Strategies to Consider

Key Takeaways

  • Charitable giving remains strong and continues to evolve. Individuals are still the primary drivers of philanthropy but changing behaviors and fewer estate plans are reshaping how giving happens over time.
  • Tax rules make planning more important than ever. New deduction limits and thresholds mean timing, structure and strategy can significantly impact the effectiveness of charitable contributions.
  • Giving appreciated assets and using tools like donor-advised funds can help improve outcomes. These approaches can increase the amount available for charity while offering flexibility and potential tax advantages.

 

How Charitable Giving Fits Into a Broader Financial Plan

Charitable giving continues to play an important role in both personal values and financial planning. As the giving landscape evolves, individuals are increasingly looking for ways to align their philanthropic goals with tax efficiency, long-term planning, and overall wealth strategy.

Understanding how giving works in today’s environment, including recent tax law changes and the growing use of donor-advised funds, can help create a more thoughtful and effective approach.

Charitable Giving Remains Strong

Charitable giving in the United States has shown consistent strength over time. Even amid economic uncertainty and changing conditions, donors continue to support causes that matter to them.

Individuals remain the largest source of charitable contributions, accounting for the majority of total giving. Foundations and corporations also contribute meaningfully, supported by market performance and broader economic trends.

At the same time, fewer individuals are engaging in traditional estate planning, which has contributed to a decline in bequest-based giving. This shift highlights the importance of proactive planning for those who want to incorporate philanthropy into their long-term financial strategy.

How Recent Tax Law Changes Affect Charitable Giving

Recent tax law updates have introduced several provisions that may influence how and when individuals choose to give.

For those who itemize deductions, the value of charitable deductions may be reduced depending on income level, and a new threshold requires that total charitable contributions exceed a percentage of adjusted gross income before deductions apply. This means smaller donations may not generate the same tax benefit unless they are structured thoughtfully.

For individuals taking the standard deduction, there is now a limited opportunity to deduct certain cash contributions, though this does not apply to all types of giving vehicles.

These changes make timing and structure more important, especially for individuals who want to maximize the tax efficiency of their contributions.

Understanding Donor-Advised Funds

A donor-advised fund is a charitable account that allows individuals to contribute assets, receive an immediate tax deduction, and distribute funds to charities over time.

These accounts can be funded with both cash and non-cash assets, and contributions are irrevocable. Once assets are contributed, they can be invested and later granted to qualified charitable organizations by direction of the account owner (donor).

One of the key advantages is flexibility. Donors can separate the timing of their tax deduction from when charities receive funds which can support more strategic planning across multiple years.

Looking Beyond Cash Contributions for Giving

While cash remains the most common form of charitable giving, it does not always align with how wealth is typically held. Many individuals hold significant value in assets such as public stock, real estate, private business interests, or alternative investments.

Donating appreciated assets can offer distinct advantages. When structured appropriately, these contributions may allow donors to receive a tax deduction based on fair market value while avoiding capital gains tax on the appreciation.

This approach can increase the total amount available for charitable giving while also helping improve tax outcomes. However, these strategies often require coordination with financial and tax advisors, particularly when dealing with more complex assets.

Plan Charitable Giving Around Major Financial Events

Certain financial events can create opportunities for charitable planning. These may include:

Planning ahead of these events can allow individuals to incorporate charitable strategies that can help offset taxes while supporting philanthropic goals.

Timing is especially important. In some cases, actions taken before a transaction is finalized can lead to different tax outcomes than actions taken afterward.

Using “Bunching” to Help Improve Tax Efficiency

One strategy that has gained attention is known as “bunching,” or front-loading charitable contributions intended to be made over multiple years into a single year.

Instead of making consistent annual donations, individuals may combine multiple years of giving into one tax year. This can help exceed deduction thresholds and allow for itemization, increasing the overall tax benefit.

A donor-advised fund can support this approach by allowing donors to contribute a larger amount in one year while continuing to distribute funds to charities over a multi-year period. This helps maintain consistent support for organizations without sacrificing tax efficiency.

Incorporating Charitable Giving Into Estate Planning

Charitable giving can also be integrated into estate and legacy planning. There are several ways to approach this, depending on individual goals and asset structure.

Some individuals choose to designate charitable organizations or donor-advised funds as beneficiaries within wills, trusts, or retirement accounts. This can simplify planning and create a centralized approach to philanthropy.

Certain assets, such as traditional retirement accounts, may be particularly well-suited for charitable giving due to how they are taxed when passed to heirs versus charities. Aligning different asset types with intended beneficiaries can help improve overall outcomes for both family members and charitable organizations.

Life insurance policies and charitable remainder trusts may also play a role, offering additional flexibility in how and when assets are directed toward charitable purposes.

Aligning Charitable Strategy With Purpose

Effective charitable planning goes beyond tax considerations. It involves aligning giving with personal values, financial goals, and long-term intentions.

For some, this means creating a structured plan for annual giving. For others, it may involve preparing for larger contributions tied to specific financial events or building a legacy that continues beyond their lifetime.

The most effective approach is one that is proactive, coordinated, and revisited over time. By working with financial and tax advisors, individuals can help ensure their charitable giving strategy remains aligned with both their goals and the evolving landscape.

Incorporate Charitable Giving Into Your Financial Plan

Charitable giving can be a meaningful part of your overall financial strategy when approached thoughtfully. The Halbert Hargrove team can help you evaluate various giving strategies, coordinate with your tax advisors, and align your philanthropy with your broader goals.

Connect with your Halbert Hargrove advisor to explore how charitable planning may fit into your long-term plan.

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