5 ways financial advisors help with charitable giving
Rachel Christian
6 min read
Itemizing your income tax return used to be a simple way for the average person to claim a deduction for charitable cash donations.
But since the 2017 Jobs and Tax Cut Act nearly doubled the standard deduction, only an estimated 10% of Americans itemize their returns, down from 30 percent, according to the National Council of Nonprofits.
While tax breaks shouldn’t be driving your charitable donations, there are other ways to maximize your giving that you might not be aware of.
Working with a financial advisor can shed light on other opportunities that let you support the causes you care about most while lowering your tax liability.
Need expert guidance when it comes to managing your charitable giving or planning for retirement?
How can a financial advisor help with charitable giving?
For many people, giving back is a core part of their values. After all, it’s rewarding to help the communities and causes we care about.
But just like saving for any goal, charitable giving requires a strategy. By incorporating philanthropy into your bigger financial plan, you can give back to your favorite organization in a meaningful and sustainable way.
A financial advisor can help you devise a roadmap for your philanthropy. They can create a budget for your giving, identify the best assets to direct to charity and use the most tax-efficient structures for your donations.
Here are five ways a financial advisor can help you with charitable giving.
1. Define your goals
Maybe you’ve always dreamed of setting up a scholarship for low-income students at your alma mater, or establishing a foundation to support the arts. But knowing how to translate your charitable aspirations into meaningful action can be challenging.
A financial advisor can help you create a comprehensive charitable giving plan, aligning your donations with your larger financial goals.
The details in your plan will depend on factors like your age, portfolio and how much you are willing or able to give.
Putting a plan in place gives you more control over how and when your money is distributed to charity. Do you want to see the impact of your giving now, or fund a trust to support your favorite causes after you’re gone?
Whether you’re inclined towards focused giving or want to support a range of charities, a well-crafted plan ensures your contributions make a difference.
2. Increase the impact of your giving
If you’re simply writing a check to your favorite nonprofit each year, you might be missing out on tax benefits.
Here are a few ways a charitable giving advisor can help you maximize your donations:
They might recommend “bunching” or “bundling” contributions. This involves consolidating multiple years’ worth of donations into a single tax year, allowing you to surpass the standard deduction threshold and receive greater tax benefits.
They might suggest donating a percentage of stocks, bonds or other appreciated securities directly to the nonprofit. You won’t owe capital gains tax on appreciated assets you’ve owned for at least one year — like you would if you sold it yourself — plus you get a charitable income tax deduction for the full, fair market value of the shares.
If you’re over age 70½, an advisor might recommend making a qualified charitable distribution from your traditional IRA. Donating assets directly from your IRA to your chosen charity helps reduce your taxable income in retirement and can fulfill some or all of your required minimum distribution if you’re over age 73.
3. Creating a donor-advised fund
Donor-advised funds are one of the fastest-growing philanthropic strategies, and for good reason.
You can make contributions to a donor-advised fund and receive an immediate tax deduction for your donation when you itemize your return.
A unique feature of donor-advised funds is their ability to distribute money to charitable organizations over time, on a schedule that works for you. For example, you have the flexibility to make large charitable donations one tax year, and in other years, take the standard deduction.
Meanwhile, funds in your donor-advised fund are invested and have the potential to grow tax-free, offering a way to give even more to the causes you care about.
When you establish a donor-advised fund, you are donating to a 501(c)3 that then donates to other charities. For example, Fidelity Charitable is a 501(c)3 that offers DAF services.
A financial advisor can help you choose the right fund for your specific needs, considering factors like fees, investment options and administrative support. They’ll also guide you through the process of selecting a DAF provider.
4. Establishing foundations and grants
Establishing a foundation offers a deeper level of control over how funds are used — but it can be time-consuming to set up.
Starting a private foundation is similar to starting any business: You’ll need to create a clear mission statement, pick a board of directors, apply for licensing, file federal and state tax documents and ensure compliance with legal requirements.
Your financial advisor, in collaboration with legal and tax professionals, can guide you through this process, helping you understand the implications and benefits of establishing a foundation.
Additionally, if you want to invest the foundation’s money, a financial advisor can offer investment management services and guidance.
5. Estate planning considerations
Many people want to leave a lasting impact on their favorite charities. By working with an attorney, your financial advisor can help incorporate gifting strategies into your estate plan.
With a charitable remainder trust, for example, you can benefit from a stream of income during your lifetime as well as current year tax deductions when assets are donated to the trust. Your designated charity takes ownership of any assets remaining in the trust when you die.
Meanwhile, naming a charity as a beneficiary in your will or living trust is one of the simplest ways to donate to nonprofits through estate planning. Plus, it can lower the amount of your taxable estate.
A financial advisor can help you explore each of these strategies and pick the right one.
How to pick a financial advisor
When picking a financial advisor, it’s crucial to look for a fee-only fiduciary. These professionals are ethically bound to work in your best interest — not the interests of insurance companies or financial institutions. They’ll provide unbiased, personalized advice that you can trust.
You’ll want to look for advisors with expertise in charitable planning. If your estate is particularly large and complex, you might want to work with a wealth manager, since many of these professionals offer philanthropic planning services catered to high-net worth clients.
Online platforms and professional associations, such as Let’s Make a Plan by the CFP Board, provide directories of advisors you can search. You can also ask for recommendations from friends, family or coworkers who have experience with charitable giving.
When you meet with potential advisors, ask about their experience and inquire about specific cases they’ve handled. Pay attention to their communication style, transparency and fee structure.
Bottom line
Partnering with a financial advisor can elevate your charitable giving from well-intentioned gestures to strategic, high-impact contributions.
Ultimately, the right finding advisor will be someone who aligns with your values, demonstrates expertise in their field and provides a personalized approach to help you make a positive impact through your philanthropy.
