What are the common ways to participate in charitable giving?
Well, charitable giving comes in many forms. The most obvious of which is to write a check or give money directly to a charity, and derive the satisfaction and benefit of seeing that money used at that time. In the estate planning context often charitable planning is done on a delayed basis. Meaning that a client will make provisions in their trust, or their will if they’re just going to use a will in their estate planning, to provide for a favored charity. There is a tax benefit of course from giving either on a delayed basis or immediately.
Sometimes clients come to me and they said, “I’d like to form a private foundation.” Well, a private foundation sounds good. It’s a very technical planning technique, and it requires a lot of maintenance going forward. So if a client doesn’t have upwards of 3 million dollars to initially gift and put into that foundation I discourage them from doing so. But another way for them to learn how to give on an annual basis, like a private foundation, would be to create a donor-advised fund with a local community foundation. The community foundation is always established with the IRS and is a recognized public charity.
The donor-advised fund is an agreement that the client makes with the board of that community foundation to give recommendations every year to the community foundation board where to give their money. Thus, I could create the Jeffreys Zabner Donor Advised Fund at the California Community Foundation, seeded with an initial $10,000 gift, and continue to gift to it every year. Then my wife and I, and our children, could meet once a year and say to the foundation, “This year please give the money to The American Heart Association. Or The Cancer Foundation.” This is a wonderful way for a family to get involved on a charitable giving adventure, which will ultimately result in including charitable giving and planning in their estate plan.
Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.
Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.