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Daily Camera
Column 22
Enid Ablowitz

PLANNED GIVING: A QUESTION of SEMANTICS

Rotary's culture of giving is very much grounded in the way our gifts change the world. Rotarians give to make things happen. But, that doesn't mean we don't care about being tax-wise. This month's article offers a solution that takes into account both maximizing tax benefits based on the timing of charitable deductions and also strategic allocation of your gift dollars.

Professional fundraisers often use the term “planned giving” to refer to specialized techniques donors use to make large gifts. My definition encompasses not only the mechanisms of giving, but the planning and passion to achieve an outcome by supporting a specific organization or cause. To me, any significant gift needs to be “planned.” The challenge is that sometimes the tax incentive seems to drive the process.

Planned giving techniques are rooted in tax law, and a great deal of energy is put into the tax and legal implications of different ways to make “major” gifts. There are myriad variations on three general themes: how to make charitable gifts and retain an income (like pooled income funds, charitable gift annuities, charitable remainder trusts,) how to give away the income from an asset for a period of time (like lead trusts,) and how to make gifts at death (like income beneficiary designations, pay on death accounts, and bequests.)

There are a lot of fundraisers and others involved in charitable gift planning who are marketing planned giving vehicles to attract donations (or in some cases, generate sales fees.) The up-side of this phenomena is that donors are becoming more educated about the various ways to make gifts and are learning to be tax-wise. The down-side is that there are times when the focus is more on the mechanisms and tax strategies of giving rather than the outcomes of the gifts. And, there is even the potential for inappropriate mechanisms to be used. This can happen when the gift planner does not have enough information to select the best approach to meet donor’s particular needs. That’s why it is important for donors to share their charitable intentions with their attorney and accountant. Then, the charitable planner can team with the donor’s other advisors to assure the optimal solution.

Sometimes, tax motivations can drive the timing of a gift (another kind of planning!) Most of us are preparing for April 15—the day of reckoning. Perhaps we could have used more deductions—to offset a year-end bonus, or sale of stock options, or capital gains from the sale of an appreciated asset. That kind of thinking sets the groundwork for the next year’s financial planning, and one of those strategies is directly related to philanthropy.

What if you knew you wanted (needed) to make a charitable gift based on sound tax and financial planning, and you had charitable intent but didn’t yet know precisely where you wanted your gift to go, or how you wanted it to be used? There is a “planned giving” vehicle that could be very attractive. It is called the donor-advised fund.

A donor-advised fund (DAF) is a philanthropy strategy that combines ease, tax advantages and charitable outcomes through a simplified mechanism that removes many of the complications of trusts, private foundations and other complex legal structures. Donor-advised funds are actually foundations that operate under the umbrella of a 501 (c) (3) tax-exempt host public charity such as a community foundation, a university specialized fund or even a commercially marketed fund. The idea is simple: the donor makes an irrevocable gift to the DAF and gets the appropriate tax deduction in the year of the gift. The donor then has the right to advise the host charity in the distribution of those gifts.

The word advised is key. In order for the donor to have made a gift that qualifies for a charitable deduction, the donor can no longer have control of the asset. Hence, the ultimate distribution of the gifts rests with the intermediate recipient. The donor can make recommendations about how much, when and where to give, but the donor-advised fund managers make the final decision. Practically speaking, the donor’s wishes are almost always honored, as long as the recipient organization is qualified.

The DAF can be a powerful tool. First, the assets within the DAF grow tax-free. Second, donors can not only advise the host charity about distributions, but the donor can also retain the right to advise them on investment matters, though again, the fund managers are under no obligation to comply. A third potential benefit can by anonymity, if that’s what the donor desires.

With a donor-advised fund, donors can time their deduction and defer the distribution decision while they learn about their charitable options. The donor may want to develop a program idea, or accumulate a larger fund over several years of giving in order to make a more strategic gift.

If you are considering a “planned gift,” investigate whether the donor-advised fund is for you. It is a simple, effective charitable tool that may help you plan for NEXT April.

Enid Ablowitz is the Vice President for Advancement at the University of Colorado Foundation, Inc., and Director of Advancement for the Coleman Institute for Cognitive Disabilities. She has been working as a donor advocate for more than a dozen years. Her book, Making Money Matter: Eight Steps to Thoughtful Giving was recently published. For information on how to obtain a copy, contact her at enidablowitz@hotmail.com.

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