There are countless reasons we give, and many of them are deeply personal. But like almost anything in life, there are varying ways to go about it.
If you want to make the biggest possible impact with your charitable giving, here are some tips and strategies to consider. We’ll start by examining two of the biggest charitable giving vehicles: donor-advised funds and private foundations.
“The joy of giving is really the goal. We don’t need it to be burdensome.” —Mary Lowell Pettit, Senior Wealth Advisor, Truist
Donor-advised funds can be a simpler, flexible option
Mary Lowell Pettit, a senior wealth advisor at Truist, says a donor-advised fund (DAF) can function like a mini foundation. Compared with a private foundation, donor-advised funds typically require less money and administrative complexity.
“If you want to do more meaningful charitable gifting, maybe all in one tax year, but aren’t ready to set up a private foundation, we’ll often recommend a donor-advised fund,” Pettit says. “You contribute dollars to the fund and benefit from the income tax deduction for that year, and you have the flexibility to gift that money to many different organizations. You don’t even have to know which organizations you plan to give to when you set it up.”
Ashley Alderman, an advice and planning strategist with Truist Wealth, says you can also “superfund” a DAF with some advanced planning if you have a large taxable event on the horizon, like the sale of a business.
“You can frontload your charitable giving in the donor-advised fund in the year you have the large taxable event, get the full charitable deduction for the amount you’re putting into the donor-advised fund, but then dole out the money to the charities over time,” she says.
Similarly, you may be able to find tax efficiencies by donating appreciated stock into a DAF. “By giving appreciated stock, you can save yourself the capital gains taxes, get the income tax deduction, and potentially fund multiple years’ worth of charitable giving,” Pettit says.
With DAFs, it’s important to keep in mind that once you’ve made those contributions, the money or assets must go to charity.
Private foundations can give you more control
While they come with more complexity than a DAF, private foundations can offer you more capabilities and control, especially if you want to make charitable giving a bigger component of your family’s legacy.
“A private foundation is going to allow you to have a much more active role in the administration of the funds,” says Paul Stark, a regional director of advice and planning with Truist Wealth. “You’ll have complete control over granting authority. You can be part of the board. You can build a family legacy, have it in your name, and have your family be involved in operating it.”
Stark says private foundations typically require a lot more startup money—often in the millions—for them to make sense compared with a donor-advised fund.
Kevin Peak, a foundations and endowments specialty practice officer with Truist Wealth, notes that tax planning is one component that factors into the decision to start a private foundation. Let’s say you’ve got a huge liquidity event, like the sale of a business, and want to give millions of dollars to your alma mater or a local animal organization.
“You might say, ‘Well, I really want to give $50,000 or $100,000 each year over a long period of time,’” Peak says. “Setting up a foundation allows you to get more involved with the organization—and see your impact over a longer period of time—versus giving a one-time gift.”
Similar to a DAF, this allows you to spread out your giving and offers the ability to monitor how an organization uses the money you give them over time. If they’re not using the money as wisely as they should, you can find other organizations that will.
“When helping clients choose between a DAF or private foundation, we’ll typically compare the benefits in any given situation,” Stark adds. “There are potential pros and cons to each of them. Sometimes, we even do both.”
6 quick tips to help you make the most of your charitable giving dollars
1. Give appreciated stocks instead of cash: Charitable giving can help you keep your portfolio and tax liabilities balanced. The charity can then sell the stock, and it’s not responsible for any capital gains because it’s a 501(c)(3). “You get the income tax deduction, and you’ve saved yourself on capital gains,” Pettit says.
2. Focus on fewer but bigger grants: “Bunching is probably one of the biggest strategies,” Stark says. “That’s when you aggregate all of your charitable deductions into one year so you can get above the standard deduction.”
3. Make it part of your estate planning: Depending on your assets and goals, there are a lot of different ways you can work charitable giving into your estate plan. “Charitable giving when you pass is one of the best estate tax deductions you can get,” Alderman says. “If you have a philanthropic goal, there are ways that you can use your exemption today and do advanced estate planning strategies, like a charitable trust.”
4. Consider QCDs as an option: If you’re over 70 ½, you can give directly out of your retirement account to a 501(c)(3) charity—also known as a qualified charitable distribution (QCD). Instead of having to recognize the required minimum distribution from an IRA or other retirement account, which are typically taxed at ordinary income tax rates, you can just give it directly to a charity. While there’s no charitable deduction for that, you don’t have to pay the income taxes.
5. Plan your gifting decisions earlier in the year: “This allows you to be intentional about your gifting decisions,” Stark says. “It also affords you a better opportunity to uncover any potential tax strategies with your planners.”
“You can use free resources like GuideStar and Charity Navigator to do your own research while thinking about what charities to give to.” —Paul Stark, Senior Vice President, Regional Director of Advice & Planning, Truist
6. Work with the right specialists: As a Wealth advisor, Pettit says it’s her duty to provide the right resources, expertise, and structure for the giving strategy that makes the most sense for your situation.
“It all comes back to listening and understanding,” Pettit says. “We’re going to make sure that our planning resonates with you and is in line with your goals and values.”
Truist Wealth also has specialists to bring in for different situations in the charitable giving space, which Peak says can be important.
“When you’re thinking about philanthropy and managing or creating a private foundation, there are a lot of people who are legally allowed to do it—but that doesn’t mean they should be doing it,” Peak says. “So it’s important to seek out an expert who can help you understand what your options are.”
Comments regarding tax implications are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.
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