AIP Professional Series · Chapter 9 of 11 · Charitable Planning

Charitable Planning

The charitable planning toolkit — vehicles, tax benefits, and the clients for whom each is appropriate

Outright GiftsDonor-Advised FundsCRTsQCDs

Tax Efficiency + Philanthropic Goal

Charitable Planning Produces Genuinely Satisfying Client Outcomes

Charitable planning sits at the intersection of estate planning and tax planning in a way that often produces genuinely satisfying client outcomes: the client accomplishes a philanthropic goal, reduces their tax burden, and in some cases receives an income stream from assets they have donated. Understanding the charitable planning toolkit — the vehicles available, the tax benefits each produces, and the clients for whom each is appropriate — is an important estate planning competency even for attorneys who do not specialize in charitable planning.

Gifts of appreciated property to public charity produce a double tax benefit: the donor avoids capital gains tax on the appreciation and receives an income tax deduction for the full fair market value. A client who purchased stock for $10,000 that is now worth $50,000 can donate the stock to charity, deduct $50,000, and pay no capital gains tax on the $40,000 appreciation — significantly better than selling, paying capital gains, and donating after-tax proceeds. Verify current AGI limitation percentages before advising any client.

The Charitable Planning Toolkit

Donor-Advised Funds (DAFs). Donor contributes assets, receives immediate income tax deduction, advises the fund on grants over time. Assets grow tax-free. Most accessible and flexible vehicle for most clients. Particularly useful for front-loading a deduction in a high-income year while distributing grants over multiple years.

Charitable Remainder Trusts (CRTs). Irrevocable trust that provides an income stream to the donor or other non-charitable beneficiaries for a term or lifetime, with the remainder passing to charity. Donor receives an income tax deduction for the present value of the charitable remainder interest. Most beneficial for clients with appreciated assets, who want an income stream, and who have charitable intent.

Qualified Charitable Distributions (QCDs). IRA owners over 70½ can transfer up to a specified amount per year directly from an IRA to a qualifying charity. The distribution is excluded from income — neither deductible nor taxable. For clients who take the standard deduction, a QCD produces a better result than a deductible contribution because the charitable gift comes from pre-tax IRA assets. Counts toward RMD obligations. Verify current QCD limit against IRS publications.

Retirement assets for charitable bequests. Designating a charity as beneficiary of an IRA or 401(k) is particularly tax-efficient: the charity is tax-exempt and receives the distribution without income tax, while the estate receives an estate tax deduction for the full charitable bequest. Clients with both taxable estates and significant retirement assets often benefit from using retirement assets for charitable bequests and leaving non-retirement assets to family.

Verify all charitable planning figures and Code requirements: QCD limits, CRT minimum payout rates, CRT maximum terms, charitable deduction percentage limitations, and the Section 664 requirements for valid CRT status all require primary source verification before advising any client or implementing any strategy.

Ready-to-Use Prompts

Adapt for specific client matters. All tax figures require verification against current primary sources before any client use.

Charitable Planning Strategy

I have a client who wants to make a significant charitable gift. The client is [describe: age, approximate income, approximate net worth, nature of assets — cash, appreciated stock, real estate, retirement accounts]. The charitable organizations the client wants to support are [describe: public charities, private foundation, specific cause area]. Please help me develop a charitable planning strategy: (1) the charitable vehicles most appropriate for this client's situation and goals, (2) the tax benefits each vehicle produces, (3) any timing considerations, and (4) the primary Code sections I should verify before implementing any strategy. Flag all tax figures that require verification against current IRS publications.

QCD Planning Analysis

My client is [age] and owns a traditional IRA with [approximate value]. They have RMD obligations and also want to make charitable gifts. They [do / do not] itemize deductions. Please help me analyze: (1) how QCDs work and why they may be preferable to taking RMDs and then donating, (2) the specific eligibility requirements, (3) how QCDs interact with the RMD obligation, (4) the mechanics of directing the QCD to the charity properly. Flag the current QCD limit as requiring verification against IRS publications before advising this client.

Chapter Quiz

Charitable Planning

5 questions — no limit on attempts.