Philanthropy - Giving Efficiently and Effectively

Philanthropy and charitable giving are conversations we have often with our clients. We take great pride in assisting clients to tailor thoughtfully designed strategies to give back to great causes. Not only are the charitable causes unique to the individual, but the methods of gifting may be just as unique. While outright gifts of cash or securities directly to a charity are beneficial, there are additional strategies available that can maximize a gift from a combined charitable, tax saving, and legacy perspective.  We will highlight two strategies below: Donor Advised Funds and Charitable Remainder Trusts

Donor Advised Fund (DAF)

A donor advised fund (DAF) is best described as a charitable investment account that provides simple, flexible, and efficient ways to manage charitable giving.

How a DAF Works

  1. Open a DAF with Brickley Wealth and name it, eg. “Smith Family Giving Fund.”

  2. Make an irrevocable contribution of either cash or stock into the DAF account.

  3. Receive the maximum tax deduction allowed by the IRS.

  4. The assets are reinvested without tax impact to you.

  5. Afterwards, on your own timeline and at your discretion, make grants to qualified charities and nonprofit organizations from the DAF account.

  6. Charitable grants can be stretched out over your lifetime.

  7. You can continue to make tax deductible contributions into the DAF as often as you like.

  8. When you die, the DAF can either be left to heirs for their management or distributed to charities of your choosing.

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Benefits of a DAF

  1. Charitable income tax deduction for the full amount of the gift in the year of contribution. Any unused benefit carried forward for 5 years from year of gift.

  2. You can make a significant charitable contribution in a single year and stretch out your giving over many years.  A great consideration for any one year where you find yourself in a higher than usual tax bracket but don’t want to feel hurried with your charitable gifts.

  3. You can contribute long term appreciated stock and securities. This is a double tax benefit where you are not only benefiting from the immediate tax deduction at contribution, but also removing future taxable gains from your portfolio. Any realized gains within the DAF are not taxable to you.

  4. Proceeds are reinvested to provide for future growth.

  5. We often see families make annual charitable gifting part of the fabric of the family legacy.  If the DAF is not gifted out in its entirety during your lifetime, you can leave the DAF to heirs to manage during their lifetime.   

  6. Multiple charitable organizations can be listed as beneficiaries of the DAF.

  7. If your estate is subject to estate tax, any gifts to a DAF and subsequent growth may be removed from your estate for estate tax purposes.

  8. DAFs are a much simpler alternative to private foundations.

Charitable Remainder Trust (CRT)

A charitable remainder trust (CRT) is an irrevocable investment trust that provides the donor, or other beneficiaries, with an income stream for a term of years or for life, and a named charity receives the remaining trust assets at the end of the trust term. The CRT is a good option if you want an immediate charitable deduction, but also have a need for a stream of income. We often see a CRT used in combination with a DAF, with a DAF named as the charitable remainder beneficiary.

How A CRT Works

  1. Open a Charitable Remainder Trust with Brickley Wealth.

  2. Make an irrevocable contribution of either cash or stock into the trust.

  3. Receive a tax deduction based upon the present value of the future remainder interest of the trust. 

  4. You or your chosen beneficiary begin to receive an income stream from the trust. 

  5. Payment frequency can range from monthly to annually and per the IRS, the income amount can range from 5% to 50% of the trust’s assets.

  6. After the specified timespan, or the death of the last income beneficiary, the remaining CRT assets are distributed to the designated charitable beneficiaries that you have named.

  7. Charitable beneficiaries can either be named 501c(3) charities or a Donor Advised Fund (DAF).

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Benefits of a CRT

  1. Charitable income tax deduction in the year that the trust is funded with cash, stock, real estate, etc. The deduction is based upon the type of trust, the term of the trust, the projected income payments, and the IRS interest rates that assume a certain rate of growth of trust assets.

  2. Receive a stream of income from the trust for either your life or a stated period not to exceed 20 years.

  3. The CRT’s investment income is exempt from tax.  This makes the CRT a good option for diversification of low-basis, high-gain assets. You do not incur a realized capital gains tax when low-basis assets are contributed into the trust and sold. The income beneficiary will pay income tax on the income stream as received.

  4. A CRT may help reduce or eliminate estate tax.  Because the CRT is irrevocable, assets contributed to a CRT may be removed from your estate for estate tax purposes.

If you want to review your charitable gifting strategy, please reach out.

Thank you for your continued trust.

-Aaron


Brickley Wealth Management (“BWM”) is a Registered Investment Adviser. This brochure is solely for informational purposes. Advisory services are only offered to clients or prospective clients where BWM and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by BWM unless a client service agreement is in place.