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Planned giving, also known as legacy giving, is a type of charitable giving that involves making a commitment to donate assets to a nonprofit organization at a future date. This type of giving allows individuals to leave a lasting impact on their favorite charities and causes, while also providing potential tax benefits and financial planning advantages.

In this comprehensive guide, we will explore what planned gifts are, the different types of planned gifts, and how you can incorporate philanthropic planning into your financial strategy.

What Are Planned Gifts?

Planned gifts are donations that are arranged in the present but are not received by the nonprofit organization until a future date. These gifts are typically made through a will or trust, and can include assets such as cash, securities, real estate, or other valuable property.

Planned gifts are different from traditional donations, as they require more thought and planning. They are often made as part of an individual’s estate planning process, and can have significant tax benefits for both the donor and the nonprofit organization.

Types of Planned Gifts

There are several types of planned gifts, each with its own unique benefits and considerations. Some of the most common types of planned gifts include:

Bequests

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A bequest is a gift made through a will or trust, and is one of the most popular forms of planned giving. This type of gift allows individuals to leave a specific dollar amount or percentage of their estate to a nonprofit organization.

Bequests can be made in a variety of ways, including:

• Specific bequest: A specific dollar amount or asset is designated to the nonprofit organization.
• Residuary bequest: The nonprofit organization receives a percentage of the remaining estate after all other bequests and expenses have been paid.
• Contingent bequest: The nonprofit organization receives the gift only if certain conditions are met, such as the death of the primary beneficiary.

Charitable Remainder Trusts

A charitable remainder trust (CRT) is a type of trust that allows individuals to donate assets to a nonprofit organization while still receiving income from those assets during their lifetime. After the individual’s death, the remaining assets are then transferred to the nonprofit organization.

CRTs can be set up in two ways:

• Annuity trust: The donor receives a fixed annual income from the trust.
• Unitrust: The donor receives a percentage of the trust’s value each year, which can increase if the trust’s value increases.

Charitable Lead Trusts

A charitable lead trust (CLT) is the opposite of a CRT, in that the nonprofit organization receives income from the trust during the donor’s lifetime, and the remaining assets are then transferred to the donor’s beneficiaries after their death.

There are two main types of CLT:

• Grantor: This form of CLT allows the grantor (donor) to take an income tax charitable deductible immediately. This deductible would be equal to the current value of the future payments that will be made to the charitable organization.
• Non-grantor: In this CLT the trust is considered the owner of the trust’s assets, rather than the grantor. The grantor cannot therefore make a deductible, but there are transfer tax benefits to this arrangement.

Life Insurance Policies

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Life insurance policies can also be used as a planned giving tool. Donors can name a nonprofit organization as the beneficiary of their policy, or they can transfer ownership of the policy to the nonprofit organization during their lifetime.

Benefits of Planned Gifts

Planned gifts offer several benefits for both the donor and the nonprofit organization. Some of the most significant benefits include:

• Tax benefits: Planned gifts can provide significant tax benefits for donors, including income tax deductions and estate tax deductions.
• Legacy: Planned gifts allow individuals to leave a lasting impact on their favorite charities and causes, ensuring their legacy lives on.
• Financial planning: By incorporating planned giving into their financial strategy, individuals can ensure their assets are used in a way that aligns with their values and goals.

How to Incorporate Philanthropic Planning into Your Financial Strategy

Incorporating philanthropic planning into your financial strategy can be a meaningful and rewarding experience. Here are some steps to help you get started:

Identify Your Values and Goals

The first step in incorporating philanthropic planning into your financial strategy is to identify your values and goals. What causes are important to you? What impact do you want to make in the world? By understanding your values and goals, you can determine which nonprofit organizations align with your beliefs and make a more significant impact.

Research Nonprofit Organizations

Once you have identified your values and goals, it’s time to research nonprofit organizations that align with them. Look for organizations that have a strong track record of making a difference in their respective causes and have a solid financial standing. Sites like Charity Navigator can help you assess nonprofits.

Consult with a Financial Advisor

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Consulting with a financial advisor can help you determine the best way to incorporate philanthropic planning into your financial strategy. They can provide guidance on the tax benefits of different types of planned gifts and help you create a plan that aligns with your financial goals.

Communicate with Your Family

It’s essential to communicate your philanthropic plans with your family to ensure everyone is on the same page. This can help avoid any potential conflicts or misunderstandings in the future.

Real-World Examples of Planned Giving

Planned giving has been used by many individuals to make a lasting impact on their favorite charities and causes. Here are some real-world examples of planned giving:

Warren Buffett

Warren Buffett, one of the world’s most successful investors, has pledged to donate “99%-plus” of his wealth to his charitable trust upon his death. Though his three children will be the trustees, Buffet states that the “trust’s charter will be broad.” As someone who has shown a dedication to personal philanthropy, his legacy will no doubt be a long one.

Joan Kroc

Joan Kroc, the widow of McDonald’s founder Ray Kroc, left a $1.8 billion bequest to The Salvation Army when she died in 2003. Her gift has helped fund the construction of community centers across the United States, providing resources and support to underserved communities.

Plan a Lasting Legacy 

Planned giving is a powerful tool that allows individuals to leave a lasting impact on their favorite charities and causes. By incorporating philanthropic planning into your financial strategy, you can ensure your assets are used in a way that aligns with your values and goals, while also providing potential tax benefits. Consider consulting with a financial advisor to determine the best planned giving options for you and your family.

While most of us cannot hope to plan gifts on the scale of Warren Buffet or Joan Kroc, it’s important to remember that even small gifts can have a big impact on the charities we support. For example, some nonprofits will accept donated vehicles in addition to planned gifts of cash, securities, or real estate. Investigate how you can make a difference with the money and assets you can’t take with you.