Charitable Planning

Charitable planning is more than a one-stop plan like 501(c) foundations. Accomplished wealth practitioners view charitable planning as an integration of business, charity and philanthropy.

A charitable organization or charity is an organization with charitable purposes only using vehicles like trusts, companies and corporations to perform the organizations function in charity. Charities are all non-profit organizations (NPO or NP), but not all non-profit organizations are charities. Organizations that are dedicated to charitable purposes may have jurisdictional rights that allow them to be treated as charities for tax regulations with certain restrictions. Charitable organizations may also be established for tax planning and estate planning strategies.

A 501(c) organization is a provision of the United States Internal Revenue Code ( 26 U.S.C.   § 501(c) ) which lists twenty-seven types of non-profit organizations exempt from Federal Income Tax. Sections 503 through 505 list the requirements of organizations to claim these exemptions. These NPO's are active in a wide range of activities including everything from the environment, social issues, politics, medical charities, research and sports foundations. Listed below are some of the examples in the code.

501(c)(1) Corporations organized under acts of Congress such as Federal Credit Unions

501(c)(2) Title holding corporations for exempt organizations

501(c)(3) Various charitable, non-profit, religious, and educational organizations

501(c)(4) Various political education organizations

501(c)(5) Labor Unions and Agriculture

501(c)(6) Business league and chamber of commerce organizations

501(c)(7) Recreational club organizations

501(c)(8) Fraternal beneficiary societies

501(c)(9) Voluntary employee beneficiary associations

501(c)(10) Fraternal lodge societies

501(c)(11) Teachers' retirement fund associations

Wise investments and profitable incomes often yield extra income. This income can present a chance for a myriad of opportunities including charitable giving, trust income enhancement, investments and more.

An individual who is worth $10 million or more would stand to loose as much as 50% of the wealth in their estate without careful estate planning. Most people willingly pay the IRS, however they are not interested in making the IRS their largest beneficiary. A simple way to avoid this dilemma is to give some of the money to charity as in the example of Warren Buffet giving an enormous portion of his fortune to the Bill Gates Foundation.

You do not have to give all of the money away. There are other ways to use portions of the reserve income efficiently to the benefit of your family. This reserve income opens the doors to additional tools and techniques. This liquid asset can be protected by leveraging it and using it as collateral to secure bank loans to pay life insurance premiums. With a properly designed structure, policy cash value is projected over time to pay off the cumulative bank loan, leaving a "paid up" policy for the client.

By using these techniques, taxation is avoided or lowered in the transfer of the estate. There is such a thing as “tax free” heir inheritance or at least without additional out of pocket money when receiving the assets. This is something that has to be structured legally and with the great care of an experienced practitioner.

Charities may be named as beneficiaries to policies including family charities. A family charity must meet the jurisdictional requirements in equity distribution for example, 60% family and charity 40%.

There are many possibilities in the complicated matter of charitable planning. Please feel free to call us at TrustMakers for a free 20 minute-consultation.