To Give or Not to Give is Only Part of the Question

Sara Craven

We are humbled by the philanthropic nature of our clients and community. In 2012, (the most recent year statistics are available), charitable contributions from American individuals, corporations and foundations increased for a third straight year, reaching $316.23 billion in total giving.  Of the top 50 philanthropists of 2012, 20 of them live in California with 70% of those charitable funds being donated to entities within the state. According to the Chronicle of Philanthropy, among the five top philanthropists in 2012, three were couples under the age of 40. Americans, fueled by favorable gift tax limits and strong investment performance, continue to give. We are honored and delighted to have many of these charitably minded benefactors as clients.

In our continuous efforts to provide meaningful solutions to our clients, a significant consideration is the decision-making process involving tax and estate planning strategies. Understanding the differences among approaches for charitable giving allows for informed decisions that directly impact the reach of your charitable donations and the maximization of tax benefits. In many cases the tax savings between these strategies can be significant.

“Checkbook” giving is the most common but least efficient method of giving. For families considering or actively donating significant sums of money, alternative methods provide greater efficiency and a broader selection of accepted assets. This approach, in turn, has the potential to significantly magnify the ultimate tax benefits.

One preferred alternative is a donor-advised fund, defined as a charitable giving vehicle administered by a public charity. These funds are created to support and manage charitable donations on behalf of an organization, family, or individual and have grown significantly in their usage over the past several years.  Donor advised funds have evolved over time with improved ease of use, and exceptional features and benefits that result in the most simply structured and efficient transfer of your charitable dollars. Another vehicle for philanthropic giving is the private foundation, a charitable organization with a principal fund managed and supported by its own directors and trustees. While the private family foundation is very attractive for some families, it is more time consuming and costly than a donor advised fund.

As opposed to checkbook giving, charitable giving through a donor-advised fund or private foundation allows publically traded securities, complex assets, and even real estate to be transferred. Additionally, in the case of a private family foundation, tangible personal property is also acceptable.  In cases involving these complex assets, donors may be able to give in a bigger way and potentially recognize greater tax incentives because of the complexities of these assets and their transfer. Thoughtful, well planned strategies in partnership with your advisor and the DAF provider allow for an efficient fulfillment of philanthropic goals.

There are differences in the levels of control within each structure as well. If you want full control, but also the recordkeeping responsibilities that go along with it, checkbook giving is for you. Private foundations also have full control of their grant-making but are subject to IRS reporting and compliance regulations and all transactions are recorded and tracked by officers of the foundation. Additionally, by IRS rules and regulations, private foundations are required to donate 5% of the value of the foundation every year.  A donor-advised fund program simplifies and consolidates recordkeeping and tax reporting and grants are recommended to IRS-qualified charities. 

An important consideration for some donors is protecting their anonymity. Under a private foundation, annual tax filings are a public record of assets, contributors, and grants. In contrast, checkbook giving of cash can be made anonymously, and a donor-advised fund allows the donor to choose whether he or she wants to be acknowledged on grants or to remain anonymous.

There are many more important differences between each gifting strategy, with cost being another critical distinction. If you are interested in learning more please contact us; we are happy to help explore your strategic preferences and help make your charitable donations go further through smart execution.

This information has been developed internally and/or obtained from sources that Sand Hill Global Advisors, LLC (“SHGA”), believes to be reliable; however, SHGA does not guarantee the accuracy, adequacy or completeness of such information nor do we guarantee the appropriateness of any investment approach or security referred to for any particular investor. This material is provided for informational purposes only and is not advice or a recommendation for the purchase or sale of any security. This information reflects subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. This material reflects the opinion of SHGA on the date made and is subject to change at any time without notice. SHGA has no obligation to update this material. We do not suggest that any strategy described herein is applicable to every client of or portfolio managed by SHGA. In preparing this material, SHGA has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you should consider, with or without the assistance of a professional advisor, whether the information provided in this material is appropriate in light of your particular investment needs, objectives and financial circumstances. Transactions in securities give rise to substantial risk and are not suitable for all investors. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.