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Charitable giving vehicles

How structured giving can help your philanthropic dollars do more
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Key takeaways

  • There’s no single ideal way to give. Each family’s strategy will be as unique as a fingerprint based on a wide range of factors.
  • Structured giving vehicles offer a simple and convenient way to support the causes you care about while engaging your entire family in becoming more empathetic, generous and active community members.
  • Depending on your goals and needs, the right giving vehicle can help your charitable dollars go further while also providing attractive tax benefits.
  • You don’t need tremendous wealth to be an active philanthropist, just a desire to make a difference and a knowledgeable partner who can help add structure to your charitable desires.

There’s no right or wrong way to give. Your family’s approach will depend greatly on your personal preferences. But rather than just writing checks to the causes you support, you may be able to make your charitable dollars go further through the use of structured giving vehicles.

Depending on the amount and timing of your charity (along with the desired tax advantages you are hoping to benefit from), there are a variety of options available — from donor-advised funds (DAFs) to family foundations and charitable trusts.

Donor-advised funds: giving simplified

Donor-advised funds are charitable giving accounts that allow your family to donate funds through a sponsoring organization, receive an immediate tax deduction, and then recommend grants to qualified charities over time. Easy to set up and manage, DAFs:

  • Can be funded with a wide range of traditional assets including stocks, bonds, cash, mutual funds and ETFs (many can also be funded with illiquid assets such as cryptocurrency and real estate holdings).
  • Generally have very low minimum initial contribution requirements.
  • Allow you to choose from a number of different investment strategies so that any assets irrevocably gifted to the account (but not yet directed to a specific charity) can potentially grow.

You can recommend grants be made to any qualified charity at any time, and assuming all requirements are met, the DAF sponsoring firm will distribute the funds to the charity on your behalf and handle all administration related to the gift. 

Diagram showing DAF process. Please click on the link below for full description.

Note: Deductions are limited to a maximum 60% of your adjusted gross income (AGI) for cash contributions and 30% of AGI for gifts of securities or nonfinancial assets. Deductions are based on fair market value if held for more than one year. And special rules apply to donations of tangible personal property, such as art.1 Discuss any potential donations with your tax advisor in advance of gifting.

Compared to simply writing checks, DAFs offer your family a number of charitable advantages, including:

  • A single consolidated report of all your contributions during the year — eliminating the need for you to keep detailed records and receipts for tax purposes.
  • No IRS mandates on what percentage of your assets need to be distributed annually.
  • The ability to maintain your anonymity (if desired) when donating.
  • Because DAF contributions are irrevocable gifts, you can take an immediate tax deduction even if you choose to take time deciding on which charities to support. 

 

Private foundations: added control over grantmaking

Families with considerable wealth and a passion for philanthropy may instead want to create a private foundation. Compared to DAFs, foundations provide greater flexibility with your gifts (e.g., you can make grants to other foundations, scholarship programs, etc.). Foundations can also continue on for generations — creating a recognizable legacy for your family. But the costs to establish and maintain a foundation can be sizable and the administrative complexity time-consuming:

  • They require professional management and detailed IRS reporting.
  • Strict compliance with private foundation rules is required to avoid certain excise taxes.
  • A minimum of 5% of foundation assets must be distributed annually.
  • They must file separate federal, and in some instances, state income tax returns that are publicly available.
Flowchart showing how a private foundation works. Please click on the link below for full descriptio

Unlike a DAF, a foundation gives you complete control over your family’s charitable giving and philanthropic investment management (although you must still adhere to certain IRS rules). As a formal legal entity, however, your foundation will need to be overseen by a board of directors and trustees who are responsible for determining:

  • How the foundation’s assets will be invested
  • When and to whom grants will be distributed, and in what amounts

Additionally, if building a family legacy of philanthropy is an important goal, private foundations offer an additional benefit of allowing family members to be employed by the organization or serve as board members for it.

Charitable trusts: income and estate planning benefits

There are two basic types of charitable trusts: charitable remainder trusts (CRTs) and charitable lead trusts (CLTs), with the primary difference being who receives the income stream during the life of the trust and who receives the remaining assets when the trust ends.

  • Charitable remainder trusts (CRTs) — you establish and fund an irrevocable trust that pays you or your beneficiary an annual income (either for life or a fixed period of up to 20 years). At the end of the trust, any remaining assets are then distributed to a named charity beneficiary.
Diagram showing how charitable remainder trusts work. Please click on the link below for full description.
  • Charitable lead trusts (CLTs) — these trusts are the exact inverse of CRTs, where the income generated by the trust assets is distributed annually to a named charity for a set period of time. Whatever assets remain at the end of the trust period are then distributed to a non-charity beneficiary such as a family member.
Diagram showing how charitable lead trusts work. Please click on the link below for full description.

While CRTs afford you a welcome balance between an additional predictable income stream and a desire to give back to the community, CLTs offer an opportunity for significant estate and gift tax benefits. And in addition to helping those in need and supporting the work of organizations you feel passionate about, charitable trusts also provide:

  • Potential income tax deductions based on the value of your gift
  • An opportunity to reduce both estate taxes and gift taxes, depending on the structure you choose
  • The ability to preserve the full value of highly appreciated assets (such as stocks or real estate) by selling those assets within a tax-exempt charitable trust — thus avoiding capital gains taxes

It’s important to note, however, that there are costs associated with setting up and maintaining a charitable trust. And any assets placed in a CRT or CLT are irrevocable. Additionally, the IRS has specific rules governing the percentage of trust assets that must be received by the charity in order to qualify for tax benefits. So, make sure you have both a strong charitable intent as well as enough other assets to cover your living expenses before establishing any charitable trust.

Tax benefits of giving

Although altruism should always be the driver of any charitable intention, the IRS offers an added incentive for your charitable gifts in the form of various tax benefits. Any gifts to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions.

  • In general, taxpayers can deduct up to 60% of adjusted gross income (AGI) for cash contributions and 30% for appreciated assets in a given tax year (note: private foundations have lower limits of up to 30% of AGI for cash and up to 20% of AGI for appreciated assets).
  • Any gifts that exceed these thresholds can also be carried forward for a period of up to five years.
  • Gifts to qualified charities are only deductible in the year the contribution was paid (or donated if a non-cash gift).
  • All non-cash donations must be valued at the property’s fair market value. This can be particularly useful with highly appreciated stock; you are not taxed on the appreciation, but get a tax deduction for the full market value.

Make sure, however, to obtain written documentation to substantiate your tax deductions. Regardless of the amount, in order to deduct any cash contributions, you must have either a receipt from the qualified charity or a bank record that shows the name of the organization along with the date and amount of the gift.  

Even simple tools like a DAF can help unite your family around charitable giving — providing a great way to engage kids in supporting causes that matter to them and sharing your charitable values just like your parents did with you.

Generosity is a learned behavior

Philanthropy doesn’t happen randomly. Charity and compassion are learned behaviors that require active role-modeling and engagement. As your own family grows, make sure you take time to nurture the giving impulse with your children. It can be an incredibly meaningful and enjoyable experience — one that helps them discover there’s more to life than accumulation and consumption.

But helping those less fortunate and fostering the strong sense of self that comes with contributing towards the betterment of others takes more than desire. It takes an ongoing commitment, a well-thought-out strategy and trusted advice.

Ready to take control of your giving?

There’s really no right or wrong way to give. It’s as individual as a fingerprint — driven not only by the extent of your family’s wealth, but also by the causes you feel most passionate about. Consider working with a Bank of America Private Bank advisor who can help you add structure to your charitable desires.

We can show you a range of ways (beyond just writing checks) in which you can become more charitably engaged, make your gifts go further and enjoy additional tax benefits in the process.

Philanthropy doesn’t require massive wealth. You can make a tremendous difference armed with nothing more than a strong social conscience, some dedicated financial resources and an unwavering commitment to actively work towards making a difference. 

1 IRS Publication 526, Charitable Contributions, 2024

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

Neither Bank of America Private Bank nor any of its affiliates or advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions

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