Courtesy / Spinnaker Trust
Caitlin F. DiMillo, of Spinnaker Trust
Updated: October 5, 2023
How to think strategically about philanthropy
By Caitlin F. DiMillo, Spinnaker Trust
The season of giving is just around the corner, and like spending for presents that will be wrapped with ribbon, it’s easy to get carried away with saying yes to the barrage of appeals.
There is so much need, so many worthy causes, and everyone wants to do as much as they can to make the world a better place. But if you want to maximize your impact, it’s important to think just as strategically about your giving plans as you do about your investment portfolio and make sure that the strategy is integrated into your estate and financial plans. As you’re doing that, here are some factors to think about.
Consider your mission. Take some time to talk with your financial advisor about the causes you care about, the organizations you want to support, what kind of impact you want to make, and what kinds of implications your giving will have for you and your beneficiaries. An advisor can help you think through the best ways to support a particular non-profit you feel connected to, or help you identify reputable qualified charitable organizations that work to advance issues you want to support.
Get the timing right. When you make a gift will impact income and estate tax obligations for you and your heirs, whether you get into a rhythm of annual giving while you’re alive or designate that a bequest be made after you pass away. If a portion of your net worth is tied up in a security that has significantly appreciated, it may make sense to gift the stock to an organization while it’s at its peak, rather than cash out and shoulder the significant tax liability that goes along with capital gains. This helps maximize the value of the investment to benefit the organization you want to support, while reducing your own tax burdens.
Consider the right vehicle. There is a myriad of philanthropic vehicles that are available and it’s important to work with your advisor to figure out which kinds of funds and trusts best suit your needs and goals. Donor advised funds can help ensure that you have funds dedicated to charitable giving, while you are alive and ensure that your children (or other beneficiaries) continue the legacy of philanthropy after your death. Charitable Remainder Trusts can allow you to retain an income stream from assets that you transfer to trust and designate to later benefit charity. CRTs also have useful tax perks, which allow you to take an up-front income tax deduction upon funding, and the trust to make tax-free sales of low-basis assets.
Consider the tax implications of changing laws. Legislation like the Secure Act and Secure 2.0, which took effect in recent years and made sweeping changes to rules around distributing proceeds of inherited IRAs, may significantly affect your giving plans. Your advisor and estate planning professional can keep you up to date on the changing laws, and help you make any necessary tweaks to your philanthropic strategy.
Consult with the organizations you plan to support. If you are thinking of donating a non-traditional asset like real estate or a life insurance policy to a particular organization, talk with that organization about that and make sure that it is the kind of gift that the organization can accept, and benefit from.
Talk with your family about your plan. Once you have your philanthropic plan in place, it’s a good idea to talk about it with your family members. Making sure they understand your wishes and your plans. Ensuring that they’re not surprised when it comes time to distribute your estate can go a long way toward reducing conflict down the line. These can be tricky and uncomfortable conversations. Bringing your financial or estate planning advisor into those discussions can make it easier.
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