Four Ways to Take Care of a Charity - And Yourself!

There’s nothing that says you can’t do good in the world and do well for yourself. You may even be able to reduce your taxes, secure and income for yourself or your beneficiaries, and help a charity or -  several charities -  of your choosing. Although there are many ways to accomplish your philanthropic and financial goals, today we will focus on four smart strategies.

The first strategy is that of a Donor Advised Fund or DAF. A DAF has several advantages, including:

  • There is generally a low initial minimum to open an account (usually $5,000-$10,000)
  • There are generally low ongoing maintenance and administrative expenses
  • There are no annual distribution requirements
  • There are no annual tax filing requirements
  • Gifts can be made publicly or anonymously
  • There are higher charitable deduction limits relative to private foundations – which we will cover in just a moment!

But, there are also some disadvantages. Specifically:

  • Some donor advised funds do not allow the donor to name successors
  • These funds do not allow compensation for board members or staff
  • Donor advised funds don’t allow for establishing scholarship programs

The second strategy is a private foundation. The advantages of a private foundation are:

  • The donor retains complete control of the foundation
  • The donor can engage family members to emphasize core family values and/or legacy
  • The donor can pay reasonable compensation to board members and/or staff
  • The foundation can be perpetual by naming successors or a board

And so the private foundation option allows for a little more flexibility in terms of charitable giving, and by giving you and your family more input and control. But there are also some disadvantages, as well as some added costs. For example:

  • There’s going to be a higher initial funding amount. There’s really no official minimum, but we generally recommend funding with at least $2MM-$3MM
  • There are also higher initial start-up costs, potentially as much as $10,000
  • Unlike a DAF, there is an annual distribution requirement of 5%
  • There are also annual reporting requirements – an IRS form called the 990 – and these documents are publically available, so anyone can see how you are spending the money
  • There is a lower charitable deduction for gifted assets, when compared to a DAF

The final two options come in the form of a Charitable Lead Trust, or Charitable Remainder Trust. A Charitable Lead Trust is intended to reduce your (or any beneficiaries') taxable income by first donating a portion of the trust's income to a charity or several charities. After a period of time specified by the trust, the remainder of the trust would be transferred to you, a family member, or other beneficiary. A Charitable Remainder Trust is similar, but in reverse: a tax-exempt irrevocable trust is intended to reduce your taxable income by first dispersing income to you or the beneficiaries of your trust for a specified period of time and then donating the remainder of the trust to a designated charity or charities.

So, as you can see, there are many ways to take care of yourself, your family, and your beneficiaries that can also help you support a charity of your choosing. We’re currently offering a no-obligation charitable giving analysis for any of our readers, and we’re happy to discuss how to get the most out of your charitable giving, and how to possibly reduce taxes and create additional income for you and your family. You can schedule your complimentary analysis by calling us at 216.520.1711, emailing us at Quarterback@Lineweaver.net, or clicking here.

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Posted by Lineweaver Financial Group in Charity, Donor Advised Fund, Private Foundation Charitable Lead Trust, Charitable Remainder Trust, Tax Planning

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