For More Flexible Giving, Consider Combining a Charitable Remainder Trust With a Donor-Advised Fund

If a charitable remainder trust puts too many constraints on your family's charitable giving, consider adding a donor-advised fund for more control over when, how and to whom you make your donations. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. 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Not long ago, I was working with a family who had an eye on giving back to the community and the world. They wondered whether they were doing so in the most efficient way possible and whether there were better options.The family matriarch had set up a charitable remainder trust that designated two specific organizations to receive the money upon her death.The family members questioned whether this was the best approach. What if one or both of the organizations no longer existed when she passed away? What if one of the organizations changed its mission so that it no longer matched the family's beliefs or leanings?Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Would they want this money to go to a charity that may have strayed from its original purpose?As we talked about their concerns, I suggested they think about establishing a donor-advised fund (DAF), a tool that could alleviate their apprehensions while giving them more control over when, how and to whom they make their donations.An additional advantage was that a DAF could be made a beneficiary of the existing charitable remainder trust (CRT). That way, the fund would provide added flexibility while the family's trust stayed in place.The family members were unfamiliar with DAFs, as you may also be. But for those who want to donate to their favorite causes while maintaining some control over how the money is handed out, this type of fund can make a lot of sense.About Adviser IntelThe author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.Here's how DAFs work: You establish an account in the name of one or more donors, and that account is held in custody by a nonprofit organization, which is considered the sponsoring organization.You then make tax-deductible contributions to the account. Even though you can claim a contribution as a charitable tax deduction when you contribute to the account, you don't have to distribute the money to a charity all at once.The money can grow tax-free for years, and you can make multiple donations over time and even spread the money out among several charities.In other words, you can contribute to the fund whenever you like. You can also distribute money to causes when needed or when it simply makes the most sense.That way, if a particular charity dissolves or its mission evolves — which were among the concerns of the family I was working with — you can adapt your giving plans as needed.DAFs have grown in popularity. In 2023, the funds made a total of $54.8 billion in grants to charities, according to the National Philanthropic Trust's 2024 DAF Report. Although that figure was slightly down from 2022, it was nearly double the amount awarded as recently as 2019, when $28.5 billion in grants were distributed.How much can and should you contribute to establish a DAF?That varies quite a bit depending on the sponsoring organization. Some organizations require no minimum amount at all, while others require at least $10,000, $25,000 or more.Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel, our free, twice-weekly newsletter.The family I was working with appreciated the opportunity to make grants to charities on a more flexible basis. If, as time passed, other organizations they liked came to their attention, they could simply direct grants to those groups.By making a DAF a beneficiary of their charitable trust, they could help more causes, have a longer-lasting legacy and allow more family members to participate in the giving.If you're interested in creating a legacy through charitable giving, consider a DAF to achieve your goals. And if you already have a CRT in place, think about adding a DAF as a beneficiary.A financial professional can help you understand how this and other charitable-giving options work, so you land on an approach that works best for you.Leaving a legacy through philanthropy is rewarding for everyone involved.Ronnie Blair contributed to this article. The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Mark Marrazzo is the founder, managing partner and financial adviser with Total Resource Financial. He has more than 30 years of experience in financial services and holds Series 7, 66 and 24 securities licenses. He also has the National Social Security Advisor certificate and has licenses in life, health, annuity and long-term care insurance. As an active speaker for the Society for Financial Awareness (SOFA), Mark regularly teaches educational workshops throughout his community. (Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.) Illinois' estate tax "threshold" (rather than "exemption") can surprise families, but proactive planning can help preserve more for heirs and charitable causes. Markets are paying more and more attention to hyperscalers' plans to spend more and more money on artificial intelligence. The Lette A new chairman of the Federal Reserve has been named. What will this mean for the economy? Illinois' estate tax "threshold" (rather than "exemption") can surprise families, but proactive planning can help preserve more for heirs and charitable causes. Markets are paying more and more attention to hyperscalers' plans to spend more and more money on artificial intelligence. The Lette A new chairman of the Federal Reserve has been named. What will this mean for the economy? The January CPI report will be released Friday morning. 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