Integrating a charitable strategy into your clients’ financial and estate plans can significantly increase the chances of their wealth plan’s success.

 
  • Charitable giving in your clients' long-term financial plan can help them reduce their taxable income, avoid capital gains taxes, and make it easier to liquidate assets they no longer want.
     
  • Additionally, charitable giving provisions within their estate plan can reduce the size of their taxable estate and thus minimize taxes for their heirs, as well as enable them to establish a philanthropic legacy.


While your clients’ altruism is genuine and the core purpose for charitable giving, one of the reasons Americans are so generous is that tax incentives are a long-standing benefit of philanthropy in the United States. You can help them to mitigate taxes while simultaneously planning for the future and supporting charitable causes today.
 

 

 


Total tax benefits to your clients will differ among the types of charitable assets that are generally gifted to charity, the giving tools used, and whether the assets are given during your client’s lifetime or as a bequest to charity or heirs. If you are not a tax advisor, partnering with one can help ensure the best charitable tax strategy for your clients. 
 

Although each discussion on charitable planning will differ, here are some ideas to get the conversation going.

1. Use routine account reviews or liquidity events to look for charitable opportunities.

2. Gauge your clients’ charitable intent by understanding their charitable practices, motivations, and goals.

3. Establish your clients’ charitable planning needs by understanding their cash flow requirements, timing, current level of charitable planning, and other related financial and estate planning goals.

4. Learn how they want to involve their family in their charitable giving and how they view their charitable legacy.

5. Partner with other advisors on their wealth management team and additional charitable giving experts like Vanguard Charitable.

Ultimately, you and your clients can create a strategic charitable plan that includes their charitable mission statement, goals, charitable investments, giving tools, and measurement of impact.

In addition, encouraging your clients to engage their family in charitable giving discussions offers multiple benefits:

  • It helps your clients to create a giving legacy.
  • It can lead to a family charitable plan.
  • It gives you an important opportunity to form deeper relationships and retain assets by keeping other generations in your practice.

While many donors think most immediately of giving cash directly to charities, giving other types of assets may be more tax-efficient. For example, giving appreciated securities offers more tax benefits than giving cash. This chart shows typical assets used for charitable giving; click into assets for additional detail.

Asset Primary reasons to use as charitable gift
 

Reduce income tax

Avoid or reduce
capital gains tax

Reduce estate tax

Cash, including bonus

 

Appreciated securities
Held more than 1 year

Appreciated property
Held more than 1 year

Retirement assets

 

Life insurance policies

*

 

Business interests
Hedge fund interests
Private equity
IPO stock
Restricted stock

Held more than 1 year

*Possible income tax deduction if donating paid-up insurance policy.

Consult a tax advisor for specific guidance if you are not one.

While many types of charitable assets are more tax-efficient than cash, charities often lack the expertise or resources to efficiently accept them. Choose a giving tool with the necessary sophistication to handle the types of charitable assets your clients wish to donate. For example, a donor-advised fund has the capability to easily accept appreciated securities and property.

Giving tools address more than certain assets and taxes; they also reflect different distribution and legacy options, a range of costs, and varying levels of complexity. Many donors use multiple giving tools—for instance, some use both a private foundation and donor-advised fund to complement each other and their goals.

Here is a brief look at various giving options. Click into each option in the chart for more details or view this schematic for a quick look at the primary factors that many donors consider when choosing giving tools.

Giving tool or option Tax benefit Cost Donor control/input
Direct giving Maximum n/a Maximum
Charitable gift annuity Moderate Low Minimal
Charitable remainder trust Moderate High Moderate
Charitable lead trust Moderate High Moderate
Donor-advised fund Maximum Low Moderate
Private foundations Moderate High Maximum
Community foundations Maximum Moderate Moderate

Consult a tax advisor for specific guidance if you are not one.

Determining an appropriate asset allocation for your clients’ charitable assets, especially with today’s low-return expectations, is similar to helping them plan for other major financial goals. It involves taking into consideration the amount of money they’d like to accumulate, their time horizon, and their risk tolerance. Low-cost investment options held for the long term will enable more money to ultimately go to charity.