Helpful Tips to Establishing a Charitable Giving Plan

In this space, we regularly discuss common concerns, fears and worries when it comes to establishing a financial plan. But there are also many beautiful elements that can come from proper financial planning that are often overshadowed, things like donating to charity and helping others. In fact, one of the most personally fulfilling aspects of your financial plan can involve determining how you can further worthy causes with your own resources.

Charitable giving enables you to see the impact of your funds on your designated charities during your lifetime or leave a legacy that will assist organizations that are important to you.

Before getting started, I always suggest discussing your plans with a financial advisor first to make sure your plans are set up in the most efficient way, both for the charity and for you. It’s also smart to work with an advisor who is familiar with the area in which you live. For example, if you live in the San Antonio area, make sure you work with a financial advisor San Antonio who is familiar with the laws and programs offered in the state of Texas.

Ready to discuss your future with a trusted financial advisor? Contact PAX Financial Group to see how we can help.

Deciding and Working with Charities

Again, before setting up a charitable giving strategy, I encourage you to first discuss your plans with a financial advisor, as an advisor can help you determine a plan that will best help you and the charity you decide to work with.

For example, although someone can gift money to any legal organization, only qualified non-profits, called 501(c) organizations by the IRS, will be eligible for the tax benefits associated with charitable giving as a financial strategy. Non-profit organizations receive donations for operations related to their purpose without paying income tax on these donations.

Charitable organizations operate in domains such as education, religion and even scientific research. If you have not decided yet, the right financial advisor can help you identify potential non-profits, as well as verify that the organizations you are considering use their donations responsibly (for example, through the organization’s public IRS Form 990 filing on their financial activities, if the non-profit is required to file this form).

Once you have identified a charity or charities, you and your financial advisor can communicate with the charity to discuss how to best gift to the organization or incorporate it in an estate plan. You can also work with your financial advisor to decide whether you wish to designate what the charities can use your funds for (for a specific purpose), called a donor stipulation, and how to make this specification to the charity.

Lifetime Charitable Giving

For those who wish to gift to a charity during their lifetime, a financial advisor can also help determine a safe amount to donate to maximize the impact they make on a specific cause while ensuring the security of their funds during their retirement years. For example, financial advisors can incorporate clients’ lifetime gifting goals into their overall long-term goals to leave a charitable contribution upon their passing.

Under the new tax legislation, taxpayers can deduct up to 60 percent of their adjusted gross income on qualifying charitable donations annually (up from a historical 50 percent). Financial advisors can also assist clients in determining the ideal timing of their charitable contributions, such as “bunching” planned contributions so all occur within a single tax year or waiting until a high-income year to minimize the taxes they will owe on a higher income. Another strategy is to donate securities that have substantially increased in value rather than cash, because charities do not have to pay the capital gains tax that individuals do.

If you have selected a charity but have not decided whether or how to direct your contributions, you may be able to contribute to an irrevocable donor-advised fund. These funds are owned by a public charity and will hold your assets until you decide how you wish to designate your money. Some investment companies also manage their own donor-advised funds, and you can then designate your contributions to that fund for specific charities. Contributions to donor-advised funds may qualify as a charitable contribution for the tax year in which the contribution is made.

Legacy Charitable Giving

You may also want to assign a charity (or more than one) to be a beneficiary of your estate. Any trust with discretionary power over distributions can donate to a charity, and the grantor can change which charity or charities will be a beneficiary.

However, another option is for individuals willing to make irrevocable contributions, meaning that they will fully relinquish control and ownership over their assets. Irrevocable charitable remainder trusts are a common tax-advantaged means to ensure that beneficiaries will receive a secure income stream, while designated charities will eventually receive the remaining funds in the trust. After the trust is established, donors can contribute more assets to the trust at any point, which will then be managed by the trust.

Upon establishing a trust, the beneficiary can receive income from the trust either via fixed payments as an annuity or as a percentage of the principal paid out annually. When the payment period expires (after a set number of years or upon the beneficiary’s death), the funds in the trust account will be transferred to the designated charity. In other words, the charity receives the “remainder” of the funds.

Depending on whom the grantor wishes to be beneficiary, these trusts can be part of a donor’s retirement plan or part of the legacy for their beneficiaries after death. Trusts set up inter vivos (while the donor is alive to receive the income) may be incorporated into an individual’s or couple’s retirement strategy, while testamentary trusts, which are established by the donor’s estate plan upon death, will establish others as beneficiaries of the trust.

Charitable remainder trusts have many tax advantages, one of which is that contributions are tax-deductible. This advantage makes them valuable for shifting investments with high capital gains, because donations are tax-exempt, and the donor can receive payments as income based on the investment’s full, non-taxed value. Charitable remainder trusts are also removed from the grantor’s taxable estate and avoid probate.

Again, please discuss your plans with a financial advisor before getting started. And if you’re in the San Antonio area, consider working with a financial advisor in San Antonio.

Working with Financial Professionals

Financial advisors serve many core functions in establishing a sustainable charitable giving plan. For clients who want to see the impact of their funds over their lifetime, financial advisors can generate projections for their clients’ living expenses during retirement and determine the amounts clients can reasonably use for charitable donations.

I believe that financial advisors should also be involved with their clients’ discussions with estate attorneys to ensure that attorneys have access to all the information about their client’s financial lives that could be relevant to developing an effective estate plan.

Clients should seek out financial advisors and estate attorneys with extensive experience in the client’s home state, as there are many state law considerations involved with estate planning. Estate planning laws, particularly for trusts, vary substantially among states. For clients who live in a state with state income tax, financial planners can also identify how to incorporate charitable giving and estate tax strategies with state income tax planning.


Charitable giving can become a piece of your financial plan without risking your retirement income or the resources you would like to leave behind for your loved ones. It can be one of the most powerful strategies to ensure that your life and your legacy will support the causes that you value most.

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

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