Giving Back with Strategy - A Look at Common Charitable Giving Vehicles

Charitable giving can be more than a generous act. It can also be a strategic part of tax planning, estate design, and building a long-term legacy. Whether you're donating appreciated stock, converting a taxable asset into income, or planning for heirs and causes you care about, there’s likely a giving vehicle that fits your goals.

Here are five of the most common charitable giving tools in use today.

Donor-Advised Fund (DAF)

A donor-advised fund is a charitable account you set up through a sponsoring organization. After you contribute to the fund, you may be eligible for an immediate income tax deduction, subject to IRS limits based on your income and the type of asset donated. You then retain the ability to recommend grants to public charities over time. While the assets sit in the account, they can remain invested and grow tax-free.

Set up by: Custodian or sponsor (e.g., Fidelity Charitable, Schwab Charitable, community foundations)

Tax deduction: Amount of contribution (subject to IRS limits and type of asset donated)

Distributions: You recommend amounts and timing

Death benefit: Remaining funds go to charity

Income: None to the donor

Dallas example: Joe and Laura, a couple working with a local community foundation, created a donor-advised fund to support SMU and a nearby animal shelter. They named the fund after a family member and designated SMU to receive the remainder upon their passing.

Charitable Remainder Trust (CRT)

A charitable remainder trust provides income to a person (often the donor) for a defined period, with the remainder going to charity. The donor receives a partial tax deduction when the trust is funded. The income can be fixed or variable depending on the trust type.

Types:

• CRAT: Fixed dollar payments

• CRUT: Fixed percentage of annual value

  
  

Set up by: Attorney

Tax deduction: Present value of the remainder interest

Distributions: To the donor or a beneficiary

Death benefit: Goes to charity

Control: CRUT offers investment and distribution flexibility; CRAT does not

Taxation: Complex hierarchy based on income types

A CRT is often used when a donor wants to convert appreciated assets into income, defer capital gains tax, and still support a charitable cause.

Charitable Lead Trust (CLT)

A charitable lead trust pays an income stream to a charity for a period of years. After that, the remaining assets are transferred to heirs or back to the donor. This structure is often used to reduce estate tax liability while preserving assets for the next generation.

Types:

• CLAT: Fixed dollar payments to charity

• CLUT: Variable payments based on trust value

  
  

Set up by: Attorney

Tax deduction: Depends on whether it’s a grantor or nongrantor trust

Distributions: To the charity first, then to heirs or the donor

Death benefit: To the donor's family (nongrantor only)

Estate planning: Nongrantor CLTs remove assets from the estate

CLTs are typically best suited for high-net-worth donors with long-term legacy goals.

Pooled Income Fund (PIF)

A pooled income fund combines the contributions of multiple donors. Each donor receives income based on their share of the fund’s earnings. When the donor passes away, the remainder goes to the charity.

Set up by: A nonprofit organization

Tax deduction: Based on IRS formulas and donor details (e.g., age, gift amount, projected return)

Distributions: Variable income to the donor during life

Death benefit: To the charity

Taxation: All income is taxable to the donor

Control: Donor has no investment or payout control

While less common today, a PIF may appeal to donors seeking variable income and comfort with shared management.

Charitable Gift Annuity (CGA)

With a charitable gift annuity, a donor makes a gift to a nonprofit and receives a fixed stream of income for life. After the donor’s death, the charity retains the remaining value. The donor gets a partial tax deduction upfront.

Set up by: A nonprofit organization

Tax deduction: Gift amount minus present value of annuity payments

Distributions: Fixed income to donor for life

Taxation: Partially tax-free return of basis until exhausted, then taxed as ordinary income.

Control: Donor has no control over investment or payout terms

CGAs are well-suited to retirees who want to secure guaranteed income and support a favorite nonprofit.

Summary Table

Vehicle	Donor Receives	Charity Receives	Best For
DAF	Immediate deduction; flexible grants	Future grants	Simple, long-term giving
CRT	Income now; tax deduction	Remainder at death	Donors with appreciated assets
CLT	Estate tax savings	Immediate income stream	Legacy-focused families
PIF	Variable income	Remaining assets	Donors seeking community investment
CGA	Fixed lifetime income	Remaining value	Retirees wanting guaranteed income

Final Thought

Charitable giving can take many forms. Each of these vehicles has different tax rules, control features, and long-term implications. If you’re serious about giving with purpose, talk with your advisor, attorney, or CPA about what structure fits best for your goals.

WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen. 

Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.