How Charitable Giving can be a Powerful Estate Planning Vehicle

Approximately 70% of Americans make charitable contributions during the year.  Most of the contributions are done in the month of December.  Often the contributions are done in a hurry, without a lot of thought, to get the tax advantage for the year.  Often contributions are made to the same organizations as in years past.

There are several ways for people to give to charities.  Cash is the simplest.  A check is written to the charity.  If the charity is a qualified charity the benefits are based upon the contributor’s income and the gift tax laws.

Many times when a gift of some kind of property is involved, the process becomes more complex and expensive. These gifts involve ongoing monitoring and establishing a trust which includes legal fees.  The property can be collectable art, stock and bonds or even vehicles. The question then involves determining the value of the gift.

Sometimes, however, the value is determined at the time of delivery to the charity but when the charity liquidates the item the actual value is different.  This involves capital gains issues and has the potential to provide the donor some extra tax advantages.

Often a trust is used to be the owner of the gift and that involves legal issues to establish the trust and monitor the value of the item and the distribution of the asset.  Also, the type of trust and costs associated with the administration of the trust assets complicate the matter even more.

Today, there is one concept which is gaining popularity.  This concept is “Donor Advised Funds”.  This idea allows the donor to take his/her time to investigate the charity, decide on how much to contribute, and ultimately exercise more control over the distribution of funds, an additional planning tool for the financial advisor.

Although this concept has been an option for many years an appropriate vehicle wasn’t easily available.  Today several mutual funds companies have created a trust and selected several funds which lend themselves well to such a program.  Now the donor has a choice of fund families and funds within the fund families, like never before.

Now your advisor has the ability to establish a “donor advised fund” for the charitable minded client which meets their needs.  Once the donor sets up the account, a tax deductable donation is made to the account.  The tax deduction is taken at the time the contribution is made.  The contribution can be passed to the charity, at the convenience of the donor, often in a year later than the one when the donor took advantage of the tax deduction The account then is available for the donor to write a check or checks to the appropriate charities at his convenience.

To learn more about James Mitchell, view his Paladin Registry profile.

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