Introduction to Planned Giving

By: Brian Tullio

My name is Brian Tullio and I am excited to introduce myself as the newest member of Fairway Wealth Management.  I am a licensed attorney, and I hold a Master of Laws in Taxation as well as a CERTIFIED FINANCIAL PLANNER ™ Certification.  After practicing law at a boutique tax law firm, I spent over four years at The Cleveland Clinic Foundation as a planned giving professional creating sophisticated charitable plans for high net worth donors.  During that time, I experienced first-hand the dynamic and valuable advice financial advisors provide their clients.  I am thrilled to join the Fairway team, where I can utilize my unique professional expertise to help provide independent, sophisticated counsel to clients.

Until my time in philanthropy, I was unfamiliar with the phrases “planned giving”, or “gift planning”.  In short, the phrases refer to the process by which a donor can make a significant charitable contribution during their lifetime, or at death through their estate plan.  These types of gifts require additional thought and careful planning when compared to an average cash donation.  However, that additional planning is often time well spent, as planned gifts can yield significant financial and tax advantages.

Planned gifts can be broken up into three different categories: current gifts, deferred gifts, and split-interest gifts. 

1. Current planned gifts include contributions of stock, tangible personal property, or real estate.  These types of gifts convey several possible benefits including current year charitable income tax deductions, avoidance of capital gains tax, and providing an immediate impact to a cause or charity.  For example, a gift of highly appreciated stock serves as an excellent asset for charitable giving and Fairway generally advises clients to utilize appreciated stock for most sizable current gifts.  Not only would the donor receive an income tax deduction for the fair market value of the securities, but they also eliminate any potential capital gains tax they would have owed on the future sale of the securities.  With current planned gifts, it is important to coordinate with all advisors (legal, tax, and wealth) to ensure title is properly transferred and that negative tax consequences are avoided. 

2. Deferred planned gifts are a broad category that can include estate gifts effected through a will or trust, gifts of life insurance, or naming a charity as a beneficiary of a retirement plan.  By deferring a planned gift, the donor retains the use and enjoyment of that particular asset during their lifetime, but ensures that the charity is provided for after their lifetime.  A common example is naming a charity as a beneficiary of an estate plan.  This reserves those resources for use during life, provides for a potentially sizable grant to charity after life, and grants an estate tax charitable deduction, which reduces the estate tax for estates large enough to owe estate taxes.  Alternatively, naming a charity as the beneficiary of a retirement plan foregoes the expense of amending an estate plan, provides for a charitable cause, reserves resources during a donor’s lifetime, and eliminates the income tax that would otherwise be paid by a noncharitable beneficiary.    

3. Split-interest gifts are among the most complex planned gifts, but may convey significant tax benefits and serve as integral parts of an overall financial plan.  The most recognized split interest gifts are charitable gift annuities and split-interest charitable trusts.  As the name implies, split-interest gifts benefit both charitable and noncharitable beneficiaries.  Perhaps the most significant feature of these gifts is the reservation of an income stream for the donor, or another noncharitable beneficiary, which makes this an attractive gift for donors who depend on an income stream to maintain their lifestyle.  Additionally, split-interest gifts may also defer capital gains tax, remove assets from a donor’s estate tax base, effectively preserve and transfer assets for future generations, and create a charitable income tax deduction. 

An example may help illustrate the complexity and benefit of split-interest gifts.  A charitable remainder trust (“CRT”) is a type of split-interest charitable trust that provides lifetime income and the choice of charitable beneficiaries.  The donor makes an irrevocable contribution of property to a charitable trust.  Such property can include cash, stocks, real estate, and even private business interests.  The donor chooses an income beneficiary of the trust, and whether that interest will last for their lifetime, or for a term of years (not to exceed twenty).  That income beneficiary will receive a certain amount each year, depending on if the trust is an “annuity trust”, where they will receive fixed payments, or a “unitrust” where they will receive a fixed percentage based on the value of the trust assets.  After the lifetime of the noncharitable beneficiary or the term of years expires, all assets remaining in the trust are distributed to the charitable beneficiary. As opposed to naming a specific charitable beneficiary, the donor could alternatively select a Donor Advised Fund to receive the remaining assets, to retain greater flexibility over the distribution of future grants.  The donor will have received a charitable income tax deduction, created an income stream for themselves or a beneficiary of choice, and removed assets from their estate.  A CRT can also be a way to diversify out of low-basis assets, as assets sold within a CRT are not subject to immediate capital gains tax.  Overall, the CRT is an excellent option for donors seeking an immediate charitable deduction and willing to part with assets eventually, but wanting to retain an income stream during life.

Planned giving can be summed up conceptually in one word: flexibility.  There are a diverse range of gifting options that can be tailored to each donor’s particular goal and financial circumstance.  We always engage a client’s entire team of advisors to select and implement the proper gifting techniques, ensure continuity for a client’s financial plan, and maximize the benefit conveyed to both the client and charity by the philanthropic plan.