How to Create an Effective Charitable Giving Plan

Charitable giving comprises a key aspect of wealth management for many individuals. With more than a million charitable organizations to choose from, donors should conduct careful research and take an active, focused approach to ensure their money has the greatest impact.

The first step in creating a charitable giving plan involves a clear articulation of giving objectives. Donors should begin by brainstorming their inspiration for charitable giving. Does a particular current event or situation inspire their giving? Did their parents instill in them a commitment to philanthropy? Beginning with “why” can make charitable giving a more meaningful experience for the donor.

Next, the donor might create a purpose statement that distills their motivation for giving into one or two sentences. By clarifying their values and principles, donors can create a guiding light that can keep them focused on their giving. Over their professional life, they might reevaluate this giving statement periodically. For example, donating to public radio might be important to someone in their 20s, while childhood literacy could emerge as a priority once they become parents themselves.

After determining which causes they wish to support, donors should perform due diligence to ensure the work of these charities is reputable and impactful. Resources such as Charity Navigator and GuideStar evaluate nonprofits based on accountability, impact, transparency, and other criteria, providing vital information about where donations can have the greatest effect.

Donors can support just one organization, or opt to give to a community foundation that supports multiple community needs. Then, they should create a giving strategy that considers exactly how much and how often they can give. Even people without the resources to donate financially can create an impact with their time, choosing to volunteer or organize a fundraising event. Just an hour or two of specialized work can sometimes help charitable organizations even more than money.

Donors who make cash donations should do so carefully, choosing the option that gives the best tax advantage to donor and recipient. Donor advised funds (DAFs), for example, can disburse funds over the course of several years, while the donor can receive a tax deduction for the entire amount at the time of the donation. Alternately, qualified charitable distributions (QCDs) allow donors to give up to $100,000 tax-exempt from their IRA.

Charitable giving can continue as part of a person’s estate plan. An individual may donate a piece of property or real estate, creating a charitable legacy that endures for generations. Alternately, they might create a family endowment or private foundation. Donors can place assets into a charitable trust, which involves placing assets and property into one legal entity.

Not only does a charitable trust ensure the ongoing support of favored organizations, but it holds significant tax advantages for donors. Donations are not subject to capital gains tax on appreciation. This means that if a donor places a real estate asset into a charitable trust and the organization sells it for cash or to make investments, the full amount of the sale goes into the trust.

Additionally, charitable trusts reduce estate tax. When assets or property become part of a trust, they are no longer a part of one’s estate and therefore not subject to estate taxes.

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