Donor Decisions: Choosing Your Vehicles for Family Philanthropy

Introduction: Choosing your giving vehicle

This slide show offers an overview of several giving options, so you have the information you need to choose what’s best for your philanthropic vision. Resources listed below include a worksheet to walk you through the decision-making process. Remember—the vehicle you choose should be based on your goals and the amount of assets you have to give. It’s also best to consult a financial advisor or attorney familiar with charitable vehicles before making a final decision.

• Review relevant primers and worksheets in the Family Giving Lifecycle Toolkit
• Get a printable version of the Family Giving Considerations Worksheet.
• Get a printable version of our Vehicle Comparison Chart.

Option #1: Family foundations

Family foundations provide maximum control of assets as well as many options for donors who seek to establish a shared, multi-generational legacy of giving. While family foundations do have some restrictions in terms of the activities and strategies they may undertake, they offer the required flexibility for donors and families who engage in long-term, strategic philanthropy.

A good choice for: donors who wish to have complete control and involve their family in the governance of their philanthropic assets.

Considerations:

• Start-up costs for family foundations may make them prohibitive for some donors.
• There are strict legal guidelines associated with this vehicle.
• Tax benefits include 30% adjusted gross income for cash gifts and 20% for securities held more than one year—but are also subject to an annual 1-2% excise tax on annual net investment income.

For more information: download Splendid Legacy: The Guide to Creating Your Family Foundation.

Option #2: Donor advised funds

Donor advised funds have increased in popularity over the past twenty years, and offer a significant level of control mixed with limited management costs and maximum tax benefits. Advised funds suit donors who wish to have a shared vehicle for family giving, but are comfortable giving up some measure of control. While there are restrictions around the activities and strategies an advised fund may undertake, they provide a fair amount of flexibility for donors and families who engage in long-term, strategic philanthropy.

A good choice for: donors who wish to exercise some control and involve their family in the governance of their philanthropic assets.

Considerations:

• Tax benefits include 50% AGI for cash gifts and 30% for securities held more than one year.
• Donors may recommend investments and grants, but have no direct control over assets.
• Some donor advised fund host organizations limit family participation to two or three generations.

For more information: see NCFP’s Online Guide to Family Philanthropy and Donor Advised Funds.

Option #3: Direct gifts

Direct gifts are the most straightforward approach for executing charitable interests. There is no added cost when making a direct gift to a charity, and you have complete control of the gift with respect to timing, type and recognition. Direct gifts have limited appeal if you are hoping to engage family members or create a charitable legacy (although recognition or naming rights may be possible).

A good choice for: donors who wish to immediately support an institution or cause, but do not wish to involve family members or other decision-makers (at least via this gift).

Considerations:

• Direct gifts, alone, are not ideal for long-term, strategic philanthropy; however, in tandem with other giving vehicles (or other direct gifts), it is possible to be strategic over time.

Option #4: Supporting organizations

Supporting organizations are charities that carry out their exempt purpose by affiliating with and directly supporting other exempt organizations, usually other public charities.

Supporting organizations offer significant control mixed with limited management costs and maximum tax benefits. Supporting organizations have limited appeal for donors who seek to engage family members or create a charitable legacy, although some involvement by family members may be possible.

A good choice for: donors who know the specific causes they wish to support, who can share control of grantmaking with publicly appointed board members, and who are comfortable with limited family involvement.

Considerations:

• Tax benefits include 50% AGI for cash gifts and 30% for securities held more than one year.
• There are many complex regulations that supporting organizations must follow on an annual basis.

For more information: read Section 509(a)(3) Supporting Organizations at www.irs.gov.

Option #5: Charitable remainder trusts (CRTs) and Charitable remainder annuity trusts (CRATS).

Charitable remainder trusts are tax-exempt irrevocabletrusts designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time, then donating the remainder of the trust to the designated charity. Charitable annuity trusts are gift transactions in which a donor contributes assets to a charitable trust, which in turn pays an annuity back to the donor; after the donor dies, the charity keeps the remainder of the gift.

A good choice for: CRTs are for donors who wish to receive some defined level of income while fulfilling their charitable goals by arranging for a gift to charity after they die. CRATS are appropriate for donors who seek ongoing income and are interested in donating highly liquid assets (such as cash or publicly traded securities) to the charity of their choice.

Considerations:

• Both gifts have tax benefits and may be used in tandem with other giving vehicles.
• CRTs tend to be fairly expensive to set up.
• CRATs have minimal costs.

For more information: see the Planned Giving Design Center for additional information on CRTs, CRATs, and other planned giving vehicles options.

Need more information?

This slide show presented a brief overview of the vehicle options available for family philanthropy. If you need more information, see these additional resources from the National Center for Family Philanthropy:

• Review relevant primers and worksheets in the Family Giving Lifecycle Toolkit
• Get a printable version of the Family Giving Considerations Worksheet.
• Get a printable version of our Vehicle Comparison Chart.
• Splendid Legacy: The Guide to Creating Your Family Foundation
• Family Philanthropy and Donor Advised Funds