Jason Marx, Partner in Tax, Trusts, and Estates at Mandelbaum Barrett PC, introduces us to the Thompsons, a couple deeply passionate about education and animal welfare. They have decided to leave a portion of their estate to their favorite charities and are exploring the best ways to make this happen. Like many others who wish to leave a meaningful impact, the Thompsons are navigating the various options available for charitable planning to ensure their legacy aligns with their values.
Charitable planning offers several pathways, each with its unique benefits and considerations. Here’s a breakdown of the options Jason mentions:
Direct Charitable Donations
The simplest and most straightforward method is to make charitable donations directly to their chosen organizations during their lifetime. This approach allows the Thompsons to see the impact of their generosity while also receiving income tax deductions for their contributions. With minimal cost beyond the donation itself, this method is efficient and immediate, allowing the Thompsons to engage directly with the causes they care about.
Charitable Trusts
For those looking to integrate charitable giving into their estate planning, setting up a charitable trust is an effective option. The Thompsons can choose between a Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT). A CRT allows the Thompsons to receive income from the trust during their lifetimes, with the remaining assets going to their selected charities upon their passing. Conversely, a CLT provides income to the charities first, with the remainder going to non-charitable beneficiaries, such as family members, after a specified period. These trusts offer the Thompsons flexibility in how they balance their charitable goals with the financial needs of their beneficiaries.
Private Foundation
Another avenue the Thompsons are considering is creating a private foundation. A private foundation is a charitable organization funded and managed by the Thompsons. They can make contributions during their lifetime or arrange for their estate to fund the foundation after their passing. This foundation would then have the obligation to make annual distributions to public charities. This option allows the Thompsons to maintain significant control over how their charitable contributions are allocated, ensuring their legacy is carried out according to their wishes.
Donor-Advised Funds (DAF)
Lastly, the Thompsons might explore the creation of a donor-advised fund (DAF) through their financial advisor. A DAF is a charitable giving vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. This option is often appealing because it combines the benefits of a private foundation with less administrative burden and lower costs.
The Thompsons’ journey into charitable planning highlights the importance of thoughtful estate planning. By considering these various options, they can ensure that their passion for education and animal welfare continues to make a difference long after they’re gone. Whether through direct donations, charitable trusts, a private foundation, or a donor-advised fund, the Thompsons can create a lasting legacy that reflects their values and supports the causes they hold dear.
At Mandelbaum Barrett PC, our Tax, Trusts, and Estates team is here to guide you through the complexities of estate planning, you can reach Jason at 973-607-1271 or via email at jmarx@mblawfirm.com