Guest Column
By: Carolyn Sanderson
I fondly recall the publishing entrepreneur who sold her company and retired at age 43. We had served on the board of a local community group for years, so I was delighted when the woman announced that she would start her own foundation and devote most of her time to philanthropy.
This decision touches a chord in all of us the desire to give back is a responsible use of wealth. Contrary to popular opinion, one need not be ultra wealthy to begin a charitable giving program. For example, a private foundation, the most prevalent type of charitable entity, can be created with about $5 million in assets, and additional funding can come from lifetime gifts or bequests.
The example of the publishing
entrepreneur illustrates a trend among baby boomers, in particular, toward become involved in charitable giving while they are alive rather than through posthumous bequests through their wills. This trend stems from a desire to be actively involved in charitable activities and is being facilitated by innovative new approaches to philanthropy.
Clarifying charitable goals and determining which type of structure will best achieve them is an essential first step. For private foundations in particular, a well-articulated mission statement that expresses donor intent is extremely useful.
For those who are certain that they want to direct their gifts, a clear mission statement is needed to ensure that future generations will honor their original intentions. It is also important to anticipate changes in the circumstances surrounding the needs a donor wishes to address, so that alternate uses of foundation gifts can be identified.
Philanthropy is an integral part of financial and estate planning, because tax considerations can play a central role in the charitable-planning process. Contributions of cash and publicly-traded stock to a private foundation enable a donor to take a current tax deduction for the market value of the gift and remove the asset from the donor’s estate for estate tax purposes. Alternate strategies, such as charitable trusts, provide tax incentives as well. Employing a combination of giving techniques can optimize philanthropic activities.
The family foundation is the most prevalent form of philanthropic entity. Establishing a private foundation is major step in organizing a charitable program, because it can transform giving from a passive activity into focused, active involvement in a particular field of interest.
To the community, the foundation’s institutional nature signals an enduring philanthropic commitment that might not otherwise be recognized through "checkbook" philanthropy. Moreover, foundation grant-
making reflects the founder’s values and interests, providing an opportunity to create a family legacy of giving.
For donors who require income during their lifetimes and wish to designate a charity as their ultimate beneficiary, charitable remainder trusts are attractive vehicles.
With a CRT, the donor contributes assets to a trust and, because the trust is tax-exempt, receives an immediate tax deduction equal to the present value of the remainder interest in the assets. The donor and his or her beneficiaries receive an income stream from the trust for their lives or a fixed term.
Another technique, the charitable lead trust, reverses the order of beneficiary and charitable income distributions. However, their tax treatment is more complex than CRTs. A donor is not entitled to a charitable deduction for federal income tax purposes upon the creation of a CLT unless he or she remains taxable on the trust income.
With a CLT, trust income is taxable to the trust, but the trust receives a deduction for income paid to qualified charities.
Private foundations and trusts may not be appropriate for every donor. Many people who are philanthropically inclined have found that donor-advised funds are an alternative that provides many of the benefits of a private foundation with considerably less funding.
There are several ways to embark on a charitable giving plan, and the success of these endeavors depends as much on commitment to giving as it does on the amount of funding.
Carolyn Sanderson is a managing director at U.S. Trust Corp., which has offices in Princeton and Morristown. U.S. Trust provides investment management, planning, private banking and trust services to affluent clients. It offers individually tailored wealth management strategies to individuals, families, foundations and endowments, with a focus on providing the highest level of personal service.

