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Charitable Giving: What's the Best Approach?

Dec 16, 2021 | The Baum Jackson Investment Group


If charitable giving is something that is important to you, it is worth considering the best structure and source of funds for your gifting.

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Last year, Americans gave more than $470 billion to charitable organizations1. This number by itself is amazing. It is even more incredible since 2020 was the year of the global pandemic and this figure represents a 5.1% increase over 20191. With the incredible enthusiasm that individuals have for charitable organizations, it is important that they utilize the best structure when it is time to donate. Below we provide various methods that can be utilized to donate to your favorite charity. 

  1. Outright Giving: Outright giving is the easiest. As the name implies, this is simply writing a check to a favorite charity. The dollar amount qualifies as a tax deduction as long as the charitable organization is recognized as such by the IRS.  Even better than cash, an investor can gift a highly appreciated stock, receiving a deduction for the current market value. The charity sells the stock, and because it is tax-exempt, there is no capital gains liability.
  2. Donor Advised Fund (DAF): Donor advised funds are great structures for a number of different scenarios. For one, they are fairly easy to establish. Second, the donor receives a tax deduction at the time the money goes into the DAF. Third, the donor can control the timing of when the gifts go to the charitable organizations and can use anonymity if needed through the titling of the donor advised fund. We tend to see this structure used a lot for clients with the following situations:
    • Investors whose charitable donations are below the standard deduction; they can "bundle" a few years of gifting in one year in order to get a tax deduction.
    • Investors with a large liquidity event during the calendar year.
    • High earners looking for additional tax deductions, but who want to have control of when they distribute the money to charities.
    • People who have sizable charitable wishes but who don't want the increased complexity associated with a private foundation.
  3. Private Foundation: A private foundation shares many of the same qualities as a DAF, but is generally only established with considerable assets due to its additional complexities. For instance, contributions into a private foundation allow for tax deductions, but at a lower level than a DAF. Private foundations take longer to establish and are more expensive to manage on an ongoing basis. Private foundations have rules that require 5% of the net asset value to be distributed annually2
  4. Charitable Remainder Trust or Charitable Lead Trust: These two structures are effectively the inverse of one another and are often paired. For fear of making this a longer article than intended, we will provide a short synopsis of each.
    • Charitable Remainder Trust (CRT) - a gift of cash or other investment is made to an irrevocable trust. The donor, and/or other family members, receive a lifetime payment from the trust or for a term not to exceed 20 years. Upon the death of the income beneficiaries, the trust is dissolved and the named charity receives the remaining assets.
    • Charitable Lead Trust (CLT) - a gift of cash or other investment is made to an irrevocable trust. The CLT provides an income to charity over a specified period. At the end of the period, the trust is dissolved and the remaining assets are distributed back to the donor or other named non-charitable beneficiaries. 
  5. Qualified Charitable Distributions (QCDs): This strategy is only applicable for clients who are 70 ½ years old. They can make a donation directly from their Individual Retirement Account (IRA). The IRS allows for up to $100,000 to go directly to a charitable organization. This strategy would reduce the taxable income for the IRA owner, since he or she would not be receiving the income that he/she has designated for a QCD.

As you can see, there are many ways for someone with a charitable desire to structure his or her annual giving. As we wrap up calendar year 2021 and approach a new year, please reach out to us if you are interested in discussing any of these strategies in more detail. 


As a final note, charitable giving is a topic that is near and dear to our hearts. If you are interested in seeing the organizations that we are involved with, please reference the following link: The Baum Jackson Group Community Involvement