Financial Wellness: Tips for Charitable Giving

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By Allen G. Carter, Jr., CRPC©, executive director and portfolio manager of UBS Financial Services Inc., 312-525-4300,

While the most popular time for charitable giving is behind us, now is the perfect time to start planning how to give in the smartest way in 2016. While tax write-offs are one benefit to donating to nonprofits, there are several other things to consider before reaching into your pocket. While there is no wrong way to give, there is a smart way. Here are some valuable things to consider before breaking out the checkbook:

Donate Appreciated Securities

Appreciated securities are investments (such as stocks, bonds, or mutual funds) that have gained significant value since you first purchased them. Consider donating the appreciated securities rather than selling them first, which results in paying capital gains tax. This way, you will be able to donate the proceeds. If the charity sells the stock after it receives the donation, as a tax-exempt organization, it will not pay tax on the capital gains triggered by the sale.

Consider the “How” Along with the “What”

Besides what to donate—cash, securities, or tangible assets like cars and art—another major issue to consider is how. Many people don’t realize that they can give to charity through a fund or organization. Some to consider include donor advised funds, private family foundations, charitable trusts, gift annuities, or pooled income funds. All offer various tax benefits but differ in their structure and administrative requirements.

Look at Donor Advised Funds

The fastest growing form of philanthropy, donor advised funds, which are administered by a public charity, offer a simple and organized way to give. Donors make tax-deductible contributions of cash or securities to the fund, and can direct the fund to make grants to charities of their choice. Contributions are invested and professionally managed, giving donors the potential to have their contributions grow and make larger grants over time.

Explore the Charitable Trusts Option

Charitable trusts offer an immediate income tax deduction and can be structured to provide an income stream to either the donor or the charity. Charitable Remainder Trusts allow the donor to transfer assets to the trust and receive payments for a certain term, with the charity receiving any remaining assets at the end of that term. Charitable Lead Trusts pay the income stream to the charity, with any remaining assets in the trust passing to the donor’s heirs free of gift and estate taxes.

Establish a Private Foundation

Private foundations are often established with larger donations by an individual or family to further a charitable purpose. They offer donors control over grants and are an effective way to encourage heirs to become involved in philanthropy. Private foundations can have higher administrative costs, a more limited tax deduction, and require an annual distribution to charity of 5% of foundation assets.

Combine Giving with Volunteering*

Donors who volunteer their time are much more satisfied with their giving. When they include friends and family in charitable giving, and select a cause to support strategically, they report even higher satisfaction. Many local charities can use extra manpower, especially after the new year when there is less attention to giving and volunteering.

Look to Your Financial Advisor for Guidance*

Those who plan the financial aspects of their giving view their approach as more effective, and are also more satisfied with their impact. Few receive advice from their financial advisors on charitable giving (9%) because they view this as being for the very wealthy. However, across all wealth levels, those who consult an advisor are much more satisfied with the results of their giving.

Don’t wait until the end of the year—plan your giving now to have the greatest impact on your donation recipients and your financial well-being.

*Tips #6 and #7 from UBS Investor Watch: 4Q 2014, available upon request.