Charities operate primarily on the donations they receive. However, it can be difficult for an organization to run at maximum efficiency if it doesn’t know how much funding it will receive from year to year. To help enable better efficiency, many large donors set up charity vehicles designed to grow over time and provide regular funding for specific organizations year after year. In short, it’s a form of gifting that keeps on giving.
One such vehicle is the donor-advised fund. This type of fund is set up as an investment account at a brokerage firm or large foundation and is managed by a professional money manager. Donors receive an immediate tax deduction for their contributions to the donor-advised fund. They also may recommend which charities they’d like the fund to support. Money that remains in the fund is invested so it has the potential to grow, tax-free. Please remember that investing involves risk, including the potential loss of principal.
Another way to potentially increase philanthropic gifts is with a charitable remainder trust (CRT). With a CRT, the donor establishes a trust and transfers assets such as cash or securities out of his estate to be managed by the trust — for which he receives an immediate charitable income tax deduction. The donor names an income beneficiary, which is often the donor, and at least one charitable remainder beneficiary.
The income beneficiary will receive an annual income amount for a specific number of years or until his death, as specified by the trust. At the end of the term, all remaining assets are transferred to the charitable remainder beneficiary. This strategy enables a retiree to leave a legacy donation to a charity he or she supports while receiving an income stream throughout retirement.
Tips to Help Evaluate Charities
In 2015, the Federal Trade Commission filed a complaint against the Cancer Fund of America, Cancer Support Services, the Children’s Cancer Fund of America and the Breast Cancer Society. While these might sound like legitimate organizations, the FTC alleged that they scammed $187 million from donors by retaining up to 85 percent of contributions for fundraising expenses and employee compensation.
When deciding what charities to support, it’s a good idea to find out what percentage of funds received are devoted to “overhead expenses” and how much goes to the charitable cause. The following websites can help you gather information and make informed decisions.
- BBB Wise Giving Alliance (give.org)
- Charity Navigator (charitynavigator.org)
- GuideStar (guidestar.org)
- GiveWell (givewell.org)
The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice. Contact us at info@securedretirements.com or call us at (952) 460-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.
