Part 1: Achieving Your Charitable Giving Goals

Key Takeaways:

• With charitable planning, you could meet your charitable goals and obtain tax-efficient outcomes.

• Charitable giving helps donors achieve retirement, cash flow, tax, estate and legacy planning objectives.

• Donors may give cash, retirement plan assets and/or appreciated property.

This is part 1 a 3-part series of articles on Charitable Giving. Read part 2 and part 3.

Charitable giving is often guided by a desire to support a specific charitable cause or organization, and that support is often provided in the form of a direct cash gift. However, you can use a variety of charitable-giving vehicles to support the causes and organizations most important to you. These options could also help you achieve your tax, estate and legacy planning objectives. Broader wealth planning goals, such as retirement, cash flow and legacy planning, may also be met with the right combination of assets and charitable giving strategies.

Before assessing which charitable planning strategies may be most appropriate for achieving your charitable giving objectives, you should consider the relative importance of the following questions:

• Is establishing a legacy of charitable giving an important part of your family legacy planning?
• Which charitable causes or organizations are most important to you?
• How much complexity are you willing to incorporate into your planning to achieve a sustained charitable giving plan?
• Do you wish to make large charitable contributions during your life, at death or both?
• Does establishing a pool of funds reserved for charitable giving objectives align with your cash flow and charitable giving practices?
• Is using charitable giving as an income tax and transfer tax mitigation strategy a priority?

While cash gifts are the most common, donors have a variety of options. Donors may contribute nearly every form of property that a charitable organization is willing to accept.

Your answers to these questions may inform the charitable vehicles that are best for you, depending on the complexity required to achieve your charitable giving goals, the tax planning opportunities, and whether charitable giving should be incorporated into your estate plan. Once you answer these questions, you must first decide which assets you wish to contribute to charity.

Which Assets Should You Contribute?

Donors generally begin the charitable-giving process with a specific asset in mind, and that asset is most often cash. While cash gifts are the most common, donors also have a variety of other options. In fact, donors may contribute nearly every form of property that a charitable organization is willing to accept. The characteristics of the assets you intend to use for funding your lifetime charitable gifts — and the tax attributes of those assets — may govern your decision about the best assets to contribute.

Take a look:

• Cash: Cash gifts to a charitable vehicle always generate the largest available income tax deduction and are appropriate for any charitable organization or charitable vehicle. However, non-cash assets (retirement plan assets and gifts of appreciated property) may be more tax efficient, net of taxes.
• Retirement Plan Assets: Cash distributed from retirement accounts may be used for charitable giving, but this may not be ideal because the amounts distributed from non-Roth accounts are subject to ordinary income tax. However, once you have reached age 70 ½, you may elect to make a qualified charitable distribution (QCD) from most non-Roth IRAs (Traditional, inherited and inactive SEP and SIMPLE IRAs). A QCD allows an IRA account owner to distribute up to $100,000 of retirement plan distributions, otherwise subject to ordinary income tax, to one or more charities each year. Secure Act 2.0 indexed the $100,000 QCD limit to inflation beginning in 2023. QCDs are particularly useful for those account owners who have reached age 73 and are taking required minimum distributions (RMDs) that they do not need. This is because any amount treated as a QCD may be applied toward satisfying your current year RMD obligation, and the entire amount of the QCD is excluded from your taxable income.
• NOTE on QCDs: Direct distributions to private foundations, supporting organizations and donor-advised funds do not qualify for QCD treatment. Amounts distributed to you first, then contributed to the qualified charity, do not qualify for QCD treatment. Before making a distribution, you should consult with your tax advisor to confirm that your retirement account and the charity qualify for QCD treatment.
• Gifts of Appreciated Property: While gifts of appreciated property may not generate the income tax deduction that cash gifts of equivalent value would produce, you must assess the tax impact of selling an asset with a built-in capital gain. Selling an asset with a capital gain will not only generate a taxable gain, but this additional income may also push you into higher tax brackets. Simply gifting an appreciated asset to a charitable vehicle may be more efficient, net of taxes, and likely more administratively efficient as well. This analysis is very specific to the asset, the individual donor and the charitable vehicle.

While cash gifts are the most common, donors also have a variety of other options. In fact, donors may contribute nearly every form of property that a charitable organization is willing to accept.

While writing a check to a charitable organization may be the simplest form of charitable giving, some donors are reluctant to write a large check to a single organization due to cash flow considerations, a desire to allocate charitable contributions among various causes and organizations, and concern regarding a charitable organization’s operational efficiency or use of funds.

Fortunately, there is a spectrum of lifetime charitable giving vehicles that range from the simple to the complex. Some are most suitable for specific types of assets and some work best for large gifts distributed through a grant-making program. Others are better suited to potentially achieving long-term charitable giving or tax planning objectives.

Charitable giving may be accomplished during your life or after your death in a variety of ways. Thoughtful analysis and planning — supported by your advisors — presents opportunities to achieve multiple personal wealth and legacy planning goals, including supporting your favored charitable organizations or causes.

The most effective and efficient charitable giving involves a process of identifying the following: the best assets, desired charitable vehicles and organizations, most tax-efficient strategies, and the legacy of charitable giving you wish to cultivate in your family. The first step in the process is speaking to advisors who will guide you toward achieving your short- and long-term charitable giving objectives.

The most effective and efficient charitable giving involves a process of identifying the best assets, desired charitable vehicles and organizations, most tax-efficient strategies, and the legacy of charitable giving you wish to cultivate in your family.