For many Texans, charitable giving is more than a financial decision. It’s a way to make a lasting difference while aligning with your personal values and the causes that matter most. Many people give regularly throughout their lives, so why not formalize this with a solid plan?
In fact, there are many benefits to planning ahead when it comes to charitable giving. These can include simplifying your giving, involving your family in your most crucial causes, or even creating a long-term charitable legacy. Understanding the tools available can help you choose the best approach for your situation.
What are those tools?
Donor-Advised Funds
Want to minimize management burdens? A donor-advised fund (DAF) is an incredibly efficient path for most people! DAFs work like charitable accounts that are managed by a 501(c)(3) sponsor… typically a well-established community foundation or financial institution. You make an irrevocable contribution, receive an immediate tax deduction, and can recommend grants to your favorite charities over time. The actual day-to-day management is handled by the sponsor. Pretty nifty, right?
Because the sponsor handles all filings and compliance, setup is quick and costs are low. There’s no annual payout requirement, and deductions for cash gifts can reach up to 60% of your adjusted gross income (AGI). For many families, DAFs provide a practical way to build a habit of giving and involve the next generation in choosing causes to support.
Private Foundations
Want a little more control while building a family legacy? A private foundation may be the right fit! Foundations are typically funded by one individual, family, or business, and can make grants directly to charities or run their own charitable programs.
Okay, so what are the downsides? While private foundations offer flexibility, this is a tradeoff with significant compliance responsibilities. They must distribute at least 5% of their assets each year for charitable purposes and pay a 1.39% excise tax on net investment income.
Additionally, founders and family members may serve on the board and be compensated for bona fide services, but transactions with “disqualified persons” (such as family members or major contributors) are strictly prohibited as self-dealing under IRS rules.
Charitable Remainder Trusts
A charitable remainder trust (CRT) can be a powerful tool for donors who want to balance philanthropy with personal financial goals. It allows you (or other beneficiaries) to receive income for life or a set term, with the remainder going to charity.
The charitable deduction is based on the present value of the “remainder interest,” and the trust must pay between 5% and 50% of its value annually. In plain English: what are the assets earmarked for the charity actually worth right now? That’s what our deduction is based on. CRTs are especially useful in estate planning when funded with appreciated assets, because they can help reduce capital gains taxes while creating a meaningful charitable gift.
Choosing the Right Option for You
Like any set of tools, each option has its uses.
- DAFs are best for simplicity and flexibility.
- Private foundations work well for families seeking long-term involvement and control.
- CRTs align charitable intent with income or estate planning goals.
If you’re considering charitable giving as part of your legacy, our attorneys can help you evaluate your options and design a plan that simultaneously reflects your values, reduces your tax burden, and supports the causes you care about most. We see our job as helping clients explore charitable giving strategies that fit their broader estate plans, from maximizing tax benefits to ensuring every dollar makes the impact you intend.
Interested in learning more about how charitable giving can fit into your estate plan? Set up a consultation.