Planned giving strategies offer a way to make money while giving it away

Many people wish they were doing more to support their favorite charities. Often, they believe they don’t have enough assets to give, or that those they can give would have little impact.

“If someone thinks they need every penny they have, few people, even those who are philanthropically minded, will give money away,” says Daniel L. Bonder, JD, MBA, CFP, founding partner of Beacon Financial Partners.

“What they don’t realize is that a well-crafted planned giving strategy will give them more money in their pockets to meet their financial goals while allowing them to support their favorite causes and charities now and in the future.”

Smart Business spoke with Bonder about planned giving strategies that benefit charities and donors.

What are the major benefits of a strong planned giving strategy?

A good planned giving strategy helps clients achieve their charitable endeavors while helping them meet their personal financial goals. Maybe it’s creating income now or money to live on in the future. Perhaps it’s protecting their family or business. With planned giving, they can do both.

What donation strategies exist within planned giving?

Donors may be surprised by the variety of assets they can give to charity, such as retirement plans and even active life insurance policies. For example, a life insurance policy gets donors an immediate tax deduction when they donate and future deductions when they make charitable contributions that pay the premium.

The strategies that get more publicity, though, are charitable trusts.

Charitable trusts offer donors fixed income now or in the future. A charitable remainder trust gives a designated charity the trust’s remaining funds at a certain point in time, or when the donor or his or her spouse passes away. The donor can earn income by taking a percentage of the trust balance, or elect to take a specified amount at specified times. They also receive a current tax reduction and can diversify large holdings. One of my clients inherited a few low cost basis stocks through a living trust. A charitable remainder trust allowed her to diversify the investments and draw an income for life. She also received a large tax deduction and helped her favorite charities.

Sometimes protecting a client’s family, business or property is more important to them than creating income. With a charitable lead trust, the donor forgoes taking an income and instead designates that a percentage of the trust balance goes to the donor’s charity of choice. This assures the donor that the charity gets a specified dollar amount or percentage each year. Upon the donor’s death, the remaining principal usually goes to the donor’s heirs.

Trust assets often grow faster than the distribution allocated to charity. Take, for example, stock of a closely held company. If that asset were held outside of the trust, a family could end up paying estate taxes on that growth. With a charitable remainder trust, a donor can pass the value of that stock through the trust by freezing the base value used to determine the taxable amount on that principal, reducing the donor’s tax burden while improving income streams.

How can one get the most impact out of a planned giving strategy?

It comes down to working with the proper professionals who understand the context of the planned giving strategy — why it is being created, and how it will help the donor and his or her family. If you’re looking at creating income streams or selling assets for tax purposes, professionals can translate your personal goals into the right strategies. Contact your legal or financial professional for expertise in this area.

You can also contact your local community foundation. They can help you use your planned gift to create a permanent charitable legacy so you can support your favorite charities forever. There is no cost to meet with community foundation staff. They will work with you and/or your advisers to implement a strategy that works for you.

Ultimately, your money can only go three places after you’ve passed: to family, to a charity or to taxes. You get to decide, but you have to plan for it. Otherwise, the law dictates what happens to your money.

Insights Philanthropy is brought to you by Akron Community Foundation