Overview

Planned giving combines philanthropy with financial and estate planning. Donors use tools such as endowments, charitable trusts, and bequests to meet nonprofit needs while capturing tax advantages, generating income, or reducing estate taxes. These strategies aren’t only for the wealthy: they can be adapted to different asset types, giving timelines, and charitable goals.

How each tool works

Endowments

  • What they are: An endowment is a permanent fund held by a nonprofit (often in a separate investment pool). The organization invests the principal and spends only a portion of investment returns according to its spending policy.
  • Typical use: long-term funding for scholarships, program support, or operational stability.
  • Considerations: Endowments normally require an agreement on spend rate and investment policy. Some donors create endowed funds with language restricting use; overly restrictive terms can create administrative burdens for smaller charities.
  • Learn more: see our full explainer on endowments for governance and setup details (FinHelp: “Endowment”): https://finhelp.io/glossary/endowment/.

Charitable trusts

There are two broad families of charitable trusts commonly used in planned giving:

1) Charitable Remainder Trusts (CRT)

  • Structure: Donor transfers assets into an irrevocable trust. The trust pays income to one or more noncharitable beneficiaries (often the donor and/or spouse) for a term of years or for life. At the trust’s termination, the remaining assets pass to the named charity.
  • Benefits: Potential immediate income-tax charitable deduction for the present value of the remainder interest, possible capital gains tax deferral on appreciated asset sales inside the trust, and an income stream for the donor.
  • See FinHelp’s deep dive on charitable remainder trusts: https://finhelp.io/glossary/charitable-remainder-trusts-explained/.

2) Charitable Lead Trusts (CLT)

  • Structure: The trust pays a fixed stream (or annuity) to a charity for a set term; remaining assets return to the donor or the donor’s heirs at the end of the term.
  • Benefits: Useful for transferring wealth to heirs with reduced gift/estate tax exposure while supporting a charity in the near term.

Bequests (gifts in a will)

  • What they are: A bequest is a gift to a charity specified in a will or testamentary document. Bequests can be unrestricted or designated for a specific purpose.
  • Advantages: Simple to add to an estate plan, no immediate out-of-pocket cost during lifetime, and revocable until death.
  • Considerations: To qualify for an estate tax charitable deduction, the gift must meet IRS requirements for charitable organizations (typically 501(c)(3) status) and be properly described in estate documents. For guidance, read our page on how to structure a charitable bequest: https://finhelp.io/glossary/how-to-structure-a-charitable-bequest-in-your-will/.

Other planned-giving vehicles to know

  • Donor-Advised Funds (DAFs): Flexible, immediate tax deduction with ongoing grant recommendations to charities. Not a trust or endowment, but commonly used to time tax deductions and charitable grants.
  • Charitable Gift Annuities: The charity pays the donor a fixed income in exchange for an immediate gift; part of each payment may be taxable and part tax-free depending on structure.

Tax and legal considerations (high-level)

  • IRS rules: Tax treatment depends on the vehicle. For gifts to qualify for income-tax deductions or estate-tax deductions, recipients generally must be qualifying charities (see IRS guidance on planned giving and charitable contributions: https://www.irs.gov/charities-non-profits/planned-giving).
  • Valuation: Non-cash gifts—publicly traded securities, real estate, closely held business interests—have special valuation and reporting rules. A qualified appraisal may be required for gifts of real property or closely held stock.
  • Deduction limits and timing: Federal limits on charitable contribution deductions and special ordering rules (e.g., for appreciated property) can affect the benefit. These limits and rates change; consult a CPA or the latest IRS guidance before finalizing a plan.

Who benefits and when to use each tool

  • Endowments: Ideal for donors and organizations seeking a perpetual funding source; useful when the goal is institutional stability.
  • Charitable Remainder Trusts: Fit donors who want lifetime income and eventual charitable support, especially when donating appreciated assets that would trigger capital gains if sold outright.
  • Charitable Lead Trusts: Work well for donors focused on passing appreciated assets to heirs with minimized transfer taxes while making interim gifts to charity.
  • Bequests: Best when you want to make a charitable gift but need flexibility during life or limited liquidity now.

In practice: what I’ve seen and recommended

In my practice I’ve guided donors to match the tool to the primary goal: income, legacy, or immediate charitable impact. For example, a couple near retirement funded a CRT with appreciated securities. The CRT sold those securities without immediate capital gains tax at the donor level, generated a steady income for the couple, and left a meaningful remainder to their chosen charity.

Common setup steps (practical checklist)

  1. Define the charitable objective and timeframe (immediate support vs. perpetual funding).
  2. Confirm nonprofit status and willingness to accept the planned gift.
  3. Choose the right vehicle—endowment, CRT, CLT, bequest, DAF—based on goals and tax profile.
  4. Work with a CPA and estate planning attorney to draft documents and calculate tax effects (present value calculations, charitable deduction amounts).
  5. Name trustees, investment managers, and successor decision-makers.
  6. Fund the vehicle with suitable assets and complete valuation/appraisal steps.
  7. Review beneficiary designations and estate documents to ensure your wishes are coordinated across accounts.

Pros and cons (summary table)

Tool Pros Cons
Endowment Permanent funding, supports long-term mission Requires governance and may be restricted by donor terms
Charitable Remainder Trust Lifetime income, tax-efficient way to give appreciated assets Irrevocable, setup complexity and trustee costs
Charitable Lead Trust Reduces transfer taxes to heirs while funding charity now Complex, requires careful tax calculations and legal drafting
Bequest Easy to add to a will, revocable during lifetime No immediate tax deduction; effectiveness depends on estate size

Common mistakes and pitfalls

  • Assuming one tool fits all: Donor objectives (income, control, tax planning) should drive the choice.
  • Skipping professional help: Valuation, tax calculations, and trust drafting require specialist input.
  • Over-restricting donation terms: Very narrow restrictions can make gifts impractical for small charities to manage.
  • Ignoring liquidity: Funding a CRT or endowment with illiquid assets (like real estate) requires extra planning.

Frequently asked questions

Q: Do I need a lot of money to use these tools?
A: Not necessarily. Some tools (like DAFs and bequests) are accessible to modest donors. CRTs and endowments often have practical minimums because of setup and administration costs; many financial institutions consider $100,000 a reasonable starting point for CRTs, but lower amounts are possible depending on trustee costs and charity policies.

Q: Will my gift reduce my estate taxes?
A: Gifts to qualified charities can reduce estate taxes, but the effect depends on estate size, state law, and how the gift is structured. Use an estate planning attorney and tax advisor to model outcomes.

Q: How do I choose between a CRT and a DAF?
A: CRTs provide lifetime income and potential capital-gains benefits; DAFs are simpler, give an immediate deduction, and allow flexible grantmaking. Choice depends on whether you need income and how you prefer tax treatment.

Resources and further reading

Related FinHelp articles

Professional disclaimer

This article is educational and does not substitute for personalized legal, tax, or financial advice. Rules for charitable deductions, trusts, and estate taxes change—work with a qualified CPA, estate planning attorney, and your nonprofit to design and document any planned gift.