Introduction to Planned Giving

Planned Giving vs. Major Giving Why You Need a Gift Planning Program

Introduction to Planned Giving

Published December 5, 2024

Planned giving is a powerful way for individuals to make a lasting impact on the causes they care about. It allows donors to support charitable organizations through carefully arranged gifts that align with their financial goals and philanthropic values.

Unlike immediate donations, planned gifts are often made through a will, trust or other giving vehicle, and can include assets such as cash, securities, real estate or even life insurance policies.

These gifts not only help secure the future of nonprofit organizations but also offer donors various financial and tax benefits. By strategically planning their charitable contributions, donors can leave a legacy that supports their chosen causes for years, or even generations, to come. Planned giving provides an opportunity for individuals to create a meaningful and enduring connection with the causes they value.

In this article, we will explore the different types of planned gifts, the benefits they provide to both donors and nonprofits, and how to maximize the impact of this meaningful form of philanthropy. Whether your donors are considering a planned gift or seeking to understand how such gifts can enhance an organization's mission, it's essential they have a thorough understanding of all options available to them.

1. Beneficiary Designation

A beneficiary designation allows donors to name individuals or organizations to receive the funds in their financial accounts such as checking, savings, CDs, investments or retirement accounts after their passing.

This process involves completing a simple form, often provided by the account administrator, which typically takes only a few minutes. Donors retain full control of their accounts during their lifetime and can modify their designations at any time to reflect changes in their preferences.

This option is ideal for anyone holding accounts with financial institutions who wants an easy and cost-free way to leave a legacy. Beneficiary designations ensure a smooth transfer of funds without the need for probate, providing privacy and flexibility while preserving a donor's ability to use the assets as needed during his or her life.

Examples:

University: A donor's life insurance policy names the university as a beneficiary, helping to fund a student scholarship endowment in perpetuity, focused on first-generation college students.
Museum: The donor names the museum as the beneficiary of his 401(k) plan, ensuring that the museum's collection of contemporary art continues to grow with a substantial gift dedicated to acquisitions and gallery space.

2. Charitable Bequest

A charitable bequest is a promise made in donors' wills, living trusts or codicils to donate a specific amount, asset or percentage of their estate to a charitable organization upon their passing. It's an excellent option for those who want to create a philanthropic legacy without impacting their financial resources during their lifetime.

This planned gift is highly flexible, allowing donors to modify or revoke their intentions if their financial situation or priorities change.

Examples:

Historical Society: The donor makes a charitable bequest that will allow the historical society to create a scholarship fund for students studying local history and preservation, ensuring future generations can learn about and protect the organization's heritage.
Youth Sports League: A donor's bequest establishes a new scholarship fund, allowing underprivileged children to participate in the league, promoting fitness and teamwork among youth from all backgrounds.

3. Charitable Remainder Unitrust (CRUT)

A Charitable Remainder Unitrust (CRUT) allows donors to support charitable causes while receiving income during their lifetime or a specified term of years. Donors transfer assets such as cash, securities, or real estate into a trust, which then pays out a fixed percentage of the trust's value annually to the donor or other designated beneficiaries. At the end of the trust term, the remaining assets are distributed to the designated charitable organization(s).

CRUTs are irrevocable trusts, meaning they cannot be altered after creation, ensuring a lasting commitment to both personal income needs and philanthropic goals. They offer several financial benefits, including an immediate charitable income tax deduction, the potential for capital gains tax avoidance on appreciated assets, and the ability to reduce estate taxes.

CRUTs are especially effective for those holding highly appreciated assets or looking to diversify their portfolios without incurring immediate tax burdens.

Examples:

Wildlife Conservation Organization: A donor transfers appreciated stock to a CRUT, using the income to support her retirement while ensuring the organization receives a major gift to fund a new wildlife sanctuary.
Low-Income Housing Organization: A donor uses a CRUT to generate income during retirement, with the remainder going to a nonprofit that builds affordable housing for low-income families.

4. Charitable Remainder Annuity Trust (CRAT)

A Charitable Remainder Annuity Trust (CRAT) is a giving strategy that allows donors to receive fixed annual payments from a trust they establish, while ensuring the remaining assets are distributed to nonprofits after the trust term ends. Donors contribute cash, securities or other assets to the trust, and in return, receive a consistent fixed income stream for life or a set number of years.

CRATs are irrevocable, meaning the terms cannot be changed once established, making them a dependable way to balance personal financial security with philanthropic intentions. They provide several benefits, including an immediate charitable income tax deduction, potential avoidance of capital gains tax on appreciated assets, and reduction of estate taxes.

This option is ideal for donors seeking steady, predictable income in retirement or for other financial planning purposes. CRATs also offer the satisfaction of creating a long-term charitable impact while maintaining control over the trust's income distributions.

Examples:

Animal Rescue Organization: A donor funds a CRAT with appreciated stock, receiving annual income while ensuring the organization receives a major gift to expand its rescue services.
Public Radio Station: A donor creates a CRAT with a cash gift, using the income to supplement retirement savings and leaving a lasting legacy by establishing a fund for investigative journalism programming.

5. Sale and Unitrust

The Sale and Unitrust strategy combines the benefits of a charitable remainder unitrust (CRUT) with the sale of a valuable asset, allowing donors to unlock its full potential while avoiding immediate capital gains taxes. Donors contribute a portion, or all, of a highly appreciated asset, such as real estate or business interests, to a CRUT. The trust then sells the asset, avoiding capital gains tax on the sale, and reinvests the proceeds to generate income for the donor or other designated beneficiaries.

The trust provides annual income based on a fixed percentage of its value, which is revalued annually. At the end of the trust term, the remaining assets are distributed to the donor's chosen charitable organizations.

This option is ideal for donors with highly appreciated assets who wish to diversify their portfolios, create an income stream, and make a significant charitable impact. It offers substantial financial benefits, including cash proceeds from the sale, a charitable income tax deduction, and potential capital gains tax avoidance.

Examples:

Veterans' Support Organization: A donor uses the Sale and Unitrust strategy with shares in a family business, generating income from the CRUT for retirement and leaving the remainder to fund a new rehabilitation program for veterans.
Homeless Shelter: The donor contributes a rental property to a CRUT that will pay income for life and leave the remainder to fund a nonprofit that provides shelter and care for the homeless in the area.

6. Give It Twice Trust

With a Give It Twice Trust, often structured as a charitable remainder unitrust (CRUT), donors directs their estate to fund a trust with assets such as cash, securities or real estate, which are sold by the trust without incurring immediate capital gains taxes.

Upon the donor's death, the trust begins distributing income to the donor's heirs for a set number of years. After this period, the remaining assets go to the donor's chosen charitable organization(s).

This strategy allows donors to "give it twice" first to their heirs through income distributions, and then to the charitable organizations they wish to support. It provides several financial benefits, including an immediate charitable income tax deduction, potential capital gains tax savings, and the ability to reduce estate taxes.

Examples:

Performing Arts Center: The donor establishes a CRUT to be funded with cash at death and to pay income to her nieces and nephews for 12 years. Any remaining assets will go to fund a nonprofit theater arts center.
Historical Society: A donor funds a Give It Twice Trust through their estate using real estate. The CRUT will pay income to her siblings for 15 years with the remainder going to fund a nonprofit that preserves local history through archival preservation and community exhibits.

7. Pooled Income Fund

A Pooled Income Fund (PIF) allows donors to combine their contributions with those of other donors in a managed fund. Donors transfer cash, securities or other assets to the fund, and receive annual income based on their share of the fund's earnings for the rest of their lives. Upon the donor's passing, their remaining contribution in the fund is directed to the charitable organization(s) they designate.

This type of gift offers several benefits, including an immediate charitable income tax deduction and the potential to avoid capital gains taxes on appreciated assets. It also provides an income stream for life while enabling donors to make a significant philanthropic impact.

This option is ideal for donors who wish to support charity while generating lifetime income in a way that is simple, tax-efficient, and aligned with their values. Additionally, Pooled Income Funds provide an opportunity for donors to maximize their legacy by joining forces with others to support causes that matter most to them.

Examples:

Community Health Clinic: A donor contributes appreciated stock to a Pooled Income Fund, receiving lifetime income and ensuring any remaining funds go to a community health clinic to provide expanded services for uninsured patients.
Wildlife Conservation Organization: The donor uses cash to join a Pooled Income Fund, receiving quarterly income with directing that any remaining funds go to a nonprofit's global wildlife protection efforts.

8. Unitrust and Special Needs Trust

A combination of a Charitable Remainder Unitrust (CRUT) and a Special Needs Trust (SNT) allows donors to provide for a loved one with special needs while also making a lasting charitable impact. This strategy involves funding a CRUT, which provides income to a Special Needs Trust for the lifetime of the beneficiary. At the end of the CRUT's term, the remaining assets are distributed to the donor's chosen charitable organizations.

This approach offers significant financial benefits, including an immediate charitable income tax deduction, potential avoidance of capital gains taxes on appreciated assets, and the opportunity to reduce estate taxes.

This option is ideal for donors who want to support a loved one with special needs and ensure that their philanthropic legacy aligns with their values. Additionally, combining a CRUT with an SNT reflects the donor's commitment to both their family and the broader community.

Examples:

Therapeutic Riding Center: A donor contributes appreciated stock to a CRUT, with income directed to a Special Needs Trust for his niece. After the niece's lifetime, the remaining assets fund a riding center's equine therapy program for children with disabilities.
Science Museum: A donor funds a CRUT with cash, providing lifetime income to a Special Needs Trust for her son while ensuring a science museum receives the remainder to expand STEM education exhibits.

9. Charitable Gift Annuity

A Charitable Gift Annuity (CGA) is a contractual arrangement where donors donate cash or appreciated assets to a charitable organization in exchange for fixed lifetime payments. These payments are often tax-advantaged and are calculated based on the age of the beneficiaries at the time of the gift. A CGA is particularly appealing to donors seeking reliable income, especially from underperforming assets such as appreciated stock or cash earning little to no interest.

This gift option provides financial comfort, as payments remain stable throughout a donor's life. Upon the donor's passing, any remaining funds support the organization's mission. Additionally, donors can enjoy an income tax deduction and potential capital gains benefits at the time of the gift. The option to defer payments to a later date can increase the payout rate, offering even more flexibility.

For donors considering CGAs, the sense of partnership with the beneficiary organization is often rewarding. Knowing that the proceeds of the annuity will support meaningful projects aligns personal financial stability with philanthropic purpose.

Examples:

Hospital: A donor sets up a CGA with a hospital to provide him with steady income throughout his lifetime, while ultimately funding a new wing dedicated to palliative care after his passing.
Museum: A donor establishes a CGA that will support an art conservation program, receiving stable income during her lifetime and ensuring rare artwork is preserved and accessible to future generations.

10. IRA Rollover

An IRA rollover gift, also known as a Qualified Charitable Distribution (QCD), allows donors aged 70� or older to make a tax-savvy charitable contribution while securing a fixed income stream for life. A donor can transfer up to $108,000 in 2025 directly from his or her IRA to charity.

This giving strategy offers a way to meet Required Minimum Distribution (RMD) obligations while avoiding income taxes on the transferred amount, all while supporting meaningful causes and ensuring financial stability for the donor.

There are also options where a donor can make a qualified charitable distribution gift to fund a life income plan such as a charitable gift annuity.

Examples:

University Alumni Fund: The donor makes an IRA rollover gift, which counts against their RMD, to fund student scholarships at the university.
Healthcare Foundation: A donor uses an IRA rollover to support free cancer screenings for underserved communities at a healthcare foundation.

11. Family Charitable Lead Trust

A Family Charitable Lead Trust (CLT) allows donors to make a meaningful charitable contribution while minimizing estate and gift taxes for their heirs. The donor transfers assets to a trust, which then makes regular payments to one or more nonprofit organizations for a set period. After the trust term ends, the remaining assets are passed on to the donor's beneficiaries, often with reduced gift and estate tax liability.

This gift is ideal for individuals looking to leave a lasting legacy for both their chosen causes and their heirs. The donor can fund a CLT with various assets, including cash or securities while benefiting from a tax deduction.

Examples:

Wildlife Conservation Fund: A donor establishes a CLT to support wildlife preservation efforts for 10 years, with the remaining trust assets benefiting his children after the term expires.
Public Library System: A donor funds a CLT to provide annual grants for library expansions and educational programs, with the remaining assets going to her children.

12. Life Estate Reserved

With a Life Estate Reserved, a donor transfers ownership of property to a charitable organization while retaining the right to live in and use the property for the remainder of his or her life. This arrangement allows donors to continue enjoying their home or land during their lifetime, while ensuring that the property will ultimately benefit the charity once they pass away.

This gift offers both a philanthropic opportunity and potential tax benefits, including a charitable income tax deduction based on the value of the remainder interest transferred to the charity.

Examples:

Soup Kitchen: A donor transfers ownership of a historic home to a soup kitchen where he volunteers, but continues to reside there. The soup kitchen has the ability to sell the home and use the proceeds to further its work once the donor passes away.
University: A donor gives her home to the university, while continuing to live there. This ensures that the home will later be used as the donor intends to host visiting scholars at the university.

In the next article - Planned Giving vs. Major Giving - we will examine the key differences between planned gifts and major gifts.