fund. Upon the death of the income beneficiary, the value of the remainder interest is removed from the pooled income fund and transferred to the charity. Pooled income funds are a good alternative for clients who would like a current income stream from donated property but do not want to incur the costs and legal fees of establishing a charitable remainder trust.


[4] Charitable Gift Annuities

This is a direct contract between a charity and a donor, whereby the donor transfers assets to the charity in return for an unsecured promise to pay an income stream. Because the annuity payments are not secured, it’s imperative to encourage clients to review the charity’s financial picture and its historical success with other fund payments.


[5] Life Insurance Policies

Life insurance can enable a client to provide a more substantial contribution to charity than would otherwise be possible. The simplest form of a charitable gift using life insurance is the designation of a charity as the policy beneficiary. Upon the client’s death, the estate will receive a charitable deduction equal to the amount of the death proceeds passing to charity.


As with many other charitable planning techniques, the rules relating to the use of insurance for charitable giving can be complex, and they often encompass both state and federal laws. In particular, insurable interest laws, which can vary from state to state, should be reviewed when a client is considering charity-owned life insurance. The benefits of this option include revocability, simplicity and changeability.


[6] Private Foundations

A private foundation, or a family foundation, is a charitable nonprofit organization established and funded by a single source to hold, manage and distribute gifted assets. Because private foundations are the most complex means of giving, they are more susceptible to possible operation for the private benefit of donors and managers. As a result, the Internal Revenue Code contains special rules for private foundations that do not apply to public charities. With a high cost to establish and maintain, this planning technique should be reserved for high-net-worth clients.


[7] Donor-Advised Funds

A donor-advised fund is a separately identified fund held and administrated by a qualified public charity that allows clients to make contributions and be eligible for an immediate tax deduction. The sponsoring organizations generally allow the donor to serve as an advisor to the fund or to name another person to serve as an advisor.


Because a donor-advised fund can be established relatively quickly, it can be a useful year-end tax planning tool that offers immediate income tax advantages.


[8] Qualified Plans

When they want an alternative method of donating, certain taxpayers may transfer funds from their individual retirement accounts to an eligible charitable organization by designating the charity as their beneficiary. Under this option, the charity will be treated as receiving the distribution. Neither the client nor their estate will owe income taxes on the amount.


Brett M. Sause, LUTCF, LTCP, CLTC, is the principal and CEO of the Atlantic Financial Group, a boutique financial firm in Easton, Md. He is both a life and a qualifying member of MDRT, with three Court of the Table qualifications. Brett may be contacted at [email protected]

More from InsuranceNewsNet