Deferred charitable giving options.

• Author: Mathisen, Kristi M.

Among other motivations, a client who is eager to donate to charity also wants to capture a charitable deduction for income tax purposes. Sometimes, the client has not selected the charities or, perhaps, the amount involved is much greater than he or she wants to give in one year. As such, what he or she really needs is a "philanthropic savings account." This item provides a frame work for evaluating the advantages and pitfalls of three alternatives applicable to a client who has no need for additional income or for donated assets to pass to heirs or other noncharitable beneficiaries; thus, it does not discuss charitable gift annuities, charitable remainder trusts or charitable lead trusts.

The Alternatives

The Code provides three different ways to make a current gift (to secure a current income tax deduction), while deferring payments to the ultimate charities:

* Public charity's donor-advised kind;

* Private nonoperating foundation; and

* Supporting organization.

Donor-advised funds: These funds are owned and operated by public charities (including community foundations); public charity affiliates of mutual fund/brokerage firms; and larger charitable organizations (e.g., hospitals, universities and national charities). Donations to these funds qualify for the most generous charitable deductions under Sec. 170(b)(1)(A) (50% of adjusted gross income (AGI) for cash contributions, and 30% of AGI for other contributions). (For a detailed discussion of the charitable deduction limits, see Swift, "Limits on Individuals' Charitable Deductions" (Part I), TTA, May 2004, p.296, and (Part II), June 2004, p. 366.)

Donor-advised hands require very little setup and, thus, are useful for last minute and year-end gifts. They also require very little additional donor involvement. The donor (and often the donor's family) can recommend--but not control--the selection of charitable grantees. Some donor-advised funds "allow donor involvement in the broad investment decisions for donated assets. There are no annual return fillings; fund activities are reported by the sponsoring charitable organization.

Donor-advised funds tend to have comparatively low administrative costs (less than 1%) and facilitate privacy and anonymity. Finally, they have the lowest minimum contributions--sometimes as little as $10,000.

Private nonoperating foundations: These foundations are Sees. 501(c)(3) and 509(a)(1) independent charitable organizations established by donors. They have...