Can’t Make A Charitable Gift Right Now? Okay, How About Making A Loan?

Hmmmm, a loan… “You want me to make a loan to my favorite charity?”

YES! Okay, so it goes by another name – but that’s the idea. Here’s how it works:

You want to do something for a charitable organization in your local community (or your church or alma mater) – and, it’s something that can really make a difference. BUT, you have a family to worry about – children or grandchildren…. their college educations, their first homes, their first business venture’s capital. You have some money available right now, sure – BUT, they will need that money from you in 15 or 20 years. So you’re concerned that if you give it away now, you’ll have nothing for them later.

Ah, that’s the dilemma. You’re not alone. Many families face the same situation. Here’s the solution:

Two simple steps – First, you put the assets you know you want your children (or grandchildren) to have in 15 or 20 years (or however many years later you wish) into a trust – so that the assets are safe and secure – and you name the family members you intend to help later as the ultimate beneficiaries of the trust. Second, you name the charitable organization that you want to help right now as the trust’s immediate beneficiary. You do this with a simple designation in the trust document.

Once you’ve done these two steps, the charity will receive an annual gift derived each year from the earnings on the assets in this trust – and the principal in the trust will be preserved for your family’s later use. In this way, you would effectively be ‘loaning’ the benefit of trust assets to the charity for a period of years – for example, to start a new program or get past a rough patch in the economy – until the next generation in your family needed the money for their own purposes.

You would be making a very special gift to support the charity each and every year until the trust is scheduled to terminate. And, when the trust runs to the end of the years you established when you created it, the assets in the trust will go to your designated family members for their use.

Beyond the value that these annual distributions from the trust have for the charity, you also gain a few other advantages in doing this. You see, the overall value of the assets in the trust likely will appreciate at a rate higher than the annual payout for the charitable gifts – and, this means your family members could very well end up with more at the end of the trust than you put into the trust initially – and, whatever the amount – they will receive the full amount of the principal in the trust free of taxation, if you design the plan well. And, you’ll gain a few tax-wise benefits from this plan, too.

Hard to create? No, actually it can be quite a simple thing to do. Do you have to be a Vanderbilt or a Carnegie for this to make a difference? Not at all! It just may be an ideal way to add great value in your life, for your family, and for your favorite hospital, church, college, or other charity.

P.S. TO ENTREPRENEURS – The kind of arrangement described above can be a creative strategy for conveying a privately held business to the family’s next generation. By combining this trust – which is called a Charitable Lead Trust – and a Family Limited Partnership you can strategically structure an effective way to achieve valuable family and philanthropic objectives. Something worth considering.


About ted sudol

Ted Sudol brings a cross-disciplinary perspective to his work in philanthropy & fundraising. Currently Managing Director at CARTER, a professional firm dedicated to advancing philanthropy worldwide, he has nearly four decades as a fundraiser, lawyer, executive, communicator and consultant in the voluntary, public and private sectors. From local to global, his work with educational, healthcare, arts & cultural, and community organizations ranges from designing new ventures, campaign readiness plans, and complex gift strategies for high net worth families to rebuilding and repositioning projects. His specialty is bringing together diverse parties in innovative collaborations. He devises simple approaches for complex matters to achieve successful outcomes. A graduate of Georgetown and Temple Law School, he currently serves on the board for AFP Shenandoah Valley Chapter, the AFP International Education Advisory Council, and the Virginia FundRaising Institute's Planning Committee. He has been a long-time board member for Big Brothers Big Sisters of Harrisonburg & Rockingham County, Virginia.
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