What Is a Planned Giving Program & How Does It Work?

Planned giving represents a sophisticated approach to charitable contributions, often integrated into an individual’s broader financial and estate planning. This strategy allows donors to make substantial gifts that may extend beyond their lifetime, creating a lasting impact on non-profit organizations. It serves as a means for individuals to align their philanthropic aspirations with their financial objectives, ensuring long-term support for causes they care about. These contributions are distinct from annual or one-time donations due to their forward-looking nature.

Defining Planned Giving

Planned gifts are deferred, with their full realization often occurring in the future, such as upon a donor’s passing or a specified event. Planned giving involves careful financial, tax, and estate planning. Many forms of planned gifts involve an irrevocable commitment, which cannot be easily reversed once established. This giving allows individuals to create a lasting legacy, often referred to as “legacy giving,” by making a significant impact beyond their lifetime. Gifts can be directed to “endowment funds,” which are investment portfolios where the principal is preserved, and only the investment earnings are used to support charitable activities, ensuring a sustainable source of income for the organization.

Key Planned Giving Instruments

Planned giving encompasses various financial instruments, each offering distinct benefits for the donor and recipient organization.

Bequests, or gifts made through a will or trust, represent one of the most common and straightforward forms of planned giving. A donor can designate a specific amount, a percentage of their estate, or particular assets to a charity in their last will and testament. This method is simple to arrange and can be modified during the donor’s lifetime, with the gift being realized upon their death. Such gifts are exempt from estate taxes, providing a tax-efficient way to support a chosen cause.

Charitable Remainder Trusts (CRTs) involve a donor irrevocably transferring assets into a trust. The trust then provides an income stream to the donor, or other designated beneficiaries, for a specified period, which can be for life or a term of up to 20 years. Once the trust term ends, the remaining assets are distributed to the designated charity. Donors may receive an immediate partial income tax deduction when funding the trust, and the assets placed in the CRT avoid capital gains taxes upon transfer.

Conversely, Charitable Lead Trusts (CLTs) are structured to provide an income stream to a charity for a set period, after which the remaining assets revert to the donor or other non-charitable beneficiaries, often family members. CLTs can offer income, gift, or estate tax benefits, depending on their structure. A grantor CLT allows the donor to take an immediate income tax deduction for the present value of the payments to charity, though the donor is taxed on the trust’s investment earnings.

Charitable Gift Annuities (CGAs) are contractual agreements where a donor makes a gift of cash or property to a charity in exchange for fixed, regular payments for life, or for the lives of up to two annuitants. The payment rate is based on the annuitant’s age, with older annuitants receiving higher rates. A portion of the initial gift may qualify for an immediate income tax deduction, and a part of each annuity payment received is tax-free for a period. Funding a CGA with appreciated securities can help avoid immediate capital gains taxes on the transferred assets.

Gifts of life insurance policies offer another avenue for planned giving. A donor can name a charity as a beneficiary of an existing policy, or irrevocably transfer ownership of a policy to the charity. If ownership is transferred, the donor may be able to claim a charitable income tax deduction for the lesser of the policy’s value or their cost basis in the policy. Future premium payments made by the donor to maintain the policy may also be deductible. When the charity owns the policy, the death benefit is excluded from the donor’s taxable estate.

Donating retirement assets, such as IRAs or 401(k)s, can be particularly tax-efficient. For individuals aged 70½ or older, a Qualified Charitable Distribution (QCD) allows for a direct transfer of up to $108,000 per year from an IRA to a qualified charity. These QCDs are excluded from the donor’s gross income and count towards their Required Minimum Distributions (RMDs) for those aged 73 and over. This direct transfer avoids the income tax that would be due on IRA withdrawals.

Gifts of appreciated securities or real estate also provide notable tax advantages. By donating assets like stocks or property that have increased in value and have been held for more than one year, donors can avoid paying capital gains tax on the appreciation. Additionally, donors may claim an income tax deduction for the fair market value of the gifted asset, subject to certain adjusted gross income (AGI) limitations. This strategy can allow for a larger charitable contribution than if the assets were sold and the after-tax proceeds donated.

Implementing a Planned Giving Program

Non-profit organizations seeking to foster planned gifts establish structured programs. Such programs involve dedicated staff or volunteers, along with oversight from the organization’s board. Clear policies are developed to guide the acceptance and management of various gift types, ensuring gifts align with the organization’s mission and capacity.

Organizations collaborate with legal counsel and financial advisors to ensure compliance with tax laws and regulations, and to properly manage complex gifts. This external expertise helps navigate the intricacies of charitable trusts, annuities, and other instruments.

Maintaining strong relationships with planned giving donors through regular communication about the impact of their future gifts helps ensure donors feel valued and informed. Charities develop formal gift acceptance policies that outline the types of assets they can accept and any specific conditions attached to these gifts. Organizations also engage in marketing and educational efforts to inform potential donors about the various planned giving options and their benefits. This includes providing accessible information that simplifies complex financial concepts.

The Donor’s Journey in Planned Giving

An individual exploring planned giving embarks on a thoughtful process, beginning with a clear definition of their charitable intentions. Donors reflect on their philanthropic passions and the legacy they wish to establish, considering which causes or organizations resonate most deeply with their values. This initial reflection helps in identifying the specific impact they aim to achieve through their future gift.

Following the articulation of charitable goals, donors assess their personal financial situation. This involves a comprehensive review of assets, income needs, and existing estate plans. Understanding one’s financial landscape is important for determining the most suitable planned giving vehicle that aligns with both philanthropic desires and financial security.

A key step in this journey involves consulting with professional advisors, including financial planners, attorneys, and tax specialists. These advisors help integrate charitable goals with overall financial and estate planning strategies, ensuring the gift is structured to maximize its impact while potentially offering tax benefits. Their expertise helps navigate complex legal and financial considerations.

Donors then engage directly with the non-profit organization’s planned giving staff. This interaction allows for discussions about various giving options, tailoring the gift to meet both the donor’s objectives and the charity’s needs. The final stage involves documenting the gift through formal legal steps, such as updating a will, establishing a trust, or changing beneficiary designations on financial accounts. This ensures the gift is legally binding and will be executed according to the donor’s wishes.