I am often asked to explain various charitable tools. I do so reluctantly. Tools come last, after you have gotten to know the donor and what they want in life, for society, for themselves, family, and others. If you want to glance at the tools, and get a sense of what they do, that would be good. Just remember that explaining the tools and using them as part of an overall plan is the advisor's job. If you are a do-it-yourselfer, take up carpentry instead. Discussed or illustrated here are Charitable Remainder Trusts, Gift Annuities, Charitable Lead Trusts, Life Estate Reserved, and Foundations and their Alternatives.
Numbing? Yes! Intimidating? Yes? Daunting? Yes! That is why, I really think that charities and donors should put relationship and caritas way ahead of tools. Once you know what you want to accomplish from now until dusty death, and what legacy you want to leave for family and society, what kind of impact you want to have, then the tools will come into focus as means to those noble ends.
What you see here, friends, is the problem, the dysfunction, in miniature, the missed opportunity. If your own blood runs cold reading the technical stuff, so will other caring peoples'. Keep it focused on ends. Make friends in the advisor community. Forgive them for being so technical. Forgive them for these printouts, and the rest of the necessary tax rigmarole. Use the advisor to find the means to the ends. But, here among friends, let us try to keep the flame of love burning, because when that goes out, the rest is dust.
Charitable Remainder Annuity Trust
Just to show you what an illustration for a CRAT looks like. You can learn the basics by reading the printout. Typically, a CRAT is of interest to older donors who want to help a charity, and seek a fixed income, which may be higher than the income on their current holdings. May work well for a donor with a large block of highly appreciated stock. At the end of the trust term (the death of husband and wife here), the "remainder" of the trust assets go the charity. Donor's get a partial income tax deduction for their gift.
Charitable Remainder Unitrust
Again, as with a CRAT donor puts assets, say, appreciated publicly traded stock into the trust, and gets back and income. With a CRAT the income is fixed, with a CRUT it rises and falls with the investments inside the trust, as they grow or shrink. Donor gets a partial income tax deduction. Charity gets the "remainder" at death of the donor, or donor and donor's spouse, in the case illustrated.
What is illustrated here is a large gift, but very often annuities are of interest to older donors who want to make a gift of $10,000 -$50,000. The donor might have a CD or appreciated stock, and not be getting much income. With a gift annuity the income might be higher. At the end of the term, usually donor's death, or donor and spouse's death, what's left reverts to the charity. The gift annuity is an unsecured promise to pay by the charity to the donor. In many states a charity needs a license to provide these, and they may be subject to state regulation. Frank Minton is a consultant, by the way, who specializes in setting up such programs. The charity has to outlive the donor to keep the promise. So, the donor has to look for a robust charity for these. A donor, who loves feisty trouble-making grassroots org (God bless her!) might consider getting a gift annuity through a community foundation and asking is they would roll the balance into a donor-advised fund. Then the donor might appoint, with the community foundation's permission, someone after she is gone to "advise" on where the money should go. That person would then sprinkle the money around among grassroots charities per the donor's intention. Will community foundations do this? You would have to work locally. Activists who care about building an infrastructure for progressive causes might want to organize a posse and go talk to Tides, say, about doing this. Right now, the obvious place to get a gift annuity would be big solid university, or a big national charity.
Charitable Lead Trust
Advanced tool used by very wealth families (Think Jackie O) to reduce estate tax while getting money to charity. Donor puts in an asset, an income goes to charity for a term of years, and then the balance, most often, goes to heirs. The net result, if all goes according to plan, is that charity gets an income stream, and the heirs pay less estate tax.
Life Estate Reserved - Live in the House and Give it
Interesting idea for an older person or couple. They can give away their house and keep the keys. That is, they live there for life, and then the property goes to charity. In the meantime they get a partial income tax deduction.
Foundations and Related Entities
Wrote a piece on this topic that tries to balance the technical and the humane.