4 Common Charitable Giving Vehicles Compared
Charitable giving can be one of the most rewarding ways to align your wealth with your values — but with so many vehicles available, it can be difficult to know which approach best fits your goals. Whether you’re seeking flexibility, control, or a lasting legacy, the right strategy can make a meaningful difference in both your impact and your financial plan.
Below, we explore four of the most common charitable giving vehicles — Donor Advised Funds, Private Foundations, Charitable Remainder Trusts, and Charitable Lead Trusts — and how each can help you give with purpose.
Vehicle #1 Donor Advised Funds
A.K.A a charitable gift fund, a Donor Advised Fund (DAF) is a type of investment account specifically designed to enable people to support charitable organizations. Through a DAF, you can contribute cash, equities, and alternative assets like cryptocurrency or private stock. You can potentially deduct up to 60% of your adjusted gross income when contributing cash.
Benefits
- Flexibility: There’s no deadline for when you must donate the funds to charity. Multiple people can contribute to the same DAF, allowing you to pool resources.
Downsides
- Less control: If you want to control exactly how your donations are used, a DAF may not be the right option for you. The charity determines how the funds are used, although you can make suggestions.
Vehicle #2 Private Foundation
The term “private foundation” may sound intimidating, but almost anyone can set one up, as long as it’s done properly. A private foundation is a legal entity created solely to
contribute to charity. It’s similar to a public charity, except that while a public charity can be supported through fundraising, a private foundation is funded by a single individual, family, or corporation.
Benefits
- Complete control: You determine the foundation’s mission, how funds are invested, where donations go, and even how the charity should use the money. Second, a foundation can exist in perpetuity. That makes it the ultimate way to establish a legacy that lasts for generations.
Downsides
- You need to keep an eye on it. It requires approval by the IRS, strict annual reporting, and you’ll need to form a Board of Directors to oversee the fund’s activities. Having to monitor a private foundation can be tricky and time consuming. It is not a “set it and forget it” option.
Vehicle #3 Charitable Remainder Trust (CRT)
With this vehicle, you contribute assets to a trust. The trust then makes yearly distributions back to you for a set number of years. After this period ends, all remaining assets pass to the charity or charities of your choice.
Benefits
- Income: If you want to make a significant donation to a charity, but can’t because it would have a negative impact on your cash flow, this may be the vehicle for you. By doing this, you ensure both an income stream for yourself and a legacy to whatever charities you support. (In some cases, this could even be your private foundation!).
Downsides
- One and done: A CRT is an irrevocable trust, meaning once it’s set up, you can’t change it later. Also, note that establishing a CRT requires an attorney and may not come with the income tax benefits of other vehicles.
Vehicle #4 Charitable Lead Trust (CLT)
A CLT is like a CRT, but flipped inside-out. With this vehicle, your designated charity receives regular payments for a fixed period of time. Then, whatever is left goes to your own family, exempt from any estate or gift taxes.
Benefits
- A potentially good option for those who want to balance charitable giving with their overall estate plan.
Downsides
- Not as flexible: It requires an attorney, and except under specific circumstances there are no income tax advantages. A CLT is also an irrevocable trust, limiting your flexibility.
No matter how you choose to give, what matters most is that your generosity makes a difference — for your community, your loved ones, and the causes closest to your heart. By understanding your options, you can find a strategy that feels right for you and helps your giving go even further.
If you’re ready to explore the best way to make your charitable goals part of your financial plan, our team at Hilltop Wealth Advisors is here to help you get started.
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