/// By Henry Marley & Aviva Sapers
For philanthropic individuals, charitable giving isn’t just about freeform generosity. It’s about maximizing one’s reach and tangible impact among causes people care about most. Done well, strategic philanthropy can align personal values with financial and estate planning to offer meaningful tax advantages and create a lasting legacy for donors.
Whether you’re looking to make a difference during your lifetime or leave a charitable legacy when you’re gone, understanding the right tools is key. Drawing on professional observations from a seasoned financial advisor and a trusts and estates attorney, this blog touches on a few of the client-tested charitable giving strategies that can be tailored to fit the plans of donors.
Giving During Life: Tax-Smart and Personally Rewarding
Why Give Now?
Giving while you’re alive allows you to witness the benefits of your philanthropy firsthand while fostering charitable values in your loved ones. If current tax laws are favorable, it can also help you reduce income or estate taxes.
There are a number of strategies that can be utilized to maximize the impact of giving and provide tax benefits at the same time. Choosing the right strategy depends on your goals, assets, and overall financial picture. Some of our favorites include:
- Donor-Advised Funds (DAFs)
DAFs let you make a charitable gift of cash or non-cash assets into the fund, take an immediate tax deduction, and distribute the funds to various public charities of your choice at your direction over many years. You can also name your DAF as a charitable beneficiary of the qualified retirement assets within your estate as an efficient means of transferring tax inefficient, appreciated wealth to charity, and out of the hands of Uncle Sam. They’re ideal for individuals who want flexibility, anonymity, and tax-free investment growth potential.
Key advantages:
- Simplicity in donating appreciated assets like low-basis stock
- Ability to bunch contributions in a high-income year without having to distribute it out immediately.
- Simplifies giving to small nonprofits without brokerage infrastructure
- Flexibility in changing charities that receive distributions, depending on where the DAF is maintained
Pro Tip: If you’re planning to give $10K to a charity, consider donating $10K of appreciated stock to a DAF and using cash to repurchase the same stock. You maintain your portfolio’s makeup while stepping up your basis to reduce future tax costs.
- Charitable Trusts
Another tax-advantaged way to give is through the use of a Charitable Remainder Unitrust (CRUT) or Charitable Lead Unitrust (CLUT). Both of these types of irrevocable trusts are funded with either cash or noncash assets (preferably highly appreciated assets), the difference between them being whether you need income now or want to pass assets to heirs at a later date.
- Charitable Remainder Unitrusts: are set up so that you and/or another noncharitable beneficiary can receive payments for a set number of years or throughout life. Upon the death of all named beneficiaries, the remaining assets in the CRUT will be gifted to the public charity of your choice. A charitable tax-deduction can be claimed for the year the trust is funded, based on the present value of gifted assets that the charity will inherit down the road.
- Charitable Lead Unitrusts: are designed to flip that structure, with the designated charities receiving income from the trust for a specified term, and remaining assets passing to named beneficiaries at the end of the term. With CLUTs, there is also a tax benefit of the present value of the annual payments made to the charities during your lifetime. Tax benefits on either type are dependent on the specifics of how the trust is structured with a large degree of individual customization.
- Appreciated Securities vs. IRA Gifts
When choosing between donating appreciated stock or making a Qualified Charitable Distribution (QCD) from an IRA, stock often wins—especially for wealthy individuals with low-basis assets.
Why?
A stock donation offers a fair-market-value deduction and avoids capital gains. That deduction can offset income from your required minimum distribution (RMD), creating a more efficient outcome than gifting directly from your IRA. That said, QCDs can make sense for retirees who don’t need their RMD income and want a simple way to support charity without increasing taxable income.
Giving at Death: Estate Impact and Legacy Planning
Why Give Later?
Charitable bequests made at death can help reduce estate tax exposure while supporting causes you care about and be used to establish a legacy. They’re especially useful if you believe your heirs are well-provided for or you want to cap how much they will inherit.
- Retirement Accounts as Charitable Bequests
Qualified retirement accounts (IRAs, 401(k)s, 403(b)s, pensions) are prime assets to leave to charity. These accounts are subject to both income and estate tax if left to heirs—but are fully excluded from tax when left to a nonprofit.
Why it works:
- Charities will receive the full value—tax-free
- The asset is easily valued and transferred
- Heirs can receive other assets with better step-up basis potential
- Life Insurance and Charitable Gift Annuities
For those with insurance policies no longer needed for income replacement, donating a life insurance policy can be an underutilized and elegant way to endow a gift to the charity of your choice. Likewise, charitable gift annuities provide lifetime income to the donor and a benefit to the charity at death—an ideal tool for donors aged 70+ who seek income plus impact.
How to Choose the Right Strategy
Ask yourself:
- Do I want to make an impact now or later?
- Am I seeking income, a tax deduction, or both?
- Do I want to involve my family in giving decisions?
Each charitable vehicle—DAFs, charitable remainder trusts, charitable lead trusts, or even private foundations—carries specific pros and cons. The best strategy depends on your individual financial picture, philanthropic goals, and appetite for complexity.
Final Thoughts
Strategic charitable giving is not a one-size-fits-all exercise. It’s a nuanced part of holistic wealth planning that should reflect your values, enhance your legacy, and fit into your broader financial strategy. If you’re considering your options—or just want to give smarter—reach out. We’re happy to help you explore the tools that align best with your personal and financial goals.
Tax and Legal services are not offered by Lion Street Financial, LLC.
