Financial Planner and Charitable Gifting

Strategic Methods for Charitable Gifting

In Asset Allocation, Charitable Gifting, Estate Planning, General Financial Planning, Personal Finance by Chip Hymiller

At the end of the year, many people begin thinking about making year-end gifts to their favorite charities.  While making cash donations to the charity of your choice is certainly a convenient approach, here are other gifting strategies to consider:

Make a Gift of Appreciated Stock or Mutual Funds — Because most churches and other charitable organizations are considered non-profit entities, they are not subject to income taxes.  By transferring shares of appreciated stock directly to the charity, you would receive a charitable deduction for the full value of the gift.  In addition, the charity can sell your shares without paying capital gains taxes on the proceeds.

Establish a Donor Advised Fund Donor advised funds are useful tools that enable the charitably inclined to make a contribution (of appreciated stock, cash or other assets) into the donor advised fund in order to make current and future gifts.  Contributions to the donor advised fund are deductible, with some limits, in the year the gift is made.  Gifts to the charitable organizations can be made immediately or can be spread over several years.  A donor advised fund can be particularly effective when the tax benefit of the gift is needed to a larger extent in one year, but the grantor prefers to spread the gift over multiple years.  Donor advised funds can be established with a preliminary gift as low as $5,000.

Create a Charitable Trust — The creation and funding of a charitable trust is usually a component of estate planning and is generally most useful for those making gifts of $500,000 or more.  Generally, the grantor funds the trust with an appreciated asset (real estate, a closely held business or appreciated stock).  The appreciated asset can then be sold inside the trust without realizing capital gains on the transaction.

Proceeds from the sold asset could then be reinvested in other investments.  The grantor would receive a charitable deduction dependent upon the type and the terms of the charitable trust.

Each of these charitable gifting techniques can be effective, tax-efficient ways to make gifts.  However, there are a number of financial and non-financial issues to consider when choosing from the various alternatives.  Please feel free to contact our office if you would like to discuss the alternatives that may be the most beneficial given your situation.