Accomplished individuals often look for opportunities to express their values and give back through charitable giving. In fact, Bill Gates and Warren Buffet started an initiative called the Giving Pledge, which encourages the world’s wealthiest people to give away much of their fortune to charity. Over 100 notable contributors have made the commitment to dedicate the majority of their wealth to philanthropy, including Richard Branson, Michael Bloomberg, Diane von Furstenberg and Mark Zuckerberg.
In addition to benefitting the community or cause the giving is focused on, charitable giving can also provide benefits to the donor. Whether you’re nearing the end of your career and looking to leave a legacy or you’re passionate about a cause or making an impact for future generations, establishing a charitable giving approach can have the added benefit of reducing your taxable income.
So how can you incorporate charitable giving into your larger estate planning strategy?
- Utilize Donor-Advised Funds – Donor funds are traditionally sponsored by public charities and provide a rather uncomplicated way to donate money. Donations to a donor-advised fund are deductible in the year they are contributed but can be given to charities in other years. Donors can enjoy a tax deduction of up to 50% of adjusted gross income for cash donations or 30% for appreciated assets. Donor-advised funds are good for individuals who want to give back but don’t have the time to be more involved or hands on. On the other hand, the donor does not have much control over the way the funds they donate are ultimately utilized.
- Set Up a Foundation – Not for the faint of heart, starting a foundation is for individuals who really want to get involved, roll up their sleeves and have control over the process to benefit a cause. Running a foundation is much like running a business, with a board of directors and trustees, and requires an extensive amount of time and focus. Most non-profit foundations are tax exempt.
- Start a Scholarship Fund – Not only has the cost of higher education surged by over 500% in the past 30 years, but college textbooks costs are also on the rise, having increased by 73% over the past 10 years. A great way to give back and to personalize your giving is by starting a scholarship fund. Whether your late father had a love of law or your mother was passionate about music, you also often have the ability to honor a loved one by setting up a fund in their name. On the tax side, scholarship fund donations are usually treated the same as donor-advised funds.
Some other things to take into consideration when making charitable donations are the type of property being donated (which can have an impact on tax consequences) as well as how the contribution is made.
It’s important to work with a trusted advisor who will help you to navigate the intricacies of charitable giving and to determine what is right for your goals, financial situation and desired level of involvement so that you can leave the legacy you desire.