Make the Most of Your Charitable Gifts

Charitable giving is important to many of us—but it’s more complicated than you may think.  Therefore, in order to maximize the impact of your giving, it’s important to have a plan.  As the immortal Yogi Berra put it, “if you don’t know where you’re going you’ll never get there.”

Let’s start by defining charitable gifting.  It is giving to causes that are meaningful to you, because you want to help others.  Tithing is one example of charitable giving—donating to the Salvation Army would be another.

America is the most charitable country on Earth and has been even before the tax code was created in 1913.  Yet there are still incentives for charity within the tax code, and many of them are complicated and inefficient.  That’s why charitable giving is much more complex than it should be!

It’s important to understand the different areas in which one can gift charitably.  The most common areas are:

1)    Religious institutions.

2)    Educational institutions.

3)    Healthcare institutions.

4)    Social service institutions.

5)    Arts institutions.

Whatever charities you are most passionate about, there are basically two ways to contribute.  One is what I call checkbook gifting, where one writes a check for $1,000 or $10,000 or $50,000 towards operating expenses and as a one off type gift.  The other is a more meaningful gift where one leaves a charitable legacy through a deferment of that $50,000 over a five year period of time or a $250,000 one time check with $50,000 ongoing thereafter.  Often that can be much more meaningful to the institution than smaller continuous or discontinuous checks.

So how can you be sure that your gifting is most effective?  First, let’s talk about whether or not this large gift is eligible for a private foundation or a donor advised fund.  For most of our clients private foundations are absolutely out of the question because they’ll require about a $30 million gift to make it meaningful.  Our clients, being the middle class millionaire, typically should be looking at a donor advised fund (DAF).  A DAF is very inexpensive and can be established immediately, whereas private foundations have large legal and other fees and they can take weeks or even months to create.

There are also tax deduction limit differentials for cash gifts.  You can deduct 50% off your adjusted gross income in a DAF versus only 30% for a private foundation.  There are tax deduction limits for stock or real property as well, and you can deduct 30% in a DAF versus only 20% in a private foundation.

Donations accepted in donor advised funds include appreciated securities, real estate, privately held stock, cash and other illiquid assets on a case-by-case basis. On the other hand, in a private foundation, only cash, securities and illiquid assets that are subject to IRS self-dealing regulations can be accepted.

Next there is the valuation of the gifts.  In a DAF, the gift is valued at fair market value.  For private foundations it’s fair market value for publicly traded securities only, and cash basis for other gifts.

Privacy is another important factor to consider.  For donor advised funds, individuals can be anonymous if desired.  On the other hand, private foundations must provide detailed annual statements on grants, fees, staff and salaries.  These filings are made public.

The required payout is a major difference between DAF’s and private foundations.  Donor advised funds have no required payout.  Private foundations must be 5% of net assets annually.  In addition to that, there are excise taxes.  Donor advised funds pay no excise taxes whereas private foundations must pay 1%-2% on annual net investment income.

Now that we’ve covered the basic options when it comes to charitable giving, here are five ways to maximize the impact of your contributions:

1.  You can identify like-minded charitable people and pool your charitable resources to make a very large meaningful gift together.

2.  You can benefit by working your gifting into your estate plan and remember, having a will and a trust is not the same thing as having an estate plan.

3.  You should be giving away highly appreciated assets.

4.  You can spread your gifting over time or gift it all at once as the asset accumulates.

5.  You can sit on the boards or give your time to the board of the charity most favored.

There is a saying in the non-profit world that their best donors are giving their time, their talent, and their treasure.  Some people call it their wealth, their work, and their wisdom.  All three things are what make a successful charity.  But one of the most difficult things in charities in the non-profit world is the board governance.  Make sure when you go to sit on a board, or before you make a large and possibly meaningful gift, that you’ve read the articles of incorporation and the bylaws.  Also be sure to analyze the financial statements and determine whether or not they’re actually fulfilling the goals that you hope to accomplish.  If you need help in that area, or haven’t got the desire or the skill set to be able to analyze those documents, contact us at our charitable planning department.  Charitable giving is one of the qualities that makes this country great—make sure that you plan properly in order to maximize the impact of your contributions!