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A generous spirit is a blessing to the giver and those who receive. However, an informed giver is the wisest of all. When making charitable donations, due diligence is advised, to ensure that you are giving to a legitimate organization, ensure that your donation has its desired outcome and ensure maximum tax benefits.
What Makes a Charity Legitimate?
Start by identifying charities with missions in alignment with your values. When you identify a charity, make sure the charity is legitimate by checking the IRS website. The charity must be registered as a 501(c)(3) with the IRS. However, do not rely solely on the IRS to vet the charity. Learn about the charity’s finances and mission using Candid or CharityWatch. How much of your donation will pay to advance the charitable mission and how much will go for administrative expenses? Knowing whether the charity has substantial funding or is run on a shoestring budget may determine your own giving.
How Do Donor Advised Funds Work?
A Donor Advised Fund (DAFs) is an account created for you, one established by a charity, or established by a financial institution. The main appeal of the DAF is its simplicity: you receive an immediate tax deduction upon making a contribution to the DAF, the account grows tax free and you can “advise” the fund regarding the charity to be benefitted, as well as the amount and timing of distributions.
In addition to the tax deduction, the donor does not pay capital gains taxes on assets placed in a DAF. If assets have appreciated, the donor may deduct the current market value of the asset instead of what was originally paid.
DAFs are growing in popularity because of their convenience and tax benefits. However, donors are advised to adhere closely to IRS rules for DAFs and keep careful records. The IRS keeps a close eye on DAFs to ensure they are legitimately supporting genuine charities.
There seems to be as many DAFs as there are charitable organizations benefiting from them. Depending upon which you chose, there may be a minimum required investment, and fees vary.
Will a DAF Work with your Estate Plan?
A DAF can be used to convey significant assets out of the estate as part of building a legacy. The DAF can be structured to be funded over an extended period of time or as a one-time gift at a date of your choosing. A DAF can also be funded through a last will or as a charitable beneficiary of a trust. A DAF can also be the beneficiary of a life insurance policy.
Charitable Giving to Build a Legacy
Whether you are supporting an on-going community program or endowing a new building at your alma mater, charitable giving can achieve a greater sense of purpose for you and your family. Book a call with Vick Law, P.C. to discuss how to include giving into your estate plan.
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