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Although many affluent and not so affluent individuals and couples give
generously to charity, the vast majority do not do so in a planned way.
That hurts both the donors and ultimately the charities, say charitable
giving experts. The majority of households employ a charitable-giving
strategy often referred to as “checkbook philanthropy.” This is not
a strategy at all, but the unplanned and often haphazard giving of small
amounts to a variety of charities, frequently in cash, usually in
response to the solicitations with the best pitches. According to
GivingCapital, only a quarter of affluent households make planned gifts
despite the fact that most are interested in doing so.
What
exactly is planned giving? Why are so few people making planned gifts?
What are the benefits? Planned giving is an organized approach to giving
that evaluates the donor’s personal values, and selects charities that
match those values. It also means selecting the best gift-giving vehicle
to maximize financial and tax benefits. So why don’t more people plan
their gifting? Several reasons come to mind. Planned giving takes time.
Many people do not know enough about the details or benefits of it. For
others it may seem too complicated and expensive to apply to their
situation. Charitable giving experts address these concerns while
providing the following benefits:
•
Influence. The nature of charitable giving has been changing in recent
years, particularly as the front end of the baby boom generation reaches
the point where they can afford to make sizeable gifts. Many of
today’s donors are less inclined to simply pass on most of their
wealth to their heirs, and they are more inclined to pass on a greater
portion to charitable organizations. Donors, particularly the self-made
affluent, want greater influence over how their gifts are spent. Instead
of writing a check to an omnibus charity that makes the distribution
decisions, they want to be actively involved in seeing that their money
is directed to those charities about which they deeply care. This is why
those who plan their donations often establish various foundations or
charitable remainder trusts, or contribute to donor-advised funds.
•
Efficient use of money. Planned giving makes use of techniques that
maximize the dollar amount that ultimately benefits the charity. For
example, the gifting of stock avoids the donor’s payment of capital
gains taxes. Assuming the donor is only giving the proceeds of the sale
after tax, the charity is better off with the stock gift. It is
sometimes difficult to gift stock directly to a small charity. A donor
may have to employ other charitable vehicles to accomplish the gift. A
family foundation may be an answer. It may make more sense to gift
during one’s lifetime rather than waiting until death. You can leave a
charity more money later by taking less money now from a charitable
remainder unitrust.
•
Tax benefits. Although most people make donations out of a genuine
desire to give, tax benefits play an important role. For one thing, the
tax benefit itself may make the gift financially possible. The tax
savings may provide some of the funds. Charitable remainder trusts and
gift annuities provide the donor with lifetime income while ultimately
benefitting the charity. Furthermore, if the trust is opened with
appreciated securities both the donor and charity benefit.
•
Leading by example. Planned giving involving ongoing influence, as in a
donor advised funds or foundations, can be an excellent way to involve
partners and children. They can help decide who is to receive gifts, and
in some cases they can continue that role after the donor’s death.
•
Provide a legacy. Some donors wish to leave an ongoing philanthropic
legacy, a strategy generally difficult with standard checkbook giving.
The
options for making planned gifts are many. They include bequests made
through wills, charitable remainder trusts, charitable lead trusts,
private and community foundations, charitable annuities, and
donor-advised funds, to name a few. Each option presents advantages and
disadvantages, so you want to review those options with your financial
planner or charitable expert to see which one best fits your values and
personal financial situation.
This
column is produced by the Financial Planning Association, the membership
organization for the financial planning community, and is provided by
Alexander G. Yearley, CFP, a local member in good standing. Mr. Yearley
runs Community Pride Financial Advisors at 39 Baltimore Ave. Rehoboth
Beach, DE and offers securities through Cambridge Investment Research,
Inc. Member NASD & SIPC.
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