Charitable giving is a powerful tool for people of every age, demographic and income level. Regardless of the recipient and total dollar amount, donating to charitable causes can truly make a positive difference in the community.
As a financial advisor, clients often ask me how to incorporate aspects of charitable giving into their overarching financial plans. While there is no right or wrong way to donate, here are a few key items to keep in mind:
Start with a plan
While many skip this initial step and jump immediately to donating, it is advisable to take some time to think through your overarching charitable giving goals.
Which causes are most important to you? Do you envision donating to a large, national foundation or a local Peoria organization? Are you more comfortable donating multiple times per year or once annually?
The answers to these questions will help you begin to build the foundation and structure of a comprehensive charitable giving plan, while also ensuring that plan fits in with your long-term financial picture.
Next, incorporate your charitable giving plans into your budget. It’s important to plan for these expenses ahead of time, especially in the case of seniors or retirees who may be living on a fixed income.
If you are having trouble finding extra income to allot, consider establishing a separate savings account specifically reserved for charitable donations. Keep in mind that depending on your situation, you may need to cut back on some non-essential spending in order to make charitable giving a higher priority.
Choose a strategy
There are various ways to go about donating to charity based on your goals. A direct gift, or writing a check, is generally one of the more common ways to give. However, make sure to adequately research each of the organizations and their initiatives before making a direct gift. This step can help ensure the funds are utilized in a manner that aligns with your vision. Many people also choose to support a capital campaign, which is essentially a long-term organizational fundraising initiative. As another option, some organizations accept appreciated assets, such as stock, and tangible assets related to the mission of the receiving organization.
Those with life insurance may be able to utilize their policy as a charitable giving tool, which can be a great way to leave a lasting impact. Most policies allow you to list an organization as a beneficiary, either the partial or sole benefactor. The organization then receives the financial benefit in the event of your death.
Donor advised-funds (DAF) are another increasingly popular means of charitable giving. Donations to a DAF are not utilized immediately. Instead, the money goes to an administrator who manages the distribution of funds over time. Although contributions to a DAF are nonrefundable, you could receive an immediate tax break and retain advisory rights as to how, when and where the money is ultimately distributed.
Depending on your financial situation and the type of charitable gift, each of these strategies may entitle you to different tax benefits which should be further explored with the help of a tax professional. However, don’t lose sight of the fact that charitable giving is first and foremost about the desire to help. iBi
Patricia Cutilletta is an executive director and financial advisor with the Wealth Management Division of Morgan Stanley in Chicago.