Top 5 Ways To Gift Outside of Cash

April 1, 2021

When people think about their personal philanthropy, they often envision giving weekly to their church or writing checks to an organization during an annual fundraiser.  However, many people don’t realize that there are multiple other ways to give, some of which provide financial benefits above and beyond a simple tax deduction.  While it’s true the most common way people support charitable organizations is via cash donations, we will highlight the top 5 ways to give outside of your checking account.

    1. Appreciated Securities – With this strategy, stocks, mutual funds and ETFs are sent directly from your investment account to the charity’s brokerage account, where they are then sold by the charitable organization, which does not pay tax on any capital gains. The benefit of this strategy is twofold. Not only are you able to take a tax deduction for the donation, but you also remove the unrealized gain from your portfolio, thus reducing your future tax liability. 
    1. Qualified Charitable Distribution (QCD) is a type of distribution from an IRA to a qualified charitable organization that allows for special tax treatment. You are eligible to make QCDs starting at age 70 ½; however, the real benefit begins a few years later. Normally when you reach age 72, you are required to start taking distributions from your IRA, which generates income tax.  However, by taking advantage of QCDs, any distribution sent to a qualified charity is exempt from taxation but will still count toward your annual requirement.  You can make up to $100,000 in QCDs annually, making it a powerful tool in controlling your tax liability in retirement.
    1. Donor Advised Fund (DAF) is a unique vehicle that can be used as part of an overarching charitable giving strategy. The DAF owner contributes money, usually in a larger lump sum, and receives a tax deduction. The money is then held in the DAF until the account owner is ready to make individual donations to the charities of their choice.  This is an ideal strategy for someone looking for a larger tax deduction in one year, perhaps to offset a unique income event like the sale of a business but would like to spread out the gifts to organizations over several years.  What’s more, you can combine the above technique of donating appreciated securities to a DAF to reduce your unrealized gains, and once the funds are in the DAF, they can continue to grow tax-free.
    1. Estate Planning & Bequests – perhaps the most overlooked opportunity to be philanthropic is estate planning and bequests. Many times, we hear from clients that they wish they could do more charitably, but they do not have the funds to support it. By including your favorite causes as beneficiaries in your estate plan, you can ensure your charitable legacy lives on.  This strategy also allows you to utilize non-liquid assets, such as personal property like artwork or even your primary residence.  It is important when considering this strategy to work directly with the charity prior to making changes in your estate plan to ensure that they can accept the type of bequest you would like to make.  It is also a great opportunity to get your family involved in your philanthropy and make a plan together.
    1. Time & Talent – One last avenue for giving charitably is simply with your time or talent. While the pandemic may have made this temporarily more difficult, there are ways to get involved that do not require any monetary support. Be a mentor to youth in your neighborhood, offer to give advice in your field of expertise pro bono, or simply spread the news of organizations in need via social media.  Donating your time and talent is one of the best ways to see an immediate impact in your community.

    There is little in life that is as rewarding as giving back, and while financial and tax considerations are usually a secondary priority when thinking about philanthropy, the above techniques can help increase the impact you can make.  By being strategic in how you give, both you and the charitable organizations you support will benefit.

    Breanna Coffey joined BDF in May of 2018.  Prior to coming to BDF, she worked for 3 and a half years at Goldman Sachs with Institutional investors in the Goldman mutual fund complex.  Prior to that, she worked at OneAmerica Financial Partners where she gained a robust knowledge of retirement services and products.

    Breanna graduated from Purdue University where she earned her Bachelor of Arts in Fine Arts.  After which she earned her MBA in Finance at the University of Indianapolis and was awarded the honor of Top MBA Scholar.  Breanna has her Series 65 license and earned her CERTIFIED FINANCIAL PLANNER™ certification at Northwestern University.

    No representation is being made that any strategy shown will or is likely to achieve results similar to those shown in this presentation. BDF does not provide legal, tax, insurance, social security, or accounting advice. Clients of BDF should obtain their own independent tax, insurance, and legal advice based on their particular circumstances. The information herein is provided solely to educate on a variety of topics, including wealth planning, tax considerations, insurance, estate, gift, and philanthropic planning.