Charitable Giving Strategies Flashcards

What is the primary benefit of donating appreciated securities to a charity?

Answer: It allows donors to avoid capital gains tax and receive a deduction

Donating appreciated securities (like stocks held for over a year) directly to a charity offers significant tax advantages. Donors can avoid paying capital gains tax on the appreciated value of the securities, and they can also claim a charitable income tax deduction for the fair market value of the gift. This dual benefit maximizes both the donor's tax savings and the philanthropic impact.

Which charitable giving vehicle provides donors with lifetime income while supporting a charity?

Answer: Charitable remainder trust (CRT)

A Charitable Remainder Trust (CRT) is a planned giving vehicle where a donor transfers assets into a trust and, in return, receives income payments for a specified term or their lifetime. After this period, the remaining assets are distributed to the designated charity. This arrangement provides donors with a current income stream, a charitable tax deduction, and future support for their chosen cause.

What is the main advantage of using a donor-advised fund (DAF)?

Answer: It provides an immediate tax deduction and flexible donations

A Donor-Advised Fund (DAF) allows donors to make an irrevocable contribution to a public charity that sponsors the DAF, receiving an immediate tax deduction for their gift. The donor then retains advisory privileges over how and when grants are made to qualified charities over time. This offers significant flexibility in their giving strategy without the administrative burden of managing a private foundation.

Which type of charitable trust provides income to a charity for a set term before assets pass to beneficiaries?

Answer: Charitable lead trust (CLT)

A Charitable Lead Trust (CLT) provides income payments to a charity for a set number of years or for the donor's lifetime. After this charitable term ends, the remaining assets in the trust are returned to the donor or their non-charitable beneficiaries. This vehicle is often used to transfer assets to heirs with reduced estate or gift taxes while providing substantial support to a charity in the interim.

How can a private foundation benefit high-net-worth donors?

Answer: It allows donors to control investments and giving strategies

Private foundations offer high-net-worth donors significant control over their philanthropic endeavors. Donors can manage the foundation's investments, determine its grant-making priorities, and involve family members in its operations. This provides a lasting legacy and a highly personalized approach to charitable giving, allowing for deep engagement with their chosen causes.

What is a key tax advantage of making a qualified charitable distribution (QCD) from an IRA?

Answer: It reduces taxable income and satisfies RMDs

A Qualified Charitable Distribution (QCD) allows individuals aged 70.5 or older to donate directly from their IRA to a qualified charity. This amount is excluded from their gross income, thereby reducing their taxable income. For those aged 73 or older, QCDs also count towards their Required Minimum Distributions (RMDs), helping them satisfy this obligation without increasing their taxable income.