Charitable Trusts and Other Special Gift Options

The following suggestions come from Merrill Lynch.

Charitable Gifting

Charitable gifting can be an important element of your tax, estate and legacy planning. Strategies include grant-making techniques, such as donor-advised funds and family foundations, as well as retained income techniques, such as charitable remainder trusts, charitable gift annuities and pooled income funds. In addition, wealth transfer techniques, such as charitable lead trusts, enable families to support their current philanthropy while transferring wealth to succeeding generations in a tax-advantaged manner.

There are virtually no limits to the amount of cash or securities that you can give to charities, although there may be annual limits to the amount you can deduct. There are a variety of gifting strategies that can help you lower your tax liability today, as well as allow you to remove highly appreciated assets and future appreciation from your estate. 


Donor-advised funds

Including your children and grandchildren in planned gifting strategies is an excellent way of teaching future generations to think beyond themselves and make a difference in multiple communities. Both donor-advised funds and private family foundations can be used to involve family members in philanthropy.

Contributions to donor-advised funds are irrevocable and tax-deductible for the year in which you make the contribution. Donated assets are removed from your taxable estate, avoiding potential gift and estate taxes on those assets. You may authorize charitable distributions from your fund at any time to nonprofit organizations anywhere in the U.S. Furthermore, you can name successor advisors to continue your legacy.

Merrill Lynch offers the Merrill Lynch Community Charitable Fund(r) program, which provides a distinctive array of benefits through its collaboration with many community foundations, including access to information about the nonprofit grantees you choose. In addition, leading professional investment managers available through Merrill Lynch help build the charitable assets over the life of your fund. Your donor-advised fund through the Merrill Lynch Community Charitable Fund program can be funded with a minimum initial contribution of $25,000 in cash or stock. Additional contributions must be at least $1,000. 

Private family foundations

For clients with substantial assets, creating a private family foundation also offers a significant philanthropic opportunity that can include other family members. While private foundations provide important tax benefits and give donors greater control over how assets are invested and distributed, they also require significant legal and tax expertise to create and manage the foundation's mission. 

Retained Income

Charitable remainder trusts

A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust funded with contributions of cash and/or appreciated assets. If you contribute highly appreciated stock, the trustee may sell the shares tax-free and reinvest the proceeds to create a diversified portfolio. CRTs can be structured to provide a payment stream to you during your lifetime and to distribute the trust assets to charity at a later date.

Other retained income strategies

In addition, many institutions offer programs that allow donors to receive income from their gift. Charitable gift annuities and/or pooled income funds enable donors to contribute to the organization, receive an income and estate-tax deduction, retain an income from the gift and ultimately distribute the asset to support the institution. 

Wealth Transfer

Charitable lead trusts

A charitable lead trust (CLT) uses your assets to provide a payment stream for a charity during your lifetime and then transfers the assets to you or heirs of your choice.

You donate money or other assets to the trust, which uses those assets to make distributions to a designated charity for your lifetime or for a specified period of time. Distributions can be made through a unitrust or an annuity trust.

A unitrust values the trust's assets annually and pays the designated charity a fixed percentage of that amount.

An annuity trust pays the charity a fixed annual amount, based on initial funding, regardless of the trust's year-to-year value.

At the end of the trust period, the principal reverts either to you or to any designated beneficiaries. Most CLTs transfer assets to beneficiaries other than the original donor. This is called a nongrantor lead trust. With a grantor lead trust, the principal generally reverts to the donor.