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There are many options available when designing a strategy for those who wish to help others by making a charitable gift. For some who wish to maintain some control while benefitting others, a Charitable Remainder Trust (CRT) could be an attractive option. A CRT is generally funded with appreciated stock or real estate, and provides the grantor with a right to an income stream from the trust for a period of years or for the grantor’s life. Upon the trust’s termination, the assets in the trust are paid to the designated charity. Another charitable planning strategy is a Charitable Lead Trust (CLT). The CLT provides annual payments to a charity during the term of the trust, with the trust principal passing on to the grantor’s children upon termination.
For those who wish to make substantial gifts to charity while retaining control over how the funds are distributed and used, a private foundation or donor advised fund can be an option. Private foundations enable individuals to teach and/or have family members, even younger ones, become educated and involved with philanthropic activities. Typically, private foundations make gifts to other 501(c)(3) organizations. Sometimes, private foundations may make grants to individuals, for charitable purposes. When making gifts to individuals, procedures have to be followed and a private foundation must gift to a broad class of individuals, and not specific or pre-determined individuals.
Furthermore, private foundations can make gifts to foreign charities. While an individual cannot take an income tax deduction for contributions to a foreign charitable organization, an individual can take a deduction for contributions to a qualifying private foundation. A private foundation can, in turn, make grants to a foreign charity. The IRS rarely deems foreign charities to be public charities for the purpose of U.S. taxes, but there are two ways that a private foundation can nevertheless seek to make qualifying distributions to a foreign charity:
One option is for the foundation to obtain an affidavit from the charity itself, or an opinion of counsel, that the foreign organization would qualify as a public charity under the U.S. tax code. Recently proposed regulations would allow CPAs and enrolled agents to render such opinions as well. These “equivalency determinations” tend to be tedious and expensive to complete.
Another option, which requires greater oversight but may be more cost-effective, is for the private foundation to forgo the equivalency determination and instead engage in something called “expenditure responsibility.” Expenditure responsibility requires that a private foundation establish procedures to see that a grant is used for the purpose made, to retrieve reports from the foreign charity on how the grant is used, and to in turn report to the IRS. The foreign charity must also agree to hold the grant in a distinct fund which is dedicated to one or more qualifying objectives, including religious, charitable, scientific, literary, or educational purposes.
At Altman & Associates, we work with a number of publicly and privately supported charitable organizations. We can assist in the creation and structuring of a charitable trust and or private foundation. Moreover, we work with private foundations to make sure that the private foundation is operating legally, and we can advise on strategies for gifting to charities, including foreign charities.