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November 25, 2003 at 07:00 PM
Each year, Americans give billions of dollars to support their favorite charities. Total charitable giving reached $240.92 billion in 2002, with 76.3% of that figure coming from living individuals, according to the American Association of Fundraising Counsels 2002 Annual Report on Philanthropy.
So, we know that our clients are giving. What many of them arent doing, however, is taking advantage of us and the strategies we can implement to help them give smarter. First and foremost, we need to know who those clients are.
The Connecticut Council for Philanthropy (www.ctphilanthropy.org) suggests that advisors should recognize that many of their clients may want to pass on their assets to a charitable organization. In particular, clients who come to mind are generally:
Unmarried;
Married without children;
Married couples who have independent children;
Widows;
People with an existing relationship to a cause or community organization;
People who are financially comfortable but not necessarily wealthy;
Owners of privately held companies; and,
Owners of appreciated securities or real estate.
There usually are two reasons for clients to consider taking advantage of a charitable giving strategy. One, the client has significantly appreciated, low basis assets and two, the client has money that he or she never intends to need or spend.
Private foundations and charitable remainder trusts are two of the more popular tools that financial advisors, along with their clients attorneys, recommend for charitable giving strategies.
Private Foundations. According to the PricewaterhouseCoopers Guide to Charitable Giving, a private foundation is a tax-exempt organization that is organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes but does not meet the broad public support requirements that would classify it as a public charity. Private foundations also are considered Section 501(c)(3) organizations. An individual or family often establishes a private foundation. In addition, many corporations establish foundations in their names.
The major difference between public charities and private foundations is the limitations on deductions. Another important difference is that most private foundations are subject to an excise tax on investment income each year.
You dont have to be an athlete or a celebrity to have a private foundation. If a client is interested in setting up a private foundation, be sure to work with an experienced tax attorney and accountant. Federal and state laws can be very complicated, and its necessary to follow them all to maintain the foundations tax-exempt status.
For example, there may be limits on who can be a director of the foundation. The founders probably can play a role in the operation of the foundation, and so can friends or relatives, but some outside oversight may be required. Tax laws can be tricky, too. There are limits as to how large a deduction one can take, in relation to his or her income, if he or she makes donations to a private foundation.
