The Four Categories of Charitable Giving
We believe that there are four general categories of charitable gifts for donors and nonprofits to consider.
The Simple Methods
1. Outright gift: This is appropriate for donors who want to see their charitable dollars at work during their lifetimes.
2. Bequest: The basic method for those who want to give at the end of their life.
The Complex Methods
3. Life income gifts and other split interest instruments: This category includes the charitable gift annuity (CGA), the charitable remainder trust (CRT), the charitable lead trust (CLT) and the pooled income fund. These methods are appropriate for donors who want to give assets now for later use, who seek some form of direct financial return from their giving, and who have unique tax and estate issues to deal with. (Some insurance arrangements fall into this category.)
4. Family foundations: This approach works for donors who want to keep their gifted capital intact while making smaller annual charitable distributions and retaining administrative control.
Categories 1 and 2 are generally easy to understand and require no contracts, trusts, trustees, or special income tax returns. Few donors need a great deal of expert advice to use those two approaches. (With the exception of gifts of illiquid assets such as collectables and business interests, and almost any real estate donation.)
Categories 3 and 4 vary in complexity, but most donors and nonprofits will need to a significant level of financial sophistication to fully understand and implement these instruments. We highly recommend that would-be donors get independent legal, tax, and financial advice as they consider these methods.