LETTERS From CAMP Rehoboth |
CAMP Money: The Benefits of Planned Charitable Giving |
by Alexander G. Yearley, CFP |
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. |
LETTERS From CAMP Rehoboth, Vol. 12, No. 11, August 9, 2002. |