A Smarter Way to Approach Charitable Giving

October 18, 2019

A Smarter Way to Approach Charitable Giving by Danyell Jones, Wealth Management Specialist, Accredited Asset Management Specialist, and Financial Advisor.

Two new studies conducted at the University of Chicago and Northwestern University found that giving to others makes us happier than giving to ourselves.

What many people may not realize is that philanthropic giving can be even more meaningful when done in a way that is well-aligned with strategies that match your intentions and your personal financial situation. Here are a few things to consider as you contemplate the end of year giving.

Identifying Charitable Interests

Consider having a charitable mission statement for yourself and your family.  Take the time to talk about organizations that are meaningful to you personally, or to the community as a whole. This not only helps you to more strategically give, but also helps you politely decline organizations that fall outside of your philanthropic mission for the year. 

After you have identified a few organizations, evaluate them effectively to ensure that the funds that you are donating are having the maximum impact.  Consider researching these organizations on websites such as Charity Navigator, BBB Wise Giving Alliance, GuideStar and Give Well.

Remember that organizations can do more with larger gifts – so consider making larger donations to fewer organizations throughout the year to maximize your philanthropic impact.  You may also want to consider being loyal to the same organizations year over year.  Non-profit organizations that have consistent donors are better able to do strategic planning and effectively work toward their missions.

Timelessly Simple Ways to Give

Writing a check. This is one of the easiest ways to gift, especially for those who give sporadically to a limited number of charities.

Donating appreciated securities. Doing so means you’ll receive an immediate tax deduction and can help you avoid paying capital gains tax on the appreciated portion of their value. Gifts also have the potential to reduce future estate taxes.

Donor-advised funds (DAFs). Think of this as a charitable checking account. DAFs combine the ease of direct giving with the benefits of a private foundation – with less work and time commitment. Because the funds are sponsored by a charitable organization, donors avoid the cost and upkeep of creating a foundation, but still have a hand in the grant-making decisions and can even name the fund itself. To get started, you make an irrevocable contribution (e.g., cash or marketable securities) to the fund. You take an immediate tax deduction, subject to income limitations; the fund sells and reinvests the assets, and you help direct when and how the proceeds are used, often with a few simple clicks online.*

Bunching. If you’re charitably inclined but won’t have sufficient itemized deductions to exceed the increased standard deduction, you may wish to bunch deductions by making a large charitable gift during a single year, equal to the total donations you would have made over several years. This can help you take advantage of itemizing in the year of your large donation while taking the standard deduction in future years. This strategy can work particularly well with donor-advised funds, described above.

Volunteering. Donating your time can give you an insider’s view of the organization, its people and practices. Plus, it feels good to give back.

Seriously Sophisticated Philanthropy

Charitable remainder trusts. A significant step up for serious donors, this popular, irrevocable trust allows you to donate an asset, which the trustee will sell and reinvest the proceeds in an income-producing portfolio. You then receive the tax deduction, as well as a percentage or fixed amount of income. When you pass away, the remaining funds go to the designated charity.

Charitable lead trusts. As with the CRT, you gift an asset which then funds a portfolio, but the CLT reverses the payout order. The charity receives the annual (or lead interest) income for a set number of years; afterward, the remainder passes back to you or other designated beneficiaries.

Gifting life insurance. If you have a policy that is no longer needed for its original purpose, you can use it to maximize a charitable gift and minimize exposure to estate taxes by transferring ownership to a charitable organization or naming the organization as beneficiary. There are other strategies as well. Ask your tax and financial advisors about wealth replacement and maximum gifting using life insurance.

Charitable gift annuity. This is a simple contract between a donor and a qualified charity. The donor contributes cash or assets and is entitled to a charitable tax deduction (subject to income limitations) for a portion of the donation. The charity agrees to pay a fixed sum to designated recipients annually. Any remainder reverts to the charity.

Giving Wisely & Personally

As mentioned, year-end giving can be personally meaningful –as well as financially significant.  As you approach your end of the year giving I invite you to consider using more sophisticated strategies as part of a philanthropic plan and to consider supporting meaningful organizations in our local community such as Tampa Bay Wave. I can think of no better gift than one that supports the development of technology, the fostering of innovation, and the overall growth of not only individual companies – but our local economy. 

Happy Giving.

Danyell Jones is a Wealth Management Specialist, Accredited Asset Management Specialist and Financial Advisor at Raymond James Financial.