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How to Establish a Charitable Giving Strategy

Dylan Dunlea, CFP®, CDFA®

Director of Financial Education

Last Updated
April 29, 2022
Man's hand passing along check to charity

Tips to Help Maximize Your Impact

Giving to charity can be as simple as writing a check, which any organization would be grateful to receive. However, if you’d like to be more intentional in your giving, it may make sense to establish a charitable giving strategy. Not only can planned giving enhance the tax efficiency of your gifts but it can also help you have a greater positive impact on the charities you wish to support. The following tips can help you establish a charitable giving strategy.

Step #1 – Establish your goals.

Before jumping into charitable giving, take some time to consider what you hope to achieve. Do you want to find homes for stray animals? Help children learn to read? Support research into a particular disease that has impacted you or someone you love? Feed the hungry?

As you’re narrowing down your options, consider what life experiences have impacted you. Maybe you received a college scholarship that provided an opportunity you wouldn’t have otherwise had. Perhaps a loved one struggled with addiction, and you’d like to support a recovery community. Finding a cause that speaks to you can help focus and inspire your giving efforts.

Step #2 – Choose the organization(s) you wish to support.

While there are many wonderful, worthwhile charities to choose from, there are also ways to fall victim to charity scams. Before you donate to an organization, do some research to make sure it’s a reputable one. The first thing to look for is 501(c)(3) status, which indicates the organization has met IRS requirements to be exempt from federal income tax. It also indicates that the organization must pay its employees fair market wages and must not deviate from its mission or purpose.

As you’re researching charities, it’s important to gain an understanding of the following:

  • Mission – What is the purpose/mission of the organization? Is it in line with your charitable giving objectives?
  • Actions – What specific actions does the organization take in pursuit of its mission?
  • Impact – How does the organization measure its impact? Can it provide evidence that its past actions have resulted in progress toward achieving its mission?
  • Finances – Is the organization financially stable?
  • Leadership – Is the charity led by strong, capable and dependable leaders?
  • Key contributors – Who are the major donors to the organization? Do those donors share your values?

To help answer these questions, consider researching potential organizations on websites such as Charity Navigator and GuideStar.

Step #3 – Determine your approach.

The next step is to determine the best approach for giving. There are many ways to donate to charities, and each has different characteristics and tax implications. Several options for giving include:

  • A direct gift of an asset to a charity – The two most common types of charitable donations are cash and marketable securities. Many 501(c)(3) qualified organizations can also accept less traditional donations, such as real estate and grain. However, some non-traditional assets, such as art and collectable coins, can be more challenging.
  • A gift to a donor-advised fund (DAF) – A donor-advised fund is a charitable fund that houses donations for current and future giving. The donor who makes a gift to the fund retains control over the timing of its distributions and the organizations to which donations are made.

For example, suppose that in 2022 John and Mary Smith donate $100,000 to a DAF at a particular community foundation. The $100,000 can no longer be accessed by Mr. and Mrs. Jones for their personal use. However, the Smiths can dictate the timing of donations (2022, 2023, 2024, etc.) to their charities of choice. The amount of the gift and the underlying assets remaining in the fund can be managed by an advisor, such as Creative Planning. There is no deadline for the distribution of funds, and the Smiths aren’t locked into any specific charity; multiple charities can be chosen, if desired.

  • A gift to a family foundation – A private family foundation is established and funded by a family in order to serve the family’s philanthropic priorities. Typically established by ultra-high-net-worth families, a family foundation is often run by family members who make decisions on how it is used. The charitable focus of a family foundation can change over time as new family leaders take over its allocation.
  • A gift to a charitable trust – There are various types of trusts that can be used for charitable giving. Examples include a charitable lead trust and a charitable remainder trust.

At Creative Planning, we work with clients to maximize their charitable impact while minimizing their tax liability. If you would like help implementing a charitable giving strategy, or with any other financial matter, schedule a call with a member of our team.

 

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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