Towards the end of the year, charities, universities, cultural institutions and not-for-profit (NFP) groups ramp up their appeals for personal and corporate charitable giving. The process has conditioned donors to see the holiday season as “the giving season.” Truth is, even if your intention is to enjoy a tax benefit through philanthropy before year end, anytime is the right time for well-planned giving.
As I’ve written in the past, giving to a university, charity or community organisation shouldn’t be about cutting a cheque and hoping for the best. It’s important to create a giving plan and choose charities that reflect your values and goals, lest their use of your funds not be maximized or align with your intent.
At its core, giving should pair an organisation’s needs with the donor’s or community’s ability to give. Earlier this year, a local synagogue raised $100,000 from its community to provide food for those less fortunate to ensure they could enjoy a Passover Seder. A local entrepreneur concerned about climate change gave a $5 million gift to the University of Miami to support its research into climate resilience. Another area resident gave $2 million to fund a Center focused on mental health.
Donors large and small are becoming more focused around how they can ensure their giving can have the greatest impact. How can you maximize your donations?
Do your homework. For every dollar you give to an organisation, how much goes to their overhead, salaries, administration or other costs not directly associated with the mission? Charity Navigator rates hundreds of thousands of philanthropies. The IRS Form 990, required of all NFPs, provides the public with critical financial information, including the tax-exempt’s spending, executive salaries and other costs of doing business. Ensure that they have their 501(c)3 or similar status. If they don’t, the IRS could seek to clawback your tax deduction. Do your due diligence to find out!
Choose your vehicle carefully. Methods of giving can be confusing. How do you choose between a donor advised fund, a national organisation or a family foundation? When adding to a DAF, the donor receives a tax deduction and gets to recommend or align their giving. Generally, large organisations receive donations, then direct them towards their greatest need, with no donor input, unless it is a directed gift. Small charities usually have low expenses and are mission-focused with low expenses and salaries, meaning more or all of your donation goes to the ultimate beneficiary. Another option is to set up your own family foundation. This is a great way to get your family involved, starting with the creation of a mission statement, and ensuring all are involved in the decisions on where to give.
Choose what to give. Donors have the option of giving a variety of assets, all of which have potential tax benefits. Stocks, bonds, real estate, or other assets that have significantly appreciated in value since their purchase (low basis), with the additional benefit of potentially reducing tax liabilities. Some donors like to give closely held assets, such as family owned businesses and under certain circumstances gifting life insurance policies may make sense, especially if you don’t intend to give it during your lifetime.
General or directed gift. What’s important to you? What are you trying to impact? Do you prefer to give to their general fund, or do you want to have an impact for a specific project? If you prefer to focus on a project, think about measurable milestones.
Make it personal. We usually have a limited amount of charitable dollars, so give to what is important to you. Ask for annual reports and check their financials. Stay engaged. Beyond your money, volunteer your time and talent to help with its efforts.
If you are a charity – connect, don’t sell. Don’t beg or pressure a potential donor to “please give to my charity.” Instead, listen to your donor and ensure that your charity meets their mission or giving focus.
If you’re thinking of making a sizable donation or want to set up a foundation, then you need to talk to a professional. The nuance of giving, for example, when a gifted stock transfers to the organisation, or how an endowment will be treated and spent, often is lost on donors for whom this is a one-time endeavour. An attorney, CPA or trusted financial advisor versed in giving best practices will ask for and review the annual reports to help determine the impact of your gift or the potential tax implications.
However, an independent advisor can help negotiate an agreement designed to ensure the intent of your donation is met by the recipient. The agreement can hold the institution accountable for meeting certain milestones and provide you with regular reporting on how your donation is being used.
Your advisor can help structure your giving, putting into action your family’s intentions and align the donation to results. This way, you can enjoy the pleasure of giving today – and the benefits of the outcomes tomorrow.
Want to learn more? Contact us. We have the experience to help guide your philanthropic strategy and identify the best way to leave a legacy.