Charitable Gifting Techniques to Help Achieve Your Philanthropic Goals

Philanthropy

Charitable Gifting Techniques to Help Achieve Your Philanthropic Goals

Identifying your philanthropic goals, including what organizations and causes you would like to support, can be an exciting process and one that a thoughtful advisor can help lead you through. Once you feel confident in what you want to support, there are several options for charitable gift making that can help achieve your philanthropic goals while also maximizing your income tax savings. Below we highlight several common gifting techniques.

Cash

“Checkbook philanthropy,” or outright gifts of cash, is a simple way to make a charitable donation. In particular, donating cash in lieu of tangible items can be a thoughtful approach to charitable giving. There are also numerous ways to give cash electronically, whether through an organization’s website or via text messaging or a mobile payment app such as Venmo or PayPal. If you would like a tax deduction, be sure to ask the receiving organization for a gift receipt.

Highly appreciated securities

There can be significant tax benefits to giving assets other than cash. Therefore, most charities are set up to receive donations of marketable securities in addition to cash. By donating your highly appreciated securities directly to a charity, you may avoid realizing the built-in capital gain and be able to take a charitable deduction for the amount donated. Be careful to donate only those securities held longer than a year to maximize that deduction.

When it comes to highly appreciated securities:

Check in with the receiving nonprofit to obtain proper gifting instructions.
Be cautious of dividend reinvestments, if donating an entire holding.
Consider avoiding partnership interests, particularly master limited partnerships.
If donating a large concentration of stock in a small company, be aware of liquidation consequences.

Qualified charitable distributions from an IRA

After reaching age 70 ½, you may make a qualified charitable distribution (QCD) of up to $100,000 per year from your IRA to a public charity other than a donor-advised fund (DAF), private foundation or charitable remainder trust. The amount of the QCD is excluded from your taxable income and is not deductible.

The distribution must go directly to charity. Further, the IRA’s trustee must send your donation directly from the IRA to qualify, and no goods or services can be received in exchange for the donation. Each QCD reduces the amount of the required minimum distribution that is taxable to you, and by lowering your adjusted gross income (AGI) you may become eligible for other deductions that otherwise would have been phased out. A QCD can only consist of deferred taxable income in the IRA. If your IRA is also funded with nontaxable contributions, you must recalculate the basis for your IRA. We suggest you reach out to your tax or financial advisor when considering a QCD gift.

Donor-advised funds

A DAF is a convenient solution for donors seeking to simplify the administration of their charitable contributions over time and maximize their tax benefits. As philanthropic vehicles sponsored by public charities, DAFs allow donors to make charitable contributions, receive immediate tax deductions and recommend grants from a fund over time.

DAFs are designed to receive donations that are tax deductible to the donor in the year contributed, even if the funds aren’t distributed to charity until a future time. For example, you can “bunch” four to five years’ worth of charitable contributions to a DAF into a single year to exceed the standard deduction that was significantly increased by the Tax Cuts and Jobs Act. Donors can contribute a variety of assets, including cash, public and private securities, real estate, restricted stock, cryptocurrency and more.

PLANNED GIVING FOR ENDOWMENTS

Nonprofits that want to grow their endowments may be interested in planned giving. In addition to ongoing giving, many long-time or strong supporters of a nonprofit choose to include the organization in their estate plan through a planned gift. A planned gift can be made during one’s lifetime or at death as part of a donor’s overall financial and estate planning.

There are many kinds of planned gifts, including, but not limited to, bequests in a will or trust, beneficiary designations, charitable gift annuities, charitable remainder trusts and charitable lead trusts. Attorneys, CPAs or other advisors can help donors structure planned gifts.

Charitable trusts

Both charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) are irrevocable trusts that can be used to benefit a favorite charity. The trusts are wealth transfer and philanthropic vehicles providing estate, gift and income tax efficiency, particularly by deferring income taxes on appreciated assets. Following are a few highlights of each type of trust.

CHARITABLE REMAINDER TRUST	CHARITABLE LEAD TRUST
For charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs): The beneficiary of the trust receives income distribution during the trust’s term. Distributions are generally taxable. At the end of the trust’s term, the charitable organization receives the remainder interest. Assuming you and your spouse are not trust beneficiaries, you will be subject to gift tax when you establish the trust; gift tax considerations will be assessed on the estimated present value of the future distribution payments. The charitable deduction is calculated based on the estimated present value of the remainder interest, with AGI limitations.	For charitable lead annuity trusts (CLATs) and charitable lead unitrusts (CLUTs): The charitable organization receives income distribution during the trust’s term. Since the recipient is a tax-exempt organization, distributions are not taxable. At the end of the trust’s term, the trust beneficiaries receive the remainder interest. Assuming you and your spouse are not trust beneficiaries, you will be subject to gift tax when you establish the trust; gift tax considerations will be assessed on the estimated present value of the remainder interest. The charitable deduction is calculated based on the estimated present value of the annual payments, with AGI limitations.

CHARITABLE REMAINDER TRUST

CHARITABLE LEAD TRUST

For charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs):

The beneficiary of the trust receives income distribution during the trust’s term.
Distributions are generally taxable.
At the end of the trust’s term, the charitable organization receives the remainder interest.
Assuming you and your spouse are not trust beneficiaries, you will be subject to gift tax when you establish the trust; gift tax considerations will be assessed on the estimated present value of the future distribution payments.
The charitable deduction is calculated based on the estimated present value of the remainder interest, with AGI limitations.

For charitable lead annuity trusts (CLATs) and charitable lead unitrusts (CLUTs):

The charitable organization receives income distribution during the trust’s term.
Since the recipient is a tax-exempt organization, distributions are not taxable.
At the end of the trust’s term, the trust beneficiaries receive the remainder interest.
Assuming you and your spouse are not trust beneficiaries, you will be subject to gift tax when you establish the trust; gift tax considerations will be assessed on the estimated present value of the remainder interest.
The charitable deduction is calculated based on the estimated present value of the annual payments, with AGI limitations.

For both CLTs and CRTs, there are differences in how annual payments are calculated:

CLATs and CRATs: Fixed annual payments calculated as a percentage of the trust’s initial value.
CLUTs and CRUTs: Variable annual payments calculated annually as a percentage of the trust’s current value.

Bunching charitable gifts

To preserve the income tax benefits of giving to charity, even in light of larger standard deductions, many donors have begun bunching their donations. Bunching means taking what would normally be multiple years’ worth of donations and giving them all to charity in a single tax year, resulting in one or more donations large enough for a donor to itemize on their tax return. Some donors bunch direct donations to their favorite charities, while others may opt to bunch through a DAF.

Private or family foundation

A private foundation is a great way to establish a long-term giving mission for families or individuals looking to make substantial gifts to charity. As with a DAF, the donor can receive a tax deduction for the gift in the year donated. Foundations come with a good deal of administration, however, so they are best suited for families or individuals who wish to create and sustain a significant charitable legacy.

Employer matching gift

Don’t forget that many employers have charitable gift matching programs. Employer matching gifts are a great way to supplement your gifts to the charities of your choice. Check your employee benefits guide or contact your human resources department regarding this possible benefit and program rules.

Conclusion

To take a tax deduction for a charitable contribution, you must itemize your deductions and not use the standard deduction when filing your income tax return. Also, it is important to know the following limits on tax deductibility of charitable gifts as a percentage of your AGI. If the deduction exceeds these limits, it can be carried forward for five years.

LIMITS TO CHARITABLE DONATIONS BASED ON YOUR AGI

Type of property donated	Public charity/DAF	Private foundation
Cash	60%	30%
Appreciated securities	30%	20%

As with many tax-saving techniques, consider your individual circumstances and run your tax projections with your advisor to fully understand the impact of your giving on your personal financial situation.

A note of caution: Donations to what may appear as charitable causes, including things like GoFundMe campaigns, often are not tax-deductible contributions, as they do not go directly to charitable organizations. Before making any significant gifts through campaigns of this nature, seek advice from your tax advisor.

If you have questions, please contact your Glenmede Relationship Manager.

Glenmede Resources

DONOR-ADVISED FUNDS
Top 5 Advantages of Donor-Advised Funds for Charitable Giving
The Rise of Donor-Advised Funds
Make a Charitable Impact with Crypto and the Glenmede Donor-Advised Fund

CHARITABLE TRUSTS
Charitable Remainder Trusts: Combining Lifetime Income and Philanthropy

BUNCHING
Bunching Charitable Gifts to Maximize Tax Savings

PRIVATE FOUNDATIONS
Private Foundation Essentials: A Strategic and Impactful Approach to Philanthropy
A Comparison of Two Grantmaking Vehicles: Private Foundations and Donor-Advised Funds

This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information obtained from third-party sources is assumed reliable but is not verified. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.