With upcoming, untethered liquid funds I am soon expected to receive, I am curious as to what charitable entity you might recommend for donations for two specific donation types: 1. Cash donations to individuals identified by me as being in need of support. These individuals will not need “apply” for a grant. I simply want to give them cash and want a charitable vehicle where I can do so without limitation and/or pomp and circumstance. 2. Cash donations to other qualified charitable organizations.
Instead of making such donations in my “personal” capacity, I would like to place the funds into a vehicle that will allow for tax-free earnings, and will remove the “temptation” for myself and anyone related to me to try to use the funds for personal benefit.
I do not expect to pass this charitable entity down for future generations, and I do not want any payments for services rendered.
Is there an obvious charitable giving vehicle to use or am I envisioning something more complicated than what’s currently available off the shelf?
You don’t say how much money is involved and how significant the charitable contribution deduction would be for you. You have some desires here that do not necessarily fall within a single inexpensive charitable vehicle.
Ordinarily, I would recommend a donor advised fund at a community foundation as a vehicle for making gifts to qualified charities when you don’t want to do it from your personal account. You can get a full charitable contribution deduction for the gift to the DAF when made and the gift can earn tax-free investment income over the years with a relatively small management fee to the sponsoring organization to take care of the legal requirements. Under present rules, you can recommend grants over time with no minimum amount each year. The problem here is that you cannot make grants to individuals from a DAF. If you found an operating charity that makes the kind of grants you envision, you could make grants to that charity and perhaps work out an arrangement under which you could recommend some of the individual recipients.
You might also set up and control a small public charity to which the DAF would make grants so that it will retain its public charity status even without donations from others. You could control its gifts to individuals. The community foundation might not want to play this game, however, since there is serious talk about having the IRS trace donations back to the donor advisor when the DAF grants are used to prevent a recipient from becoming a private foundation.
If you don’t need a charitable contribution deduction for the entire sum and want to make grants personally to individuals, you could do so when you became aware of deserving individuals. The money would do the same good, but since individuals are not charities, you wouldn’t get a deduction for the gifts. And the earnings on the funds you hold until they are given away would be taxable to you.
If you want to be in charge of everything yourself, you could set up a private foundation both to make grants to other charities and to individuals in need. You would have to get advance approval from the IRS to make grants to individuals for study or travel purposes, but not for grants to needy individuals. A private foundation is significantly more costly to set up and operate than a DAF, however, and is subject to other significant restrictions. But if you want personal control over all aspects of this program, while earning (almost) tax-free investment income, it may be the only way to go.
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Wow great question sure lots of people have thought of this ....very thorough answer covering all aspects of IRS, legal and layers of this complicated issue.
Episcopal Clergy have been warned not to accept contributions to the parish Discretionary Fund (a deductible gift) if they are restricted to particular individuals. We have been told authorities consider this Money Laundering and that there have been prosecutions on charges of racketeering.
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