When people think about their personal philanthropy, they often envision writing a check or inputting their credit card information online. However, many people don’t realize that there are multiple other ways to give, some of which provide financial benefits above and beyond a simple tax deduction. Having a conversation with your clients about different ways to give can help them reduce estate and incomes taxes, maximize financial and tax benefits, and sometimes help them create a larger gift than they thought possible.
While it’s true the most common way people support charitable organizations is via cash donations, this article highlights my recommended top 5 ways that an individual can give beyond their checking account. Use this article as a starting point to discuss different gift vehicles with your clients, or share this list with your clients as a resource as they begin to think about their gifting strategy.
- Appreciated Securities – Appreciated securities can encompass stocks, mutual funds, and exchange-traded funds (ETFS). With this giving strategy, your appreciated securities are sent directly from your investment account to your selected charity’s brokerage account. They are then sold by the charitable organization, which does not pay tax on any capital gains. The benefit of this strategy is twofold. Not only are you able to take a tax deduction for the donation, but you also remove the unrealized gain from your portfolio, thus reducing your future tax liability.
- Qualified Charitable Distribution (QCD) – A Qualified Charitable Distribution is a type of donation from an IRA to a qualified charitable organization that allows for special tax treatment. You are eligible to make QCDs starting at age 70 ½; however, the real benefit begins a few years later. Normally when you reach age 73, you are required to start taking distributions from your IRA, which generates income tax. However, by taking advantage of QCDs, any distribution sent to a qualified charity is exempt from taxation, but can still count toward your annual requirement. You can make up to $100,000 in QCDs annually, which makes it a powerful tool in controlling your tax liability in retirement.
- Donor Advised Fund (DAF) – A Donor Advised Fund is a unique giving vehicle that can be used as part of an overarching charitable giving strategy. To establish a donor advised fund, the DAF owner contributes cash or appreciated assets, usually in a larger lump sum, and receives an immediate tax deduction. Once the assets are in the DAF, they can be diversified or invested, and the money continues to grow tax free until the account owner is ready to make individual donations to the charities of their choice. This is an ideal strategy for someone looking for a larger tax deduction in one year. This strategy is sometimes used to offset a unique income event like the sale of a business, where the donor would like to take their time and spread out the gifts to organizations over several years. What’s more, you can combine the above technique of donating appreciated securities to a DAF to reduce your unrealized gains, and once the funds are in the DAF, they can continue to grow tax-free.
- Estate Planning & Bequests – Perhaps the most overlooked philanthropic opportunity is through estate planning and bequests. Many times, an individual will tell their advisor that they wish they could do more charitably, but that they do not have the funds to support it. A bequest is a way to support the charities that you care about while maintaining control of your assets during your lifetime. By including your favorite causes as beneficiaries in your estate plan, you can ensure your charitable legacy lives on. This strategy also allows you to utilize non-liquid assets, such as personal property like artwork, or even your primary residence. When considering this strategy, it is important to work directly with the charity prior to making changes in your estate plan to ensure that they can accept the type of bequest you would like to make. Estate planning is also a great opportunity to get your family involved in your philanthropy and make a plan together.
- Time & Talent – One last avenue for giving charitably is simply with your time or talent. While the pandemic may have made this temporarily more difficult, there are ways to get involved that do not require any monetary support. Be a mentor to youth in your neighborhood, offer to give advice in your field of expertise pro bono, or simply spread the news of organizations in need via social media. Donating your time and talent is one of the best ways to see an immediate impact in your community.
There is little in life that is as rewarding as giving back, and while financial and tax considerations are usually a secondary priority when thinking about philanthropy, the above techniques can help increase the impact you can make. By being strategic in how you give, both you and the charitable organizations you support can benefit.
About the Author
Baili Roy, CFP®
Associate Wealth Advisor & Recruiting Specialist
Baili joined the wealth management industry after graduating from the University of Illinois’ Financial Planning Program in 2017. She was initially drawn to Corient due to the firm’s ability to provide comprehensive financial planning in an environment free from conflicts of interest. She is fortunate to spend her days helping individuals and families live their version of a full life. Baili is a Certified Financial Planner™ professional and in addition to serving clients, she sits on the Board of the Illinois Financial Planning Association. Baili lives in Chicago and is passionate about volunteering with local organizations and expanding the financial planning industry to include more clients and professionals of diverse backgrounds.
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