Giving well when you decide to give

Saving well, spending well and investing well are essential to a financially sound lifestyle, but for those inclined toward philanthropy, giving well  should garner similar consideration. 

Matters of timing, taxation and method can significantly change how your giving aligns with both your financial plan and your philanthropic objectives. Thoughtful planning and an understanding of the nuances can help you balance competing interests and help you increase the effect of your giving.

Here are some of the basic principles of giving well, though specifics are best discussed with your financial team.

Your causes and your goals

Americans are a generous people, with individuals giving an amount each year equal to roughly 2% of the gross domestic product, passing the $500 billion mark in 2021, based on a survey series by the U.S. Census Bureau.

For as many givers, there are as many reasons to give, but among high-net-worth individuals surveyed by the Indiana University Center of Philanthropy, most – 62% – said they are motivated by a sense of duty to give back to their communities. Through their generosity, they enable things as diverse as local performing arts, adoption assistance, home repairs and municipal fireworks shows, creating healthier, more vibrant communities.

Similarly, you should set some goals when setting out to donate. This is about more than picking a cause, but about understanding why you are giving and how you hope to engage with the process.

• Do you want to be a sustainer or an advocate for change?
• Do you wish to be hands-on? Do you want to be a board member?
• Do you see philanthropy as a new vocation, or would you rather spend your time on other pursuits?
• Do you wish to be anonymous, or recognized?
• Do you want your giving to be foundational or flexible, and if both, how do you want to split it?

Answering these questions can help you select complementary giving vehicles and set a suitable timeline to maximize the effect of your giving. It may also help you get the most, personally, out of your altruism. The act of giving should feel rewarding.

Consider timing

In light of taxes, thoughtfully timing your giving can help you serve both your philanthropic and financial goals. This is a deep topic with a variety of situational strategies that will require the guidance of your financial team, but here are some examples:

• Giving during years with uncommonly high income allows you to deduct donations from adjusted gross income exposed to your highest marginal tax rates.
• The sale of a business may be structured to directly support a charitable cause of choice or a specific charitable vehicle, bypassing personal tax implications.
• Highly appreciated (low basis) stocks can be donated to an organization during a hot market, bypassing the capital gains tax loss.
• A giving plan may be executed before advantageous gift and estate tax laws sunset.

Estate planning often includes similar timing considerations. This is why before making a major financial decision, it’s best to explore the opportunities surrounding it. Particularly with liquidity events, you’ll have far fewer options after the fact.

Select your giving vehicle

Different giving vehicles offer distinct benefits depending on your goals, timing, tax considerations and asset classes you with to donate. These giving vehicles include:

Donor advised funds (DAF): Donate in any given year and reap the associated tax benefits, then make decisions on how funds should be disbursed later.

Charitable remainder trusts (CRT): Give assets to an irrevocable trust, removing them from your estate, and then receive income from the trust’s investments. At a specified date or your passing, the remainder of the trust goes to a charitable cause of your choice which may be a donor-advised fund.

Charitable lead trusts (CLT): Give assets to an irrevocable trust, removing them from your estate, and it pays income to one or more charities (including a DAF) until your passing, in which the remaining sum is given to a beneficiary of your choice.

Private foundation: Create and control a tax-exempt nonprofit entity to direct your philanthropic endeavors.

Philanthropy and family values

The challenges in turning personal wealth into generational wealth isn’t only about dollars and cents, but about hearts and minds. The “third generation curse” of wealth is a well-recognized phenomenon that often follows the pattern of wealth creation, growth, then loss. Teaching the value of money to those who have always known plenty is challenging, but family philanthropy can be an education. By sharing philanthropic decision making and management with the next generation, you are sharing your values, and giving your next generation a hands-on wealth workshop.

This is part of a realm of financial planning called “family governance” which focuses on managing money matters as well as the emotional ones. Families with significant wealth, or who own closely held businesses or other significant illiquid assets, may benefit from this approach. By being transparent about the strategies, opportunities and stakes of wealth, earlier generations can help later generations prepare for their moment at the head of the family.

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. Please note that all contributions to a DAF are irrevocable gifts.

Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Raymond James Trust, N.A. is a subsidiary of Raymond James Financial, Inc. Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. are affiliated with Raymond James Trust.

Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.