The holidays are fast approaching, and for those of you who choose to give charitably, giving strategies may be at the forefront of your mind. Not only do many organizations need help around the holidays, but marrying an effective giving strategy can provide tax benefits to you, the donor, as well. Many charitable vehicles are available, including (but not limited to): Charitable trusts, private foundations, donor-advised funds, and outright gifts. But before arriving at the best method for you, it’s important to consider the following:

  • What are your charitable goals?
  • How much are you currently giving?
  • How much would you commit to giving in the future?
  • What will be your taxable income both this year and in the future?
  • How much would you like to leave as a legacy after you’re gone?
  • How involved would you like your family to be in the giving process?

Generally, charitable trusts and private foundations are considered by individuals who have at least $500,000 available for philanthropy or intend to make significant lifetime contributions. Otherwise, outright gifts or donor-advised funds may be more appropriate.

The simplest, easiest, and most familiar way to give is through an outright gift. Most often this is accomplished through writing a check to the charity of your choice. In return, you’ll receive a tax deduction limited to 50 percent of your adjusted gross income (AGI). Surprisingly, many investors overlook the benefits of giving away highly appreciated stock. While the tax deduction is limited to 30 percent of your AGI, you may avoid future long-term capital gains taxation, which may be as high as 20 percent (plus a 3.8 percent Obamacare surtax).

Benefits Of A Donor-Advised Fund

A donor-advised fund (DAF) makes it easy for donors to give charitable gifts over a long period. A DAF is like a private foundation, but it requires less monetary resources, time, legal assistance, and administration. Like a private foundation, a DAF enables a person to make a charitable donation now and decide later to whom they want to give, and like an outright gift, a DAF can accept cash or appreciated property.

Donor-advised funds are typically maintained by 501(c)(3)-sponsoring organizations. If you have a donor-advised fund, you can make ongoing, nonbinding recommendations to the DAF as to how, when, and where grants from the fund should be made. You can also offer advice on how contributions should be invested. The one catch though: the fund is not obligated to follow any of your suggestions–hence the name “donor-advised fund.” But generally, the DAF will follow a donor’s wishes.

Is A DAF Right For You?

A DAF enables you to make a tax deductible gift today, but puts the gift to work into an investment program to create a legacy for tomorrow. You determine when, how much, and to which organizations you want to give, and a DAF creates a central vehicle for you to give to over time.

Perhaps more importantly, a DAF might be viewed as a savings account for charity, which can in turn promote family discussions on philanthropy. Hosting a family meeting at Thanksgiving to discuss this year’s gift will draw your children and grandchildren into the discussion of family values, and give them a stake in the process.

Your financial advisor can lead you through a discussion about the best method for your charitable giving goals this holiday season.

By Douglas Feller, CFA®, CFPTM
Securities offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Investment Partners LTD is a Registered Investment Adviser. Advisory services and fixed insurance products and services offered by Investment Partners LTD are separate and unrelated to Commonwealth. Investment Partners, LTD is located at 5775 Perimeter Drive, Suite 230, Dublin, Ohio, 43017, 614-761-9087. 

Back to news listing