Navigating Philanthropy: A Guide to Charitable Giving Options

When it comes to philanthropic giving, understanding the different methods and their implications can help you make informed decisions that align with your financial goals and charitable intentions. Below, we’ll provide a brief overview of several popular options available to you, each with unique benefits and considerations.

Donor-Advised Funds (DAFs): A charitable savings account that allows you to donate without choosing a charity right away. The money grows tax-free in the account until you, your family, or designated heirs can recommend grants to public charities. All contributions to the account are immediately tax deductible and as such are legally controlled by the organization that offers it. You may make grant recommendations to a variety of local or national non-profit organizations at any time throughout the life of your account.  Contributions to a DAF are irrevocable.  The deduction for contributing to a donor-advised fund can be up to 60 percent of adjusted gross income for cash and 30 percent of adjusted gross income for long-term publicly traded appreciated securities.

Private Foundations: An independent charitable entity organized under Sec. 501(c)(3).  The deduction for contributing to a private foundation can be up to 30 percent of adjusted gross income for cash and 20 percent of adjusted gross income for long-term publicly traded appreciated securities (lower than a DAF).  Although private foundations are exempt from federal income tax, their investment income is subject to an excise tax of 1.39 percent.  You will need to consult a CPA or lawyer to set up the foundation, draft and file its articles of incorporation, mission statement, and other documents, and obtain the foundation’s tax identification number from the IRS.  One of the benefits is expenses related to the operation of the Foundation can be expenses.  When the mission and longevity are large enough, this can be a more attractive way to execute a philanthropy goal.

Charitable Remainder Trusts (CRTs): A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust that allows a donor to donate assets to charity while still receiving income for themselves or their beneficiaries. The trust can pay out income for a set number of years or for life, and the payout percentage must be at least 5%. The remaining assets in the trust are then given to charities at the end of the income stream.  The benefit here is that you get the use of the assets while alive and a streamlined way to gift the charities at the end of the trust.

Charitable Gift Annuities (CGAs): A charitable gift annuity (CGA) is a contract between a donor and a charity where the donor gives a large gift to the charity in exchange for a fixed income stream for life. The donor can use cash, securities, or other assets to make the gift. The charity then sets aside part of the gift in an account to be invested, while using the rest immediately for its charitable purposes. The charity is legally obligated to provide the donor and up to one other beneficiary with regular income payments until the last beneficiary dies.

Qualified Charitable Distributions (QCDs): Allows you to send some or all of your required minimum distribution (RMD) to a charity and avoid income taxation. Your financial institution issues the check directly to the charity.

• Double Tax Benefit: When coming directly from your IRA you are taking advantages on two fronts.
  • The first is that you are deferring taxes and lowering your taxable income in the year you are contributing to your IRA.
  • Secondly, as you opt to use QCDs for your RMD these are not taxed upon distribution like a normal distribution would be. Therefore, saving in taxes once again.

Donate stock: Donating stock directly to a charity can potentially eliminate capital gains tax.

Each of these options comes with its own set of benefits and requirements, so it’s important to consider which aligns best with your financial situation and philanthropic goals. Consulting with a financial advisor or tax professional can also help you navigate the complexities and maximize the impact of your charitable giving.

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.