Charitable Giving, Part I: Choosing the Best Charitable Vehicle

By Andi McNamara, CFP®  
Vice President, Director of Financial Planning
Washington Trust Wealth Management

With the fall fundraising season approaching, now is the time to choose a charitable giving vehicle that makes the most of your philanthropic dollars. In the first of two blogs, we will explain your available charitable vehicle options; in our September 5 blog we will compare their advantages and disadvantages and why you may want to choose one over the other.

Cash Donations 
Writing a check directly to an individual or group is the simplest way to give. However, it may not provide the greatest tax advantages because this strategy does not provide added benefits, such as potentially reducing your taxable capital gains.

Donor-Advised Funds (DAFs)
A Donor-Advised Fund (DAF) is a simple, flexible, and tax-efficient way to manage your charitable giving. By contributing to a DAF, you receive an immediate tax deduction and can recommend grants to your favorite charities over time. The assets in the DAF can be invested and grow tax-free, increasing your potential impact.

Private Foundations
A private foundation is a legal entity you can create to manage your charitable activities, typically requiring a significant initial investment. You have complete control over the foundation’s operations, including how assets are invested, which grants are made, and the selection of board members. Foundations often carry your name and can become a lasting legacy, with the ability to exist in perpetuity. Foundations can engage in activities beyond grant-making, such as running charitable programs or awarding scholarships.

Charitable Trusts 
Charitable Remainder Trusts (CRTs) offer a way to make a significant charitable impact while also providing for your financial needs or those of your heirs. When you transfer assets into a CRT, it pays you (or another beneficiary) an income for life or a term of years. After the trust term ends, the remaining assets go to the charity of your choice. A Charitable Lead Trust (CLT) pays the income to a charity, and leaves the remainder to a non-charitable beneficiary, the opposite of a CRT. Charitable trusts are particularly useful if you want to convert appreciated assets into income without incurring immediate capital gains taxes.   

Stock
Many nonprofits will accept stock as a gift or donation. Donating securities that have been held for a year or more offers the potential for a double tax benefit—a full fair market value tax deduction and elimination of capital gains taxes. Note: If your stock has risen in value since purchase (low basis stock), donating it directly is preferable, but if it has lost value, it may be more advantageous to sell it first and then donate the proceeds to take the tax benefit.

IRAS 
Your IRA can also be a powerful tool for charitable giving, particularly through Qualified Charitable Distributions (QCDs) and as part of your estate planning.

• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can transfer up to $105,000 annually directly from your IRA to a qualified charity without the distribution being included in your taxable income. This is a great way to satisfy your Required Minimum Distributions (RMDs) while reducing your taxable income.
• IRAs as inheritance: Alternatively, you can name a charity as the beneficiary of your IRA. Since charities don’t pay income taxes, the entire amount can go to support their mission, potentially more tax-efficient than leaving the IRA to non-charitable heirs.

Rely on Washington Trust Wealth Management 

As a community-focused organization, Washington Trust Wealth Management is here to answer your questions and provide guidance to help your donations mean more, go further, and align with your financial goals, tax situation, and philanthropic vision. Talk to your wealth advisor today.

Coming on September 5 … Charitable Giving, Part II: Getting More from Your Giving