FIDELITY CHARITABLE SERVICES ®
Integrating Charitable Giving
Into Legacy Planning
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Today’s Objectives
 Provide an update on charitable giving trends
 Review income tax planning strategies
 Review estate planning strategies
 Discuss the benefits of donor-advised funds
 Learn about Fidelity Charitable Services®
Advisor Resources
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Update on
Charitable Giving Trends
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Growth in Charitable Giving
Growth in Charitable Giving
($ Billions)
$350
$300
$295
$306.4
2006
2007
$238
$250
$200
$139
$150
$105
$100
$83
$55
$50
$23
$32
$0
1971
1976
1981
1986
1991
Source: Giving USA 2007
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1996
2001
Charitable Assets in Structured Giving Vehicles
500
Only 15% of HNW households use structured
1
giving vehicles.
455.6
450
But, 52% of HNW individuals show an interest in
discussing charitable planning with an advisor.2
400
350
300
250
200
150
106.5
100
44.6
50
17.8
19.2
Corporate
Foundations
Donor-Advised
Funds
0
Private
Foundation
Charitable Trusts
Community
Foundations 3
1HNW
defined as households with $2MM+ in investable assets (all assets except primary residence, closely held business partnerships, restricted stock,
vested/unvested options, insurance and annuities, defined contribution assets)
22004
Fidelity Study on Wealth and Advice.
3 Includes
community foundation donor-advised fund assets. Charitable gift annuities are not included in the IRS Statistics of Income, Bulletin – Winter 2007
Sources: The Foundation Center’s Foundation Yearbook, June 2007; Chronicle of Philanthropy, May 2007; IRS Statistics of Income, Bulletin – Winter 2007
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Sources of Charitable Giving
2007 Sources of Charitable Giving
($ Billions)
Corporations
$15.69
Bequests
$23.15
7.6%
5.1%
Foundations
$38.52
12.6%
74.8%
Source: AAFRC Trust for Philanthropy/Giving USA 2008
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Individuals
$229.30
Legislative Environment

Pension Protection Act of 2006
contains several important charitable
provisions (August ’06)

The law includes:
• A statutory definition of “Donor Advised
Fund” as part of the Internal Revenue Code
• Charitable IRA Rollover provision to certain
qualified charities for taxpayers over 70½
• Special substantiation and deductibility rules
for certain charitable contributions
• An extension of rules surrounding “excess
business holdings” in donor advised funds

U.S. Treasury results from the review of DAFs is due in
late 2007

Increased scrutiny around taxation of carried interest
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442962.1.0
Evaluating Different
Structured Giving Vehicles
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Selecting the Right Giving Solution
Donor-Advised Fund
Split Interest (PIF/CRT*)
Private Foundation
 No start-up fees**
 PIF***: No start up fee
 CRT: Legal expenses to draft
documents, plus additional fees
 Start-up fees
 Typically no annual distribution is
required at account level****
 Provides income stream to noncharitable beneficiaries
 5% annual distribution for
charitable purpose required
 Generally does not include excise
taxes
 Income taxes to non-charitable
beneficiaries
 Excise taxes
 Deduction limitation 50/30 (federal)
 Capital gains tax avoided or deferred
 Deduction limitation 30/20
(federal)
 Generally, choice of anonymity or
recognition on grants
 Choice to name PIF or CRT as you
wish
 Create a legacy of giving
 Create a legacy of giving
 Donor-recommended distributions
and investments must be approved
by sponsoring charity’s board
 Control over distributions and
investment management (CRT only)
* Charitable Lead Trusts are not considered here.
** Sponsoring Charities for DAF programs will generally assess administrative fees.
***Fidelity Charitable Gift Fund Pooled Income Fund
**** Certain minimum account activity requirements generally apply.
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 Foundation information is publicly
available via IRS Form 990-PF and
www.grantsmart.org
 Create a legacy of giving
 Control over grants and
investment management
Private Foundation or Donor-Advised Fund?
Private
Foundation
Questions to Ask
1. Do you have $1 million or more to contribute?
2. Do you want control over the investments?
3. Do you want control over grantmaking?
4. Want to hire family to oversee your philanthropy?
5. Are you looking for simplicity?
6. Do you want the largest tax deduction possible?
7. Do you want the option to remain anonymous on
grants?
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Donor-Advised
Fund
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Regulatory Considerations
TYPE OF ASSET
ALLOWABLE DEDUCTION*
CASH
Private Foundation
30% of AGI
Charity with DAF program
50% of AGI
PUBLIC SECURITIES
Private Foundation
Charity with DAF program
OTHER SECURITIES
Private Foundation
Charity with DAF program
20% of AGI; generally
deductible at FMV
Key Regulations
If shares are subject to Rule 144, it
would continue to apply after those
shares are donated
30% of AGI; generally
deductible at FMV
Self-dealing and Excess business holdings
rules apply (IRC Sec. 4943)
20% of AGI; generally
limited to cost basis
30% of AGI; generally
deductible at FMV
*For assets other than cash, deductions assume that the property has been held at least 12 months; if held
less than one year, then deduction is generally limited to cost basis.
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Regulatory Considerations (cont.)
TYPE OF ASSET
ALLOWABLE DEDUCTION*
Key Regulations
PRIVATE COMPANY STOCK
20% of AGI; generally
limited to cost basis
30% of AGI; generally
deductible at FMV
Rule against self-dealing; excess
business holdings rule
Private foundation
20% of AGI; generally limited to
cost basis
Rule against self-dealing
Charity with DAF program
30% of AGI; generally
deductible at FMV
Private foundation
Charity with DAF program
REAL ESTATE
*For assets other than cash, deductions assume that the property has been held at least 12 months; if
held less than one year, then deduction is generally limited to cost basis.
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Considerations for Administrating Private Foundations

Monitor income and expenditures

Assist in monitoring, calculating, and distributing 5% annually

Verify the IRC Section 501(c)(3) status of potential grant recipients

Issue grant checks

Coordinate preparation of foundation’s federal return

Compliance monitoring
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Assets and Funding Considerations for a Private
Foundation

Tax deduction may be limited to cost basis for some assets, not fair
market value (FMV)

Foundation may need to liquidate assets to distribute required 5% of the
FMV of its investments each year

Self-dealing transactions

Jeopardy investments

Excess business holdings
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Unwinding a Private Foundation?
Time to unwind a Private Foundation?

Are the administrative responsibilities of your foundation too burdensome?

Would you prefer to remain anonymous on grants?

Are you bothered by constant solicitations for charitable grants?

Do family members disagree about grantmaking priorities?

Do you worry about who will run your foundation in the future?
Ways to unwind a Private Foundation?

Distribute assets into more than one entity

Merge or consolidate with another private foundation

Distribute assets to a public charity, such as one with a donor-advised fund
program
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What is a Donor-Advised Fund?

DAFs have been around since the 1930’s, but witnessed significant growth
starting in the 1990’s

One can make an irrevocable contribution to a charity with a DAF program
and be eligible for an immediate tax deduction, advise how their
contributions are invested, and recommend grants from their DAF to their
favorite charities, often with the option of remaining anonymous

A DAF allows your client to combine the most favorable tax benefits with the
flexibility to support their favorite charities on their own timetable

In the last decade, many people have discovered that with a DAF, they are
able to better support their favorite charities
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How to Establish a Donor-Advised Fund
Step 1
Donor establishes DAF with contribution to charity.
Donor names DAF and designates Account Holders, who
have recommendation privileges over the DAF.
Step 2
Charity accepts additional contributions from donor and
3rd-party contributors for allocation to the DAF.
Step 3
All donors may be eligible for an immediate
tax deduction for their irrevocable contributions.
Step 4
Account Holders recommend grants to qualified charities.
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Benefits of Donor-Advised Funds
Financial benefits
Potential immediate federal income tax deduction*
Usually no tax on appreciation of donated capital gain property
Ability to support multiple charities from the proceeds of the sale
of a single block of stock
Flexibility to recommend charitable grants on donor’s own timetable
(often subject to minimum grant activity requirements)
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

Personal benefits
Consolidate charitable giving
Instill a spirit of giving in future generations
Build a charitable legacy by naming successors to assume
privileges over the DAF
Enable more support to charities
* You may need to itemize deductions and certain other limits may apply
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Complement to a Private Foundation
Advantages of public charity with a DAF program:

Helps to groom children to run a private foundation – teaches them
about philanthropy

Maximizes charitable tax deductions

Fund private foundation up to the limit
and

Contribute to a public charity with a DAF program for the difference
between the deduction limits of the two
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Combining DAFs with Split-Interest Giving Vehicles
Donates Assets
Charitable
Remainder
Trust (CRT)
Client/Donor
Distributes
Remainder
Pays Income

Becomes eligible
to take a partial
tax deduction

Pays lifetime income
from assets back to
client and/or other
income beneficiary(ies)

At donor’s death,
distributes remaining
assets to charity with
DAF program
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Public
Charity with
DAF
program
Why Charitable Planning for Your Practice?
Helps advisors:
 Deepen
client relationships
 Differentiate
your practice from others
 Become
involved in legacy planning, which
potentially leads to new relationships with
future generations
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Income Tax Strategies:
Assets to Consider Giving During Life
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Contributing Special Assets to Charities
Private C-Corp Shares
Private S-Corp Shares
Certain LLC and limited partnership interests
Residential Real Estate
Other Real Estate
Cash Value of Life Insurance
Art & Collectibles
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Save More Taxes, Do More Good:
Hypothetical Case Study
Situation:
 Married couple

Sell securities &
donate net cash
proceeds to
charity
Contribute
securities to
the Gift
Fund
$100,000
$100,000
$9,000
$0
Charitable Contribution/Charitable
Deduction**
$91,000
$100,000
Value of Charitable Deduction Less
Capital Gain Taxes Paid* (Assumes
$22,850
$35,000
$100,000 of long-term appreciated securities

Cost basis: $40k; unrealized long-term gains: $60k
Strategy:
 Contribute securities directly to charity rather
than selling them first
Sell securities & donate net cash proceeds to
charity ($91,000) or Contribute securities to the Gift
Fund ($100,000)

Current Fair Market Value of
Securities
Federal Long-term Capital Gains
Tax Paid* (15%)
Assumes cost basis of $40,000, and longterm capital gains of $60,000
donor was in the 35% federal income tax
bracket)
Benefits:
 Less in taxes, more in charitable
contributions
With a direct donation to the charity, the donor’s
federal income taxes are reduced by an additional
$12,150 and the charity receives $9,000 more
With a direct donation to the charity, the donor’s federal
income taxes are
reduced by an additional $12,150 and the charity receives
$9,000 more

* Assumes all realized gains are subject to the maximum federal long-term capital gain tax rate of 15%. Does not take into account any state or local taxes.
**Availability of certain federal income tax deductions may depend on whether you itemize deductions. Charitable contributions of capital gain property held for more than one year are usually
deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis.
This is a hypothetical example for illustrative purposes only. State and local taxes, the federal alternative minimum-tax and limitations to itemized deductions applicable to taxpayers in higherincome brackets are not taken into account.
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Charitable Venture Capitalist: Hypothetical Case Study
Situation:

Venture capitalist with portfolio of non-publicly traded stock

Shares in S-Corps, Private C-Corps, and interests in limited partnerships

Wants to give to a variety of charities, but does not have much cash to give at
this time
Strategy:

Contribute assets to a public charity with a DAF program
Benefits:

Recommend grants from a single DAF

Eligible for a tax deduction for the fair market value of the contribution as
determined by an appraisal

Avoid tax on gain from the sale of the donated property since the property, at
the time of the sale and thereafter, is the asset of the charity and not that of
the donor.
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Why Donate Real Estate?
Key potential benefits for donors:

Avoid capital gains tax on unrealized
appreciation

Deduct fair market value of the property

Carry forward deduction for up to five years if
client’s contribution exceeds limit on
charitable deductions
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Ready to Retire: Hypothetical Case Study
Situation:
 Married couple; age 70; AGI: $6 million

Client contribution of
$3 million to charity
Recently sold family business; wants to sell
home and retire
Strategy:
 Clients contribute home to a charity with a
DAF program

Charity sells the property for $3 million

Charity allocates the proceeds to four DAFs of
$750,000 each - one for each adult child
Avoids capital gains tax

Enable more support to charities
DAF with
$750K for child #2
DAF with
$750K for child #3
Benefits:
 Tax deduction for donation

DAF with
$750K for child #1
DAF with
$750K for child #4
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Contributions of Private Company Stock:
Hypothetical Case Study
Situation:

Client wants to contribute stock of a privately held company.

Client is philanthropically inclined, but some of the charities they want to
support do not have the resources or experience to accept or efficiently
liquidate private company stock.
Strategy:

Client contributes privately held stock to a charity with a DAF program

In order to claim tax deduction of $5K or more for a contribution of a nonpublicly traded asset, donors must obtain qualified appraisal.
Benefits:

Tax deduction for donation

Avoids capital gains tax

Enable more support to charities
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Estate Planning Strategies:
Which Assets to Give at Death
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Why Make Charitable Giving Part of an Estate Plan?
Clients want to:

Continue charitable donations beyond death

Make their wishes known

Specify the most tax-efficient assets to donate

Reduce taxes for heirs

Specify one or more charities as beneficiaries
in their will or trust in case family members
pre-decease them
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Estate Planning Benefits of Gifts to Charities
with DAF Programs
Clients can:

Decrease estate taxes by reducing size of
the taxable estate by contributing to charity
with a DAF during their lifetime or by making
a bequest to a charity with a DAF

Teach heirs about philanthropy by giving
family members recommendation privileges
on DAF

Get flexibility in planning for a charitable
legacy
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Leaving a Charitable Legacy
Naming a Charity with a DAF Program as Beneficiary in a Will
If donors name
a charity with a DAF as:
They will benefit from
these advantages:
• A Primary beneficiary
•Name a DAF as beneficiary and no
need to decide today which causes
the contribution will ultimately
support
•A Contingent beneficiary
•Charitable beneficiary
in a split-interest trust
established at death
•At death, gift to the charity with a
DAF program, family members or
advisors can recommend which
charities to support
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Which Assets to Consider Gifting at Death
IRD*-Producing Assets:




Non-qualified stock options
Restricted stock
Installment sale notes
Retirement plan assets
*Income in respect of the decedent
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Tax Benefits of Giving IRD Assets to Charity
Benefits to the decedent:
Benefits to the charity:
Decedent’s estate can take a
charitable deduction for the
assets donated to charity
The charity is not required
to pay taxes on IRD
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Disclosures
Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice.
Fidelity does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Availability of certain federal
income tax deductions may depend on whether you itemize deductions. Rules and regulations regarding tax deductions for charitable giving
vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or
completeness of the information provided. Charitable contributions of capital gain property held for more than one year are usually deductible
at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis. Consult an attorney or tax
advisor regarding your specific legal or tax situation.
Fidelity makes no warranties with regard to the information provided or results obtained by its use. Fidelity disclaims any liability arising out of
your use of, or any tax position taken in reliance on, the information furnished herein.
Fidelity Charitable Services, Fidelity Private Foundation Services®, and the pyramid logo are registered service marks of FMR LLC.
The Fidelity® Charitable Gift FundSM (“Gift Fund”) is an independent public charity with a donor-advised fund program. Various Fidelity
companies provide non-discretionary investment management and administrative services to the Gift Fund. Charitable Gift Fund and the
Charitable Gift Fund logo are service marks, and Giving Account® is a registered service mark, of the Trustees of the Fidelity Investments®
Charitable Gift Fund. Fidelity and Fidelity Investments are registered service marks of FMR LLC, used by the Gift Fund under license.
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