Year-End Giving Strategies: Maximizing Your Impact

America has always been a generous nation, with individuals from all walks of life uniting for causes close to their hearts, whether supporting local communities or addressing global challenges. As the holiday season approaches, it's an opportune time to reflect on your philanthropic goals and how you can contribute to the charitable organizations and causes you care about most. Beyond the profound benefit to those in need, thoughtful charitable giving can also offer a deep sense of personal fulfillment and, when structured strategically, potential financial advantages.

The Landscape of American Philanthropy

The spirit of generosity in the United States remains strong. According to Giving USA’s Annual Report on Philanthropy, individuals, foundations, and corporations collectively contributed an estimated $557.16 billion to U.S. charities in 2023.

Affluent Americans continue to be significant drivers of this generosity. The 2023 Bank of America Study of Philanthropy revealed that 85% of wealthy households engaged in charitable giving in 2022, with the average value of their gifts experiencing a notable 19% increase compared to pre-pandemic levels. On average, affluent American households (defined as those with a net worth of $1 million or more excluding primary residence, and/or an annual household income of $200,000 or more) donated $34,917 to charitable organizations.

Interestingly, the study also highlights evolving trends in giving. Women are increasingly the primary decision-makers in household charitable contributions, while Millennials and Gen Z are emerging as influential philanthropic groups. Four out of five younger affluent households already contribute to charity, though their preferences lean towards environmental organizations over religious/spiritual groups or those focused on basic needs or the arts.

Impact Beyond Financial Contributions

The commitment of affluent households extends beyond monetary donations. Volunteering has seen a resurgence post-pandemic. In 2022, nearly 37% of affluent households dedicated their time and talents to charitable organizations and causes, a significant rise from 30% in 2020.

Affluent volunteers spent an average of 135 hours with two different charitable organizations in 2022. Common activities included assisting religious organizations, collecting and distributing essential goods, and serving on organizational boards. These volunteers overwhelmingly believe their service makes a tangible difference, with 93% reporting personal fulfillment from their actions. Furthermore, those who volunteer are more inclined to contribute financially to a charity (94% vs. 80% of non-volunteers), and the median gift amount by volunteers is nearly four times that of non-volunteers.

How to Choose a Charity That Aligns with Your Values

With a vast array of charitable organizations available, selecting the right ones can feel overwhelming. By conducting thorough research and preparation, you can identify charities that genuinely align with your personal values and philanthropic objectives.

Research the Charity's Operations: Utilize publicly available resources to understand the charity's mission, programs, and the population it serves. Key factors to assess include the organization's transparency and accountability in financial reporting and the measurable effectiveness of its programs. Reputable platforms like Charity Navigator, GuideStar, or the Better Business Bureau’s Wise Giving Alliance can provide valuable insights.
Understand Mission and Impact: Evaluate whether the organization’s core values and goals resonate with your own. Look for clear, quantifiable evidence of their impact on the community or cause they address. Consider the breadth and depth of their programs and services.
Align with Your Interests and Passions: Your personal interests and passions can serve as a powerful guide in identifying causes that inspire you and where you feel you can make the most meaningful difference.
Engage for Deeper Understanding: Many charities offer volunteer opportunities or ways to participate in their events and campaigns. These experiences can provide a deeper understanding of the charity’s operations and impact, fostering a stronger personal connection to the cause.

In 2022, the majority of charitable contributions in the U.S. were directed towards religion (27%), human services (14%), education (13%), grantmaking foundations (11%), and health (10%).

Strategic Approaches to Charitable Giving

While charitable contributions occur throughout the year, a significant portion — 30% of all giving — takes place in December, with approximately 10% of annual donations occurring in the final three days of the year. If you're still refining your giving strategy for 2024, you're certainly not alone.

Here are several charitable giving strategies to consider. It’s crucial to also review the "Key Points to Remember with Charitable Giving Strategies" section below to understand the potential benefits and limitations of each approach.

Qualified Charitable Distributions (QCDs) from Your IRA: If you are at least 70½ years old, you may be able to directly donate up to $105,000 from your Individual Retirement Account (IRA) to a qualified charity. This "Qualified Charitable Distribution" can satisfy your annual Required Minimum Distribution (RMD) without the amount being reported as taxable income on your personal tax return. This strategy has gained prominence given recent increases in the standard deduction.
Donating Appreciated Securities: If you hold securities that have significantly increased in value, consider donating the shares directly to a charity rather than selling them and donating the cash proceeds. Donating appreciated securities held for more than one year can allow you to avoid paying capital gains tax on the appreciation, and you may still be able to deduct the fair market value of the securities.
Donating Depreciated Securities: Conversely, if you own securities that have lost value, it's generally advisable to sell them first to realize the capital loss. You can then use this loss to potentially offset other capital gains, and if your losses exceed your gains, you may be able to deduct up to $3,000 of ordinary income annually (with remaining losses carried forward). After selling, you can then donate the cash proceeds to your chosen charity.
Donor-Advised Funds (DAFs): A Donor-Advised Fund (DAF) is a charitable giving vehicle administered by a public charity, allowing you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund to qualified charities over time. DAFs can be funded with various assets, including cash and securities. While offering flexibility in grant timing, some DAFs, often sponsored by community foundations or specific non-profits (like hospitals or religious organizations), may have restrictions on how and where your grants can be used. Some donor-advised funds are also structured as mutual funds and are sold by prospectus. Always review the prospectus carefully to understand charges, risks, expenses, and investment objectives before investing.
Charitable Remainder Trusts (CRTs): A Charitable Remainder Trust (CRT) is an irrevocable trust that allows you to donate assets to a charity while retaining an income stream for yourself or other designated beneficiaries for a specified period (either for life or a term of years). After the payment term concludes, the remaining assets in the trust are distributed to the designated charitable organization(s). This strategy can provide an immediate income tax deduction, avoidance of capital gains tax on the donated appreciated assets, and a lifetime income stream.
Charitable Lead Trusts (CLTs): A Charitable Lead Trust (CLT) is designed to provide regular payments to a designated charity for a specified period. After this trust term ends, the remaining assets are distributed to non-charitable beneficiaries, typically family members. CLTs can be an effective "freeze device" for estate planning, as any appreciation or depreciation of the assets within the trust during its term occurs within the trust and is excluded from additional gifting or estate considerations upon its termination.

Key Points to Remember with Charitable Giving Strategies

This blog is provided for informational purposes only and is not a substitute for personalized financial advice. Many individuals seek to understand the tax implications and benefits associated with charitable contributions. We strongly encourage you to consult with your tax, legal, and accounting professionals to discuss your unique circumstances before making any contributions or implementing a new giving strategy.

Regarding IRAs, once you reach age 73 (in most circumstances), you are generally required to begin taking RMDs from traditional IRAs. Withdrawals are typically taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

When dealing with securities, it's important to remember that all investing involves risks. Investment decisions should always be aligned with your personal goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate with market conditions, and when sold, investments may be worth more or less than their original cost.

Charitable Remainder Trusts and Charitable Lead Trusts involve intricate tax rules and regulations. Before pursuing either type of trust, it is highly recommended to work with a professional who is well-versed in these specific legal and financial frameworks.

Maximizing Your Philanthropic Impact

Charitable giving is a deeply fulfilling and impactful way to contribute to causes you believe in and create positive change. As financial professionals, we at INPAC Wealth Advisors are equipped to help you integrate your philanthropic goals into your broader financial strategy. We can facilitate high-level discussions regarding the pros and cons of various approaches, guiding you as you navigate the giving process. We invite you to contact us to schedule a discussion about your charitable giving plans for 2024 and beyond.

Disclosures: This content is provided for informational purposes only and should not be construed as legal, tax, or investment advice. Always consult1 with a qualified attorney, tax professional, or financial advisor regarding your unique circumstances before making decisions related to estate planning.

INPAC Wealth Advisors is not a law firm and does not provide legal advice. The information provided herein is based on current laws and regulations as of the date of publication, which are subject to change.