Six options for estate planning / By James W. Hamilton, III
Making Outright Gifts
An outright gift is one that benefits the charity immediately and exclusively. With an outright gift, you get an immediate income- and gift-tax deduction. Tip: Make sure the charity is a qualified charity, according to the IRS. Get a written receipt or keep a bank record for any cash donations, and get a written receipt for any property other than money.
Will or Trust Bequests and Beneficiary Designations
These gifts are made by including a provision in your will or trust document, or by using a beneficiary designation form. The charity receives the gift at your death, at which time your estate can take the income and estate-tax deductions.
Charitable Trusts
Another way for you to make charitable gifts is to create a charitable trust. You can name the charity as the sole beneficiary, or you can name a non-charitable beneficiary as well, splitting the beneficial interest. (This is referred to as making a partial charitable gift.) The most common types of trusts used to make partial gifts to charity are the charitable lead trust and the charitable remainder trust.
Private Family Foundation
A private family foundation is a separate legal entity that can endure for many generations after your death. You create the foundation then transfer assets to the foundation, which, in turn, makes grants to public charities. You and your descendants have complete control over which charities receive grants. But, unless you can contribute enough capital to generate funds for grants, the costs and complexities of a private foundation may not be worth it. Tip: One rule of thumb is that you should be able to donate enough assets to generate at least $25,000 a year for grants.
Community Foundation
If you want your dollars to be spent on improving the quality of life in a particular community, consider giving to a community foundation. Similar to a private foundation, a community foundation accepts donations from many sources, and is overseen by individuals familiar with the community’s particular needs and professionals skilled at running a charitable organization.
Donor-Advised Fund
Similar in some respects to a private foundation, a donor-advised fund offers an easier way for you to make a significant gift to charity during a long period of time. A donor-advised fund actually refers to an account that is held within a charitable organization. The charitable organization is a separate legal entity, but your account is not; it is merely a component of the charitable organization that holds the account. Once you transfer assets to the account, the charitable organization becomes the legal owner of the assets and has ultimate control of them. You can only advise—not direct— the charitable organization on how your contributions will be distributed to other charities.
James W. Hamilton, III is a financial advisor in the private wealth management division at Morgan Keegan. In this capacity, he oversees the diverse needs of a select group of clients in a highly personalized manner, including wealth management, retirement planning and succession strategies. He is a graduate of the University of Georgia with a degree in economics and organic agriculture. For more information, email jimmy.hamilton@morgankeegan.com.
