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Navigating Charitable Strategies for Ultra-High-Net-Worth Families

Charitable giving remains a crucial aspect of financial planning, especially for ultra-high-net-worth families. Many people with substantial wealth are passionate about philanthropy, and charitable contributions not only support causes that matter to them but also yield tax benefits. As potential increases in income, capital gains, and estate taxes loom on the horizon, helping your clients develop sophisticated charitable strategies becomes even more essential.

To that point, the landscape of ultra-high-net-worth individuals has expanded considerably over the past two decades. In 2004, 157,000 people held approximately $14.2 trillion in global wealth; by 2024, this group had grown to 426,000 individuals, representing nearly $49.2 trillion. Projections indicate that by 2027, more than 500,000 individuals will fall into this category, with America housing many of the world’s wealthiest families, including over 750 billionaires and nearly 22 million millionaires.

For advisors, attorneys, and CPAs, this growth underscores the need for robust and adaptable tax planning strategies, including charitable giving. Ultra-high-net-worth clients seek guidance in aligning their philanthropic ambitions with tax-efficient strategies, and understanding their options is the surest route to offering them the best possible counsel.

Traditional Charitable Tools: Private Foundations and Their Challenges

For years, private foundations have been the go-to tool for families seeking to institutionalize their charitable giving. Many families established these foundations generations ago, creating structures that allow them to maintain control over grants, set specific goals, and involve family members. However, private foundations come with their own set of challenges, especially for those who wish to maximize their tax benefits with minimal administrative burden.

Private foundations face strict annual distribution requirements, as well as limitations on grantmaking to certain types of organizations. Additionally, managing a private foundation involves considerable paperwork and compliance measures, which can require a significant time commitment and expense. For some families, the foundation’s focus and mission may have also evolved over time, making the original structure less aligned with their current goals.

Donor-Advised Funds: A Modern, Flexible Alternative

Over the past few decades, donor-advised funds (DAFs) have gained popularity as a flexible and tax-efficient alternative to private foundations. Unlike private foundations, which are required to distribute a certain percentage of assets annually, DAFs have no annual payout requirements, offering families more flexibility in timing their gifts. DAFs also provide donors with an immediate tax deduction upon contribution, simplifying tax planning for high-net-worth families looking to maximize charitable deductions.

For families with existing private foundations, combining the use of a DAF with their foundation can create a dynamic charitable strategy that offers both control and flexibility. Many clients find this dual approach to be an ideal way to pursue charitable goals, using the DAF to support organizations that may not fit within the foundation’s original mission or as a resource for smaller, flexible grants.

Transitioning from a Private Foundation to a Donor-Advised Fund

For families facing administrative or compliance burdens, closing a private foundation and transferring assets to a DAF may be an appealing option. Donor-advised funds eliminate the ongoing management requirements and reduce tax burdens, allowing families to focus on giving rather than managing assets. Additionally, partnering with the community foundation can provide them with access to a knowledgeable team that can help facilitate their charitable efforts.

If clients are interested in dissolving a private foundation, the process typically involves several steps:

• Board Approval: The board of the private foundation must approve the decision to dissolve and transfer assets.
• Expense Coverage: Ensure all final expenses will be covered before closure.
• Asset Transfer: Assets are moved to the DAF, preserving charitable intent without the administrative weight of the foundation.
• Dissolution Documentation: File appropriate dissolution paperwork with the state.
• Final Tax Return: Submit a final tax return that reports the foundation’s dissolution and transfer of assets.

Our team at the community foundation is well-versed in supporting families through this process, ensuring a smooth transition and adherence to all legal requirements.

Building a Lasting Legacy with Multiple Charitable Vehicles

Regardless of whether your clients choose a private foundation, a DAF, or a combination of both, the community foundation is here to support your client relationships and philanthropic goals. With either option, families can establish a meaningful legacy, involve multiple generations in giving, and create shared family experiences that foster unity and purpose.

We understand the complexities of charitable planning and are available to offer insights and resources tailored to each family’s unique needs. Our team acts as a secondary resource, leaving you to manage the primary client relationship while ensuring they receive well-rounded charitable guidance.

Reach out to us today to discuss how we can partner with you to support your clients’ philanthropic ambitions. Together, we can help families create charitable legacies that not only reduce tax burdens but also make a lasting, positive impact on the causes they care about most.