Developing a Charitable Giving Strategy: Where to Begin

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While the benefits of charitable giving year-round are well known, as it presents an opportunity for individuals and families to further their own philanthropic mission and engage younger generations, it can be hard to know where to begin. A robust giving strategy considers the various ways to give, the proper ways to vet charities and how these opportunities further your mission. The process may appear daunting at first, but a thoughtful approach will ensure your gift aligns with your values and maximizes your impact.

What to give

Donating cash is a simple, popular approach that allows charities to put the donation to use immediately. However, donating other types of assets may allow you to maximize the income tax advantages of charitable giving while still fulfilling your mission.

For example, donating appreciated securities is a great way to leverage your charitable giving from an income tax standpoint. Rather than selling those securities, paying capital gains tax and then donating the leftover cash to charity, you can make an in-kind donation of those appreciated securities directly to the charity. You will receive an income tax deduction for the donation, and the charity can sell the securities tax-free.

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Another option is gifting a complex asset, such as an interest in a privately held business or real estate. This technique is often utilized when the owner is considering a sale of the asset. Similar to the approach of gifting appreciated securities, if you donate an interest in a complex asset that is later sold, you will reap the double income tax benefit of the charitable deduction and avoid capital gains tax on the portion that was gifted to charity upon a later sale.

Donors considering this technique should work closely with their advisers to identify a proper charitable recipient, as not all charities are equipped to hold complex assets. Timing of the gift is also an important consideration — if the gift occurs too close to the sale of the asset, the assignment of income doctrine may apply.

Finally, a qualified charitable distribution (QCD) from your individual retirement account (IRA) is an effective way to benefit charity while lowering your tax bill. If your taxable retirement account is subject to a required minimum distribution (RMD), you may direct up to $105,000 (in 2024) from that account directly to a public charity (excluding donor-advised funds). The amount distributed to charity counts against your RMD and will not be included in your taxable income for that year.

How to give

Beyond knowing what to give, it is equally important to know how to give. From direct contributions to split interest trusts, there are plenty of ways to give that best suit you and your family's plans:

Direct contributions. Direct contributions are one of the easiest ways to give to the charity of your choice. You can write a check or work with your financial adviser to wire appreciated securities directly to the organization. Gifts of complex assets require more planning, so you should consult with your financial, tax and legal advisers well in advance of making the gift.

Private foundation or donor-advised fund (DAF). These entities are a great way to create a philanthropic legacy and get your children or other family members involved in your charitable mission. While private foundations and DAFs both make grants to charities, there are key differences between the two, so donors should work with their advisers to determine which vehicle makes the most sense given their goals.

Split interest trust. A split interest trust, such as a charitable remainder trust or charitable lead trust, is a good option for those looking to benefit a charity while also shifting assets to family members or even retaining an income stream for themselves. These are irrevocable trusts that are split into an income interest, which is for a set term, and a remainder interest, which is the balance of assets at the end of the term.

Who should you give to?

After determining how and what you'd like to give, it's time to consider where your donations will go. With more than 1.54 million charitable organizations in the U.S., it's essential to vet these organizations and ensure their missions align with your values.

Unfortunately, donors can often be exposed to scams that seek to benefit from their good intentions and generosity. Before donating, it is important to ensure that your contribution is going to the intended recipient. There are several ways to vet charitable organizations and make an informed decision.

Make sure the charity is in good standing. Use the IRS website's function to research an organization’s standing. Search for a charity by name or employer identification number to find out when an organization was first recognized as tax-exempt, if its tax-exempt status has been revoked and whether contributions are tax-deductible.

Conduct a financial health check. Charitable organizations are required to make their three most recent tax returns available to the public. Review a charity’s tax returns (Form 990-PF for private foundations and Form 990 for other exempt organizations) and supporting documents for its annual income and expenditures, including grants made and salaries paid. Federal returns can be found on the IRS website, and returns for the state(s) in which the charity is registered can be found on the state’s attorney general website. You can also go beyond the numbers and review the organization’s most recent annual report for more detailed information on what a charity has done in the past year to further its mission. This can often be found on the charity’s website.

Get involved. To really get to know an organization before you donate, consider reaching out to see if volunteer opportunities are available. In addition to a financial contribution, you would donate another valuable resource — your time — while gaining an insider perspective on how the charity allocates resources and serves its community. If you are considering volunteering, it can be helpful to contact the charity you are interested in and ask if you can interview current volunteers, donors or board members.

Creating a philanthropic legacy

As you develop a philanthropic strategy, you have an opportunity to involve younger generations. Ask for their help in the vetting process and talk about what causes are important to them. If you have a family foundation or DAF, ask for their input on grants and how and why they chose recipients. Older adolescents may eventually serve as a trustee of or be employed by the family foundation.

When you involve the next generation, this kind of planning evolves past charitable giving and creates an impactful, lasting legacy for you and your family.

The views and opinions expressed are for informational purposes only and are current as of the date of the publication and may be subject to change. Neither, Brown Brothers Harriman, its affiliates, nor its financial professionals, render tax or legal advice. Please consult with an attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Nicole Jackson-Leslie provides guidance to high-net-worth families and individuals throughout all aspects of their estate planning, including generational transfer of family wealth, business succession, philanthropy, next-generation education and tax minimization. Prior to joining the firm in 2018, she practiced at the law firm of Choate, Hall & Stewart LLP in Boston.