How to Create a Charitable Giving Plan

How to Create a Charitable Giving Plan

June 07, 2024

Americans are very generous. According to Fidelity, Americans give over $400 billion to charities each year, most of which come from individual donors. Over the years, despite periods of economic downturn, giving has grown above the inflation rate.

People give for a variety of reasons, and philanthropy has the potential to provide cognitive, emotional, and financial benefits to those who donate. Some find personal satisfaction in helping to improve their communities, while others take a broader approach to tackling global concerns. The goal is exploring and participating in missions that share the values you and your family hold dear.

Giving is more than just writing a check. It represents a meaningful experience and direction that helps to create an enduring impact felt by your family and by those you are helping. Consider these four steps to take when creating a giving plan.

Key Takeaways

  • Incorporate charitable giving into your financial planning while working to address tax and legacy planning goals.
  • Consider which charitable strategy works for you and your philanthropic aspirations.
  • Learn the benefits of donating various assets while feeling good about your impact and the benefit you are hoping to do for your community and the world.
  • Discuss your intentions for giving with your family so they understand how it aligns with your family’s values.

1.     Determine why you want to give.

Charitable giving is a deeply personal choice, generally guided by core values and the desire to make a meaningful impact. Many who give also seek out measures that can benefit them or their legacy in a variety of ways.

Consider these questions as you create a charitable giving plan:

  • If you have given lately, which gifts have been most meaningful and align with your values?
  • How have your charitable giving decisions been influenced by your life experiences?
  • How comfortable are you discussing your charitable goals and strategies with your family?
  • What are the results you anticipate seeing through your giving strategy?

Look back on your previous gifts and donations over the years to determine which ones were the most meaningful and enjoyable so you can create a more focused charitable giving strategy for the future.

2.     Design a strategy.

Generally, when someone thinks about donating to a charity, cash and checks come to mind, which are the most common ways to donate. However, there are alternative strategies that provide a measure of contributing that might be larger in value while simultaneously helping to give you a more sufficient tax benefit.

Several different ways to give:

  • Donating publicly traded securities that have appreciated and that you have owned for more than a year, including:
    • Stocks
    • Bonds
    • Mutual Funds
    • Index Funds
    • Life Insurance
  • Offering assets that have appreciated but are not publicly traded, such as:
    • Real estate interests.
    • Shares of a privately owned business.
    • Restricted or private company stock.

Determine which tax advantages motivate you:

  • Capital gains tax
    • Long-term assets – These are assets that are owned for more than one year. Most taxpayers are subject to a 15% capital gains tax depending on filing status and adjusted gross income (AGI). Some taxpayers in the higher bracket may face a 20% rate along with a 3.8% Medicare surtax on net investment income.
    • Short-term assets – These are assets owned for one year or less. Any gain on the sale of an asset whose proceeds are donated to charity will be taxed at the ordinary income tax rate. If you donate the asset, the income tax deduction is limited to the lesser of fair market value (FMV) or your cost basis in the asset. This is then deductible against AGI up to 60% for a public charity and 30% for a private foundation.
  • Income tax
    • Charitable donations made to qualified charities are tax deductible and could lower the income tax amount you owe. Other rules apply.
  • Estate tax
    • Most people probably aren’t subject to these taxes because the thresholds are so high. For high earners, specific rules apply.

Consider these four giving strategies:

  • Charitable legacy giving
    • A donor’s intention to contribute a planned gift to an organization after they die.
  • Charitable giving throughout your life
    • Private foundations – Popular with high-net-worth individuals and families because they generally allow for more control over charitable giving decision-making.
    • Donor-advised funds – These are the fastest-growing type of giving strategy due to their simplicity. However, they aren’t all the same. Each is structured based on your philanthropic goals and strategy.
  • Generating an income through charitable giving
    • Charitable remainder trust – Donate using an irrevocable trust or by making a bequest through your estate plan, typically ensuring your wishes are carried out even after you pass away.
    • Charitable lead trust – This is also an irrevocable trust designed to provide financial support to one or more charities for a period of time, after which the remaining assets are distributed to family members or other beneficiaries.
  • Impact investing
    • This strategy involves investing for the social betterment of society and to generate a financial benefit.

3.     Include giving in your wealth plan.

Incorporate charitable giving in your wealth management plan. Being open and transparent with your family is a good place to start when considering this big step. You should also consider consulting your financial professional.

4.     Contact a financial professional for help.

Taking steps to create a charitable giving plan is exciting and rewarding but also complex. Your financial decisions could impact your financial goals in many ways, including your investment portfolio, retirement planning, estate planning, generational giving wishes, and long-term financial goals. Schedule a meeting for you and your family to get together with your financial professional to help kickstart your plans of seeing your charitable giving aspirations become a reality.

 

Sources:

How to Build Philanthropic Giving Into Your Financial Plan | SmartAsset

Charitable Planning Guide (fidelitycharitable.org)

Charitable Lead Trusts | Fidelity Charitable

Steps to Creating a Charitable Giving Plan | U.S. Bank (usbank.com)

 

Important Disclosures

This material was created for educational and informational purposes only and is not intended as tax, legal or investment advice. If you are seeking tax, legal or investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Investing involves risks including possible loss of principal.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. 

This article was prepared by LPL Marketing Solutions.

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