Every day thousands of New York residents give donations of all sizes to popular charities. From dropping a few bucks in a local red bucket during holiday season to making multi-million dollars gifts to universities and everything in between, millions of residents are committed to giving a portion of their wealth to others.
Charitable giving is an important part of many long-term financial plans and estate planning efforts. While giving to charity may seem like a straightforward process–no different than buying a birthday gift–in reality, these donations can be structured in sophisticated ways to benefit both the donor and donee. New Yorkers are advised to speak with legal professionals to learn about their options.
Donor Advised Funds
Recently, Forbes discussed a rise in using one particular method of giving to a charity known as “donor advised funds.” The author notes that these funds were colloquially referred to in the past as the “poor man’s private foundation.” These funds are simply legal vehicles which are created to manage the charitable giving of an entity (or family or individual). The fund has some tax advantages as compared to direct charitable giving but come with less cumbersome administrative details as private foundations. In addition there are fewer distribution rules. Private foundations usually must give out 5% of their assets annually, while donor advised funds have more flexibility on when and how much to give out.
A recent 2013 Donor Advised Fund report released by the National Philanthropic Fund illustrates that use of these tools is rapidly increasing. Specifically, the report explains how in the last year alone, the total assets held in these funds went from just over $38 billion to nearly $45.35 billion. In addition, in the last five years there was an increase of about 40,000 individual fund accounts.
Some speculate that use of these funds skyrocketed in 2012 as a result of uncertainty related to the extent of charitable tax deductions allowable under federal law. Use of these funds is, in essence, a way of “pre-giving” in order to ensure that the deduction will apply. The tax deduction can be taken when the money is moved to the fund, even though it does not have to be given to charity until later. Those tax rule changes did not take effect in 2012, though proposals are still on the table which may curb the overall tax benefit of charitable giving moving forward.
Contact our NY estate planning attorneys today for help weaving charitable giving into your estate plan.