Monday, February 27 2023 10:24

Strategic Charitable Giving

Written by Kelley Meagher, Delphi Wealth Management Group

It can be a win-win for charities and donors

Many reasons motivate us to contribute to charities. For some, it fulfills our sense of altruism or enlightened self-interest. While for others, it’s, in part, the desire for potential tax advantages. Happily, strategic charitable giving can benefit both the charity receiving contributions and the donor receiving certain tax advantages (estate, retirement, tax reduction).


How can charitable giving benefit both charity and donor? For estate planning, charitable giving can remove assets from the donor’s estate and subsequently reduce estate taxes due upon death. As simple as that.

For retirement planning, charitable donations may provide increased cash flow to the donor, specifically if a charitable trust is established. For this increased cash flow, the trustee of a charitable remainder trust may reallocate investments for better income to the donor.

What’s more, appreciated property placed in a charitable trust may lead to deferral or reduction of capital gains tax on the property. And the trustee of a charitable trust may reinvest capital from one or two appreciated assets into a diversified portfolio to reduce investment risk and volatility by creating investment diversification for the donor.

In addition, our tax laws encourage charitable giving through charitable gifts or income, estate and gift tax deductions. You can find the “rules” for income tax deductions for charitable gifts in Internal Revenue Code Section 170 and in IRS Publication 78, which explains whether a recipient qualifies as a charitable organization. There’s much more to the process, so consult an expert.

Plan a Strategy

Investors need to examine their goals and needs for charitable giving just as they would do when buying a car. An individualized investment and the car of your dreams both become “vehicles” for moving forward.

Begin by considering the effect the gift will have on you, the charity, your taxes and your future heirs. Decisions to donate during your lifetime or by will at your death — and the amount of control you want over the funds — will help determine the best investment vehicle for you. You likely already know about outright charitable gifts and have heard about trusts in a general way, but there are many options.

Changes in tax law and new investment products provide strategic opportunities for charitable donations. But both these areas can be complex and difficult to keep up with. In addition, there’s often a time lag associated with the development and use of investment products.

Donor-Advised Funds

According to the National Philanthropic Trust, philanthropy’s current fastest-growing vehicles are donor-advised funds (DAFs – giving accounts established at a public charity that allow donors to make charitable contributions, receive an immediate tax deduction and then recommend grants from the fund over time). Yet the first DAFs were created in the 1930s. Don’t feel that you missed the boat on this. DAFs’ popularity began growing in the 1990s and were not formally recognized in the Internal Revenue Code until the Pension Protection Act of 2006.

When appropriate for the investor, DAFs can be set up by a financial advisor and allow the donor to give cash, securities or other assets that are generally eligible for an immediate tax deduction.

There’s another strategy available if you typically donate to charities year after year and plan to continue. Because standardized deductions changed significantly in 2018 and raised the thresholds for itemizing, if you’re in a position to “clump” — or lump your typical annual charitable donations together — you can make an irrevocable contribution to your selected DAF. These funds can be invested in the DAF for tax-free growth, and you can recommend how and when the funds are granted to an IRS-qualified public charity. (Note: These funds may have associated costs, and some have minimum initial contributions to consider.)

Charitable giving is an important part of any wealth management plan. Be sure to seek professional advice to learn the latest and best practices for win-win giving.

Kelley Meagher is a registered representative and supports registered associates of Delphi Wealth Management Group who are registered representatives of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors, a broker-dealer (member SIPC) and registered investment advisor. Delphi Wealth Management Group is not an affiliate of Lincoln Financial Advisors Corp. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. CRN-5445671-020223