A Solution to Help Your Charitable Giving—and Your Taxes
by A. Scott White, CFP®, ChFC®, CLU®
President, Scott White Advisors
In recent years the tax-law change that had the greatest impact on charitable giving was the 2018 increase in the standard deduction, accompanied by the elimination of the personal exemption. This change made it more difficult to realize the tax benefit for donations. Yet for many individuals, couples and families, charitable giving is an important part of their values, and making philanthropic decisions can be an opportunity to open a dialogue among spouses and family members—even over multiple family generations. Charitable giving discussions can help to develop a set of family values. Many of my clients have said those conversations have enriched their understanding of what’s important to their spouse, children and grandchildren.
But given the current tax laws, how can couples and individuals exceed the standard deduction so they can itemize their charitable gifts—deducting their donations and achieving their charitable goals? One popular solution is to utilize a donor-advised fund.
Donor-advised funds are the fastest-growing charitable giving vehicle in the U. S. because they are one of the easiest and most
tax-advantageous ways to give to charity. They are like a charitable checking account: a tax-advantaged investment account funded with cash or other assets used for charitable giving. You can deposit funds today and receive an immediate tax deduction for your gift.
The funds are held and invested until you distribute them to your favorite charities, affording you the potential to give even more than you deposit.
These funds are typically quicker, easier, and cheaper to create than a charitable trust or a private foundation. Many brokerage firms have created public charities to manage donor-advised funds. Raymond James Charitable is one that many of my clients use. And community foundations such as the Southwest Florida Community Foundation, now known as Collaboratory, can also establish donor-advised funds. Here’s how these funds work.
1 – Make a tax-deductible donation. You can donate one year of charitable contributions or multiple years—and deduct the full amount of the donation this year—resulting in a larger charitable deduction for this year, receiving maximum tax benefits for your charitable contributions.
2 – Grow your donation tax-free. While you’re deciding which charities to support, your donation can potentially grow based on your investment preferences, making available even more money for charities.
3 – Support charities important to you, now or over time. You can support virtually any IRS-qualified public charity with money from your donor-advised fund. The brokerage firm or community foundation where your fund is held will conduct due diligence to ensure the donation will be used for charitable purposes and the grantee is an IRS-qualified public charity.
4 – Support your legacy planning. One unique aspect of a donor-advised fund is the ability to continue charitable giving beyond your lifetime. A giving legacy, laid out in a succession plan, is an effective way to ensure assets in your account continue to fulfill your giving goals after you pass. By leaving instructions with the donor-advised fund sponsor, you can support multiple charities with one bequest. These gifts can also help reduce or eliminate the burden of estate tax for your heirs.
Planning your donation strategy now will give you time to make tax-efficient gifts that reflect what matters to you and your family—while giving you a tax benefit. To find out if a donor-advised fund could be a giving solution for you, please contact me.