People who are engaged in the process of estate planning oftentimes take a step back and consider the totality of their legacy. As a result, many people who are in a position to leave significant inheritances to their loved ones feel a sense of gratitude. When you have been successful throughout your life and have more money than you really need you may feel the urge to make charitable contributions in an effort to give something back. This is certainly an admirable course of action, and though most people engage in philanthropic giving in a purely selfless manner, there are some tax advantages that can be gained as a reward for your generosity.
Creation of a charitable family foundation is costly, and it is expensive to maintain such a foundation making it impractical for most individuals. This is why donor advised funds are so very popular among those who want to engage in charitable giving in an efficient manner.
Donor advised funds are housed within public charities and some for-profit financial companies. The way that they work is that you fund the trust and subsequently make recommendations with regard to which charitable organizations will receive grants and how much they will receive. In this manner you can ultimately contribute to a number of different worthwhile causes through a single act of giving, which is one of the major appeals of these funds. This streamlined exchange also makes for efficient record-keeping. Plus, you can donate securities into the fund and it is equipped to endow grants to charities that are not set up to accept donations of securities.
From a tax perspective you are entitled to a charitable donation when you make the initial contribution into the fund. At the same time, you are removing these assets from your estate and reducing its overall value and subsequent estate tax exposure. And in addition, any appreciated assets that you donate into the fund are not subject to capital gains tax.