The Charitable Planning Process

Key Takeaways:

  • Careful planning of your philanthropic efforts is essential for maximizing your charitable impact.
  • The first step in charitable planning should be to define your goals, including specifically what you wish to achieve through your giving.
  • The second step should be to determine where to make your contributions. A number of tools are available for evaluating charitable organizations.
  • Your third step should be to determine the timing of your gifts, such as annually and/or one-time legacy gifts.
  • Finally, identify what you will give, such as cash, appreciated stock or tangible property.

Regardless of the reasons you have for making charitable giving a part of your financial life, you want to make the most of each dollar you give. Proper planning can help you maximize your philanthropic impact in a number of ways:

  • Leverage financial benefits. You can ensure that your gift is fully leveraged to maximize its value to you and to the charitable organization.

  • Fully support your values. Through your careful choice of charitable organizations and gift-giving vehicles, your giving is more likely to thoughtfully support your values.

  • Focus and streamline your giving. When you have determined how much you want to give and when you should give it, it is easier to say no when you receive a request that is outside your plan.

  • Involve family. Planning can create opportunities to involve family members and convey philanthropic values to younger generations.

  • Maximize tax benefits. And last, but certainly not insignificant, careful planning helps ensure that your giving maximizes the tax benefits available to you.

As you formulate your charitable plan, we recommend that you take the following steps:

Step 1. Formulate your goals

When your giving reflects your deepest values and interests, philanthropy becomes powerful and profoundly rewarding. Consider these questions as you begin to create a charitable plan:

  • What do you care about most? What causes are most important to you? What truly moves you—to laughter or to tears? What fascinates you, holding your interest over time and challenging you to always learn more?

  • What values do you want to convey with your giving? Do you want to give back to the community, honor an individual, promote social justice, help sustain your church, support arts and culture, or focus your efforts on another area?

  • What do you hope to achieve with your giving? How do you want the world to look different as a result of your philanthropy? Perhaps it will mean that a devastating disease has been eradicated, that qualified students will have the assistance they need to attend your alma mater, or that low-income families in your city will have safe and affordable housing.

  • Where do you want to make your impact? What is your geographic focus? Is it on a local, regional, national or international level?

  • How involved do you want to be? Some people prefer to simply give anonymously, while others want to be deeply involved in the organizations to which they give.

Step 2. Decide where to give

With your charitable goals defined, the next step is to identify the optimal charitable organizations for helping you achieve your goals. You may decide to deepen an existing relationship with a charity, or you may find that your best route is to identify other organizations.

To begin your search, ask people who are active in the causes that interest you for recommendations and talk to friends and colleagues who share your charitable interests about the organizations they support. On the Internet, several Web sites are very useful both for locating organizations that support your goals and for evaluating them to ensure that they are well-run and fiscally sound:

Once you have a list of candidates, confirm by looking at the mission statement of each that they support your goals. Each mission statement should clearly articulate the purpose of the organization and whom it serves. Next, verify that the programs are fully aligned with the mission. The mission statement and program information should be easily available on the organization’s Web site. If not, contact the organization directly.

With your list narrowed to the most likely candidates, conduct further research to verify that they will use your contributions effectively and efficiently. Ask to review each organization’s audited financial statements and IRS Form 990, which most public charities are required to file. This form provides information on revenue, expenses, key personnel and board members, as well as other information that will provide insight into how well the organization is being run.

If your contributions will be sizable and long term, ask to conduct a site visit. The organization’s executive director or a member of the executive team should be more than willing to meet with you to discuss the organization in depth, to introduce you to key personnel and to put you in touch with board members.

Step 3. Decide when to give

Next, consider the timing of your gifts. Typically, individuals make contributions in three ways:

  1. Annual giving. Regular, ongoing contributions are usually tied to the tax year to ensure that you receive maximum tax benefits. Planned annual giving benefits the recipient organizations because it allows them to better predict cash flow and plan for the future.

  2. Legacy giving. Making philanthropy part of your legacy can extend your impact well beyond your lifetime. Legacy giving may involve a simple will bequest or more complex vehicles that allow significant assets to be transferred while the donor is still living.

  3. Giving in response to a crisis. Many people are moved to give when disasters occur, and certainly these contributions can be helpful. But also consider a strategic approach, such as helping specific disaster-response organizations to build their infrastructures and expand their capabilities.

Depending on your goals and resources, you may choose to give in one, two or all three of these ways.

Step 4. Decide what to give

Finally, look at exactly which assets you are willing to invest in your charitable goals. These are the primary types of contributions:

  • Cash. Donations are tax-deductible. Deductions may be limited to a portion of adjusted gross income, but the limits are quite high.

  • Appreciated stock. This is also tax-deductible at full market value (if held for at least one year), but again there are
    limits—though high ones—on the deduction that may be made. Appreciated stock that is donated is not subject to capital gains taxes. This approach can be a good option for charitably inclined investors with low-basis stock holdings. Example: One financial advisor we coached started working with a client who had been selling stocks she had held for decades, paying significant capital gains taxes on the profits, and then writing checks to her charities with the remaining money. To maximize her giving, she began to donate appreciated stock directly to the charities instead of selling the shares first. It’s estimated that this approach will save the client—who donates approximately $100,000 annually—around $15,000 in capital gains taxes each year, which can be donated to the charities instead of sent to Uncle Sam.

  • Tangible property. Virtually any type of property—from clothing to automobiles and real estate—can be donated. Tax deductions are again allowed, with certain limits.

  • Time and expertise. While expenses related to volunteering are deductible, the value of your time is not.

Once you have moved through each of these four steps of the planning process, you will be well-equipped to make smart decisions about the specific vehicles you will use to optimize your giving.

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