1. Introduction
2. Investment vehicle characteristics
3. Recommendations & strategies
3.1 Type of client
3.1.1 Retail & institutional
3.1.2 Business entities
3.1.3 Estates, foundations, & charities
3.1.4 Trusts
3.2 Client profile
3.3 Strategies, styles, & techniques
3.4 Capital market theory
3.5 Tax considerations
3.6 Retirement plans
3.7 Brokerage account types
3.8 Special accounts
3.9 Trading securities
3.10 Performance measures
4. Economic factors & business information
5. Laws & regulations
6. Wrapping up
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3.1.3 Estates, foundations, & charities
Achievable Series 66
3. Recommendations & strategies
3.1. Type of client

Estates, foundations, & charities

In addition to retail, institutional, and business clients, financial professionals can open accounts for estates, foundations, and charities. We’ll explore each client type in this chapter.


When a person passes away, assets are left to their estate in many circumstances. Unless there’s a contractual agreement (e.g., a transfer on death designation or trust agreement) related to the deceased person’s assets, they become the property of their estate upon death. Those assets are then claimed in probate court.

A will is a legal document that directs a person’s assets to beneficiaries upon death. People die either with a valid will in place (known as testate) or without one (known as intestate). Wills require the designation of an executor, a person or entity responsible for paying off the deceased’s debts and distributing assets to beneficiaries. After a person dies, their named executor presents the will to the probate court. If it is verified as legitimate, the court provides letters testamentary, a document legally declaring them as the executor. From there, the executor’s job is to pay off the decedent’s debts, then distribute the remaining assets to beneficiaries according to instructions made in the will.

If a will does not exist, a family member or friend typically petitions the probate court to be named administrator of the estate. The administrator has a similar role, although they do not have a will to guide the distribution of assets. Often, the probate court assists in determining how the assets are distributed.

Having a valid will in place prior to death
Executor of an estate
Person appointed in a will to handle a decedent’s estate
Not having a valid will prior to death
Administrator of an estate
Person appointed by the probate court to reside over the estate of someone who died intestate
A deceased person

Estate accounts are fiduciary accounts, subject to fiduciary-specific rules and regulations. In particular, the executor or administrator must put the interests of the estate beneficiaries before their own. Estate assets are typically distributed within a few months, so the executor or administrator typically will not be investing for long-term purposes.

Foundations and charities

Combining the benefits of investing with charitable contributions is becoming increasingly popular. Investing for charitable purposes typically involves impact investing, also called socially responsible investing. As quoted by a Fidelity Investments charitable giving site:

Impact investing is the act of purposefully making investments that help achieve certain social and environmental benefits while generating financial returns. It’s a broad term that refers to everything from investing in companies with an explicit mission aligned with your values to avoid investing in companies that do not meet those criteria.

Impact investing is common for charitable investments. Would it make much sense to invest in oil companies when aiming to donate to charities focused on climate change? Probably not. Instead, investments in green energy companies would better align with the overall philanthropic goals of the investor.

There are three typical ways to donate assets or securities to charitable causes:

  • Direct donations to a charity
  • Creation of a private foundation
  • Donor-advised funds

Direct donations to a charity

As the title suggests, investors can simply donate assets or securities directly to the charity of their choice. Donations are typically tax-deductible, resulting in lower taxes for the donor.

In many circumstances, it’s more beneficial to donate securities than cash. For example, let’s assume an investor purchases $80,000 of stock that rises to $100,000 after a few years, and now wants to donate the $100,000. The investor could liquidate the position and donate cash, but the sale would trigger a long-term capital gains tax of up to 20%. Instead, the investor could donate the $100,000 stock position; by doing so, they can deduct the $100,000 against their income and avoid paying capital gains taxes.

Donating a security is best when a donor maintains an unrealized gain (gain on a security that has yet to be sold). However, if the investor maintains an unrealized capital loss on a position they wish to donate, it’s likely best to liquidate the position and donate cash. This results in a tax-deductible capital loss on the security sale and the tax deduction for the donation.

Regardless of how assets are donated to charity, donors obtain some form of tax relief. Many investors utilize charitable giving as a part of their estate planning. For example, Warren Buffet has pledged to give away 99% of his wealth to philanthropic causes. The more given to charity, the less an individual or estate is subject to taxation.

Creation of a private foundation

A private (non-governmental) foundation is an organization formed for the sole purpose of charitable giving. One of the most well-known examples is the Bill and Melinda Gates Foundation. To fund their foundation, Bill and Melinda Gates donated a significant portion of their wealth (they’ve pledged over $100 billion in funding to the organization). This is typical for this form of charitable giving; individuals or organizations privately fund them without requesting public donations. Investors wanting to donate to charitable causes this way generally must establish their own foundations. There’s no need for billions to accomplish this task; roughly 66% of private foundations maintain less than $1 million in assets.

Once a private foundation is funded, it is managed by the Foundation Board (similar to a corporation’s Board of Directors). The Board’s role is to manage foundation assets, identify charitable giving opportunities, then donate the foundation’s assets when needed.

Like direct charity contributions, assets used to fund private foundations are generally tax-deductible.

Donor-advised funds

An increasingly popular vehicle for donating assets to charities is donor-advised funds (DAFs). Instead of making direct contributions to charities or forming a private foundation, investors establish “giving accounts” at financial institutions. Companies like Fidelity and Charles Schwab offer these accounts.

Investors can contribute a wide range of assets to giving accounts, including cash, securities, and even cryptocurrencies. After the contribution is made, the donor (or their adviser) manages the assets. As the account value (hopefully) grows over time, the donor eventually identifies an eligible charity to fund. When the donor elects to make a donation, the firm maintaining custody of the giving account distributes the assets to the charity.

Charities generally must be 501(c)(3) public charities to be eligible for DAF contributions. This designation is provided by the Internal Revenue Service (IRS), which essentially validates the organization as a legitimate charity. There are two types of 501(c)(3) organizations - private foundations and public charities. The biggest distinction between the two is funding. As we discussed above, private foundations are funded internally by their founders. Conversely, public charities are funded by public donations from non-affiliated individuals and organizations.

Like direct donations and contributions to private foundations, DAF contributions are tax-deductible to the donor.

Key points


  • Represent assets owned by the decedent
  • Debts paid off by the executor or administrator
  • Assets distributed to beneficiaries by executor or administrator

Impact investing

  • Also known as socially responsible investing
  • Aligning societal concerns with investing outcomes

Charitable donation of securities methods

  • Direct donations to charities
  • Creation of a private foundation
  • Donor-advised funds

Private foundations

  • Organizations formed for charitable giving purposes
  • Funded internally by founders
  • Contributions are tax-deductible
  • The Foundation Board:
    • Manages the foundation’s assets
    • Identifies charitable giving opportunities
    • Donates assets to charitable opportunities

Donor-advised funds (DAFs)

  • Accounts established at financial firms for charitable giving
  • Investor (donor) contributes cash, securities, or other assets to account
  • Contributions are tax-deductible
  • Account is managed by investor or adviser
  • Investor identifies public charities for donation
  • Upon the investor’s request, the firm releases assets to the charity

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