How to Bring Charitable Giving Into Your Financial Plan

If helping others is one of your financial goals, consider tools and strategies that may help you maximize your charitable gifts.
Selecting a Charity and a Giving Strategy

With the myriad of good causes that need supporting, why not choose a charity that is registered with the IRS? Donations to such organizations are usually tax deductible for those who itemize deductions. You can search a database of hundreds of thousands of IRS-recognized charities and nonprofit organizations at www.guidestar.org.

In addition to cash contributions, consider donating appreciated assets, including securities if you’ve owned them for at least a year. The donated asset is assessed at full fair market value. You can take a tax deduction and avoid payment of capital gains taxes on the security.

Another way to give is through a donor-advised fund. Here’s how it works: You contribute cash, stocks or certain other assets, which are in turn invested in one or more investment options. The investment company manages the investment options to potentially increase the value of the initial contribution and produce a steady income stream. You can recommend eligible charities for grants from the fund over a period of time while taking an immediate tax deduction.

Advanced Strategies
Trusts may also play a role in a giving plan. They could help charities while benefiting you now and your heirs later. One popular option is a charitable remainder trust (CRT), which is an irrevocable, tax-exempt trust that can be funded with a variety of assets, including stocks, bonds, mutual funds and real estate. The trust provides you with income for a specified time period, after which assets are transferred to a charity. You’ll receive a tax deduction based on the amount the charity is estimated to receive after expenses.

With an annuity CRT, you receive either a fixed monthly or annual payout for the trust’s duration based on the value of the initial assets in the trust. A unitrust CRT also generates regular income, but you receive a fixed percentage based on an annual valuation of the assets. Although a unitrust CRT takes on more market risk than an annuity CRT, it may outpace inflation and you can transfer additional assets to it, unlike with an annuity CRT.

Another possibility: a charitable lead trust. It provides a stream of income to a charity for a specific period. Upon dissolution of the trust, your heirs would potentially receive the remaining assets free of estate taxes.

There are other ways to leverage your assets to benefit others while helping you pursue your financial objectives. Speak with your financial advisor, as well as your estate planning attorney and tax professional, about these and other possibilities.

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