The Power of Charitable Giving
Most people view charitable giving as a way to help a specific person or group in need, but the impact often goes much deeper than that. Done strategically, charitable giving can impact several layers of people—an organization and the community as a whole; the giver and the recipient. Here are some different ways your generosity can impact those around you:
- Ignite Positive Change: Your charitable contributions can support initiatives you feel passionate about, like education, healthcare, environmental conservation, or social justice. You might even be personally connected to a cause—maybe your family has a history of heart disease, so you give to the American Heart Association; maybe you want to enhance your grandkids’ education, so you focus on giving back to their school system.
- Build a Meaningful Legacy: Your generosity has the power to inspire future generations. Maybe a student receives a scholarship from a foundation you founded and feels inclined to support other students in the future; maybe your granddaughter sees your dedication to helping those in foster care and later becomes inspired to volunteer or donate.
- Make Decisions You’re Proud Of: You might make a few regretful financial choices in your lifetime—it’s not uncommon, no matter how successful you are. But I haven’t met a single person who regrets giving away their money to a worthy cause. So in addition to helping others, you benefit from knowing you’re doing good in the world.
When you align your spending with your values and support causes that truly matter to you, your impact goes far beyond the dollar amount you donate.
Strategies for Maximizing Charitable Giving
For high-net-worth individuals, philanthropy can also be a strategic component of your financial plan. Below are some ways charitable giving can help minimize your tax burden and support your overall financial goals.
- Charitable Remainder Trust (CRT) – A Charitable Remainder Trust allows you to donate assets while retaining the right to receive income (of a specific dollar amount or fixed percentage) from those assets for a specified period. This strategy provides an immediate charitable deduction and can help diversify your investments while reducing capital gains tax.
- Charitable Lead Trust (CLT) – When you donate assets to a Charitable Lead Trust, the trust pays income to a charity for a specified period. After that, the remaining assets go to your beneficiaries. This strategy can provide significant gift- and estate-tax benefits while supporting your chosen charities.
- Appreciated Securities – Donating appreciated stocks or other securities can be one of the most tax-efficient ways to give. By donating assets that have increased in value, you can avoid capital gains taxes while receiving a deduction for the fair market value of the securities at the time of the donation.
- Life Insurance – If you have a life insurance policy that you and your beneficiaries no longer needed, consider donating it to a charity. You can receive a tax deduction for the policy’s fair market value and reduce your taxable estate. If you don’t want to give away the entire policy, you can enact a split beneficiary, where a percentage of the death benefit is donated to charity.
- Corporate Giving – Today’s tax rules make it a little more complicated for individuals to deduct their charitable gifts. However, if you own a business, your company might benefit from making a charitable contribution. Ask your tax professional to see if it’s the right strategy for you and your business.
On the flip side, if you don’t own a business, ask your employer about matched giving. Many employers will match your charitable contributions, which is a great way to double the value of your gift. - Qualified Charitable Donation – If you’re 70 or older and your retirement accounts are subject to required minimum distributions (RMDs), you can make a distribution directly to a charity of your choice—this gift counts toward your RMD, and it’s tax free.
Incorporate Your Family
A common concern for parents is whether their kids will support their charitable giving after they’re gone. That’s why we encourage clients to include children and other affected family members in discussions about charitable giving and other future financial plans.
In some families, the kids are responsible for researching a cause each year that they believe should be supported. That way, everyone stays in the loop and feels more invested in the plan.
“Where do I start?”
Maximizing your charitable giving as a high-net-worth individual is not just about making donations to minimize taxes; it’s about creating a strategic, impactful approach to philanthropy that aligns with your values as well as your financial goals.
There are many details to consider, and some of these strategies require complex calculations. That’s why it’s important to discuss your plan with a financial advisor who is not only well-versed in charitable giving, but will take time to understand what’s important to you.
We have extensive experience serving affluent families and professionals, and we’re passionate about helping our clients make a meaningful difference through their charitable contributions. If you’d like to discuss your charitable giving strategy, we’d love to meet with you.