Charitable Giving
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Taxes
Charitable Giving Vehicles: An Overview
Charitable giving can be accomplished in many ways, each with its own rules, tax benefits, and operational features. Below are some of the most common vehicles: pooled income funds, donor advised funds, direct gifts of capital assets, charitable remainder trusts, and private foundations.
Charitable giving can be accomplished in many ways, each with its own rules, tax benefits, and operational features. Below are some of the most common vehicles: pooled income funds, donor advised funds, direct gifts of capital assets, charitable remainder trusts, and private foundations.
Pooled Income Funds
What is it?
A pooled income fund is a type of trust established and maintained by a public charity. Donors contribute assets to the fund, which are pooled with contributions from other donors. The fund invests these assets, and each donor (or their chosen beneficiaries) receives a proportional share of the income generated for life. When the beneficiary dies, the remaining value of their share goes to the charity.
How does it operate?
The fund is managed by the charity.
Donors receive income based on their share of the fund’s earnings.
After the donor or beneficiary passes away, the charity receives the remainder.
How can a donor contribute?
Donors transfer cash or securities to the pooled income fund.
The donor receives a charitable deduction for the present value of the remainder interest that will eventually go to the charity.
No capital gain is recognized at the time of the gift.
Relevant Statute:
IRC §642(c)(5) – Special rules for credits and deductions (definition and rules for pooled income funds)
2. Donor Advised Funds (DAFs)
What is it?
A donor advised fund is a charitable giving account offered by a public charity. Donors make irrevocable contributions to the fund and receive an immediate tax deduction. The donor can then recommend grants from the fund to qualified charities over time.
How does it operate?
The donor contributes cash, securities, or other assets to the DAF.
The sponsoring charity legally controls the fund, but the donor can advise on how the funds are distributed.
The donor can recommend grants to IRS-qualified public charities.
How can a donor contribute?
Make a contribution to a DAF sponsor (such as a community foundation or national charity).
Receive an immediate tax deduction for the full amount contributed.
Advise the fund on future grants.
Relevant Statute:
IRC §4966 – Definitions and rules for donor advised funds
3. Direct Gifts of Capital Assets
What is it?
A direct gift of capital assets involves donating appreciated property (such as stocks, bonds, or real estate) directly to a charity.
How does it operate?
The donor transfers ownership of the asset to the charity.
The donor generally receives a deduction for the fair market value of the asset.
The donor does not pay capital gains tax on the appreciation.
How can a donor contribute?
Transfer the asset directly to the charity.
The charity sells the asset and uses the proceeds for its mission.
Relevant Statute:
IRC §170 – Charitable, etc., contributions and gifts
4. Charitable Remainder Trusts (CRTs)
What is it?
A charitable remainder trust is an irrevocable trust that provides income to the donor or other beneficiaries for a period of time (often for life), with the remainder going to one or more charities.
How does it operate?
The donor transfers assets to the trust.
The trust pays income to the donor or other beneficiaries for a set term or for life.
When the term ends, the remaining assets go to the designated charity.
Types:
Charitable Remainder Annuity Trust (CRAT): Pays a fixed dollar amount each year.
Charitable Remainder Unitrust (CRUT): Pays a fixed percentage of the trust’s value, recalculated annually.
How can a donor contribute?
Create a trust document and transfer assets to the trust.
Receive a charitable deduction for the present value of the remainder interest.
The trust can sell appreciated assets without immediate capital gains tax.
Relevant Statute:
IRC §664 – Charitable remainder trusts
5. Private Foundations
What is it?
A private foundation is a nonprofit organization typically established by an individual, family, or corporation. It makes grants to other charities or individuals for charitable purposes.
How does it operate?
The foundation is a separate legal entity, usually funded by a single source.
It is subject to stricter IRS rules and reporting requirements than public charities.
The foundation must distribute a certain percentage of its assets each year for charitable purposes.
How can a donor contribute?
Establish a foundation and contribute assets to it.
Receive a charitable deduction, subject to lower AGI limits than for gifts to public charities.
The foundation’s board (often the donor and family) controls grantmaking.
Relevant Statute:
IRC §509 – Private foundation defined
IRC §4940-4945 – Excise taxes and operational rules for private foundations
Vehicle | What is it? | How does it operate? | How to Contribute | Key Statutes and Links |
|---|---|---|---|---|
Pooled Income Fund | Trust managed by charity, pays income to donor | Donor gets income for life, remainder to charity | Transfer assets to fund | |
Donor Advised Fund | Giving account at public charity | Donor recommends grants, charity controls | Contribute to DAF sponsor | |
Direct Gift of Capital Asset | Donate appreciated property directly | Charity sells asset, donor avoids capital gains | Transfer asset to charity | |
Charitable Remainder Trust | Irrevocable trust, income to donor, remainder to charity | Trust pays income, remainder to charity | Create trust, transfer assets | |
Private Foundation | Nonprofit grantmaking entity | Foundation makes grants, must meet payout rules | Establish foundation, contribute |
Note:
This article is for general informational purposes only. For specific tax advice, consult a qualified tax professional or attorney.
Last Updated
Thursday, October 23, 2025