At PAX Financial Group, we understand charitable giving is more than just a financial gift—it’s an extension of your values and an opportunity to make a lasting impact on the causes that matter most to you and your family.
As a San Antonio financial advisor rooted in a community we love, we help our clients find meaningful ways to give back while addressing their broader financial goals. Whether you want to support a community organization, your place of worship, a university, medical research, or another nonprofit organization, there are tax-efficient strategies that will help you maximize your contributions and enhance your family’s legacy while using charitable giving strategies.
In this article, we’ll provide insights on how charitable giving financial planning can benefit you, your loved ones, and the causes closest to your heart. From donor-advised funds to charitable trusts, these approaches can help you build a legacy that reflects your faith and commitment to making a difference in San Antonio and beyond.
Strategy 1: Donor-Advised Funds (DAFs)
A Donor-Advised Fund (DAF) is a straightforward way to manage your charitable contributions. By placing assets such as cash, appreciated stocks, or even real estate into a DAF, you can obtain an immediate tax deduction for your contribution while deciding on the charities you want to benefit later. This allows you to spread out your donations over several years, aligning your giving with the most important needs in your community.
Tax Benefits: Contributions to a DAF are immediately tax-deductible up to 60% of your Adjusted Gross Income for cash donations and up to 30% for appreciated assets. Additionally, by donating appreciated stocks or other securities, you avoid paying capital gains tax on the sale of those assets, making it possible to give more than you otherwise might give, making after-tax contributions.
Example: You contribute $100,000 in appreciated stock to a DAF. The fund sells the stock, and you avoid paying capital gains taxes on the proceeds. Meanwhile, you can deduct the full value of the donation from your current earned income. This will help reduce your tax burden and support the organizations you care about.
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Strategy 2: Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust is an extremely efficient way to create an income stream for yourself, a spouse, or your children while contributing to a charity you want to benefit now or in the future. With a CRT, you place assets in a trust, usually appreciated property, that provides income to you, a spouse, or another beneficiary for a specified number of years or for life. After that period expires, the trust terminates, and the remainder of the assets go to one or more designated charitable beneficiaries.
Tax Benefits: Setting up a CRT allows you to take an immediate partial income tax deduction based on the estimated future value that will go to the charity. You can also avoid capital gains taxes if you wish to fund the trust with appreciated securities, which removes these assets from your estate, potentially lowering estate taxes.
Example: Suppose you contribute $500,000 in appreciated stocks to a CRT. You avoid paying capital gains taxes on the sale of those stocks, receive a substantial charitable tax deduction, and enjoy income generated from the trust over your lifetime. Upon the surviving spouse’s passing, the remaining assets go directly to the charitable beneficiary, thereby supporting a cause you care deeply about.
Strategy 3: Qualified Charitable Distributions (QCDs)
If you’re 70½ or older, Qualified Charitable Distributions are an effective way to give back from your retirement plan. QCDs allow you to donate up to $100,000 annually from your IRA directly to a qualified charity without recognizing the distribution as earned income. This approach also helps to fulfill] any required minimum distributions (RMDs) you might need to take, thereby reducing your taxable income.
Tax Benefits: Because QCDs are not included in your taxable income, they can be
particularly valuable for those not itemizing deductions on their tax returns. By reducing your overall taxable income, QCDs can also help minimize the impact on your Social Security benefits and Medicare premiums.
Example: Imagine that you’re required to take a $10,000 RMD from your IRA this year. Donating that $10,000 directly to a charity satisfies your RMD requirement without adding to your taxable income. This lowers your adjusted gross income, which could result in tax savings for your financial plan.
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Strategy 4: Charitable Lead Trusts (CLTs)
A Charitable Lead Trust (CLT) operates the opposite of a CRT, benefiting a charity first and leaving the remainder for family or other beneficiaries. With a CLT, you fund the trust, and a designated charity receives income from it for several years. After this term, the remaining assets in the trust go to your heirs, often with a reduced tax liability.
Tax Benefits: With a CLT, you can take a charitable deduction based on the present value of the future payments to charity. Additionally, the assets transferred to heirs through a CLT can bypass estate and gift taxes, preserving more of your wealth for your family.
Example: Suppose you create a CLT with $1 million that pays out a set amount to one or more charities each year for 10 years. After this period, any remaining assets pass to your children. Because the trust reduces the value of your taxable estate, it minimizes the estate taxes that might otherwise apply when transferring wealth to your heirs.
Choosing the Right Strategy for Your Legacy
Working with a San Antonio financial advisor who understands your goals and values can help you identify the best charitable giving strategies to support the causes that matter most to you.
The PAX Financial team can help ensure that your charitable giving financial plan maximizes the tax benefits of charitable giving, thereby helping you pass more of your estate to the next generation. This legacy not only honors your beliefs but also uplifts the organizations that benefit from your gift.
Ready to formulate your charitable giving financial plan? Connect with us today.
