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Charitable Giving in a Comprehensive Financial Plan


A comprehensive financial plan should address 6 main areas: retirement, investments, insurance, estate, taxes, and cash flow. Learn more about some of the points to consider when implementing charitable giving strategies into your plan.

Retirement planning

Budgeting for charitable funds: The size of your retirement funds, as well as how near you are to retirement, will likely play a role in the amount and the ways you are able to give. That’s to say that if you’re nearing retirement and find yourself with insufficient retirement savings, you will likely want to donate to your own retirement fund before donating a large amount to charity.

Gifting retirement accounts: Rather than naming a relative or friend as the beneficiary of your retirement account, another option is to name a charity. Before choosing this option, you should check to see if your plan has any restrictions on designating charities as beneficiaries. Since charities can avoid income taxes on retirement accounts while your family cannot, it often makes sense to leave your IRA or 401(k) to charity and your non-retirement assets to your family.

Providing retirement income: Charitable gift annuities and charitable remainder trusts allow you to give a sizeable amount to charity while still providing you with a retirement income through annuity payments or annual distributions. For donors that would otherwise have to sacrifice their charitable goals to protect their own finances, trusts and annuities can be an appealing option.


Changing investment objectives: When managing a philanthropic portfolio, your asset allocation and risk tolerance may be vastly different from your personal portfolio. A 2010 study of high net worth philanthropy by The Center of Philanthropy at Indiana University found that donors were less risky with a philanthropic portfolio than with their personal portfolio, with over 25 percent saying they were completely risk averse with their philanthropic investments.

Private foundations and investment experience: Choosing a private foundation as your mode of charitable giving means gaining the responsibility of managing and investing the foundation’s principal fund. This will likely require you to hire an investment advisor and up your investment knowledge so you feel confident in how the foundation’s charitable dollars are being handled.

Donating appreciated securities: By choosing to donate part of your portfolio, you can both give a valuable asset to charity and reduce portfolio risk by diversifying, without having to sell stocks and incur capital gains tax.

Risk management

Charitable strategy helps avoid overspending: While a charitable giving strategy can help you maximize your donation to charity, it also forces you to set a charitable budget and avoid donating more than you can give or using charitable vehicles that don’t make sense for your net worth. By creating and monitoring a charitable strategy, you can help protect yourself against making risky giving decisions at the expense of your own financial stability.

Avoiding charity fraud: Research is a huge part of any charitable giving strategy, and getting to know the charities you donate to can help protect you against legal liability as a result of charity fraud. Developing a strategy will also make you less likely to give impulsive donations to phone or email solicitations, which many scammers use to steal funds from unsuspecting donors.

Donating life insurance: Naming a charity as the beneficiary of your life insurance is a relatively inexpensive way to donate, as it can leave a large amount to charity while only costing you a small amount in premiums. It also helps both you and the charity hedge against risk by ensuring a donation no matter the timing of your death.

Estate planning

Giving after death: Donating postmortem offers you many options, whether you leave an outright bequest in your will or donate life insurance, retirement assets or through trusts. Either way, these donations can help you reduce your taxable estate and can help your family avoid income tax on some of these inherited assets.

Minimizing estate taxes: Charitable giving offers many options for reducing estate taxes for you and your family. The use of charitable trusts can even offer income tax benefits and help provide you or your family with a source of income while still donating a large portion of the trust’s assets to charity.

Leaving a charitable legacy: By ensuring that some of your estate’s assets will pass to charity, you can help solidify your charitable legacy and know that your charitable acts will live on even after your death.

Tax planning

Claiming charitable deductions: Donations to qualified charitable donations are deductible on your federal tax return, meaning you can plan to reduce your tax bill for each year that you donate.

Using charitable giving vehicles to minimize taxes: The use of various charitable giving vehicles can help you reduce income taxes (through deductions), estate taxes (by reducing the amount that remains in your taxable estate) and capital gains taxes (by donating appreciated securities or capital gain property).

Net worth and cash flow

Budgeting for planned giving: Planned giving and the budget it requires will be largely determined by your net worth and cash flow. Many people choose to give as a percentage of their income, so in some cases your charitable giving budget may be directly proportional to your cash flow.

Determining the best method to give: Your net worth and cash flow will be a determining factor not just in what, but in how you choose to give. For example, someone with a low or even average net worth will likely not choose to set up a private foundation. Likewise, someone with a high net worth will likely have avoiding estate taxes as a large factor in their charitable giving strategy, and therefore will want to use vehicles such as charitable trusts and annuities that allow them to do that.