By Robert G. Collins, CFA

The old 80/20 rule is still at work today in the area of giving. 20% of givers use techniques that maximize their effectiveness. 80%...the rest of us…are blissfully unaware we are collectively paying millions in taxes that could be funding charities we are passionate about. Years ago, as Managing Director at Goldman Sachs, doing very well financially, I was an “80%er.”

Offered an opportunity to meet with a philanthropic specialist, I said no. What could they possibly tell me that would change my planning? Wrong answer! The array of tools and techniques is tremendously varied and smart people are tapping into those resources! Here are just a few ideas:

1. Use a Donor-Advised Fund (DAF).
For many years now, donor-advised funds (DAFs) have been the fastest growing area of charitable giving. A DAF works like a charitable account: the giver gets a charitable deduction when assets are contributed. The money can be invested and grow tax-free. Importantly, the giver is still advising the DAF sponsor how much to give to their own favorite charities, and when. In this way, DAFs are similar to private grant-making family foundations, but without the hassles and expense of running a corporation. Many DAFs have slick online interfaces, bringing the convenience of online banking.

Most importantly, using a DAF enables the giver to give when it’s convenient for him and decide the amount, timing and recipient of the gift at a later date. For example, contributions of appreciated securities at year-end can generate a charitable deduction this year, but grant-making out of the fund can occur over the next several years. DAFs make your giving work better for your own personal finances, and are simpler and more convenient, as well.

2. Stop writing checks!
It’s the worst way to fund your giving! Shocking, but true. Gifts of cash are after-tax dollars exchanged for a charitable deduction. By gifting appreciated assets, such as securities, business interests and real estate, you gain a fair market value deduction, but avoid the capital gains taxes embedded in the asset. Essentially, you are giving pre-tax dollars and still getting the charitable deduction – a double benefit. Contribute these appreciated assets into your DAF for added benefit.

3. Plan ahead for tax events.
If you have a taxable event on the horizon, such as selling the family business or real estate, you should explore your charitable options today. Many people sell, then give – missing out on the double benefit derived from gifting pre-tax dollars. Your charitable options include not only gifting a full or partial interest in the asset outright to a DAF, but also gifting the asset to a split-interest arrangement such as a charitable trust or charitable gift annuity. These arrangements can pay the giver income in retirement. Remember, for those who are charitable, capital gains taxes are optional taxes – you don’t have to pay them if you don’t want to.

4. Have a charitable shareholder.
If you have committed to giving a certain percentage of your company’s profits each year, consider gifting a partial interest in your business to your DAF. For instance, if you give a 10% (non-voting) interest in your company, 10% of the company’s profits and distributions can automatically flow to your fund, then you can grant them out to your favorite charities. There is a potential three-fold tax benefit: 1) an up-front charitable deduction for the fair market value of the donated shares/units, 2) a lower (or zero) tax rate on the ongoing profits of the business, and 3) a lower (or zero) tax rate on the ultimate sale of the business. It is critical that the DAF or charity you are giving to have expertise in taking in business interests. Charities can pay income and capital gains taxes from business interests, called Unrelated Business Income Tax, or UBIT. A charity’s tax bill can be just as much or more than yours, eliminating the benefits of these strategies. Make sure your charity has the expertise to reduce or eliminate its taxes before proceeding.

5. Give generously through your estate.
Bill Gates and Warren Buffett are traveling the globe right now, encouraging billionaires to pledge and give away at least half their fortunes to charity at death. If you have been blessed with wealth, check out givingpledge.org to read the reasons why many respected business leaders are leaving a charitable legacy. A DAF is a simple, easy solution for a family foundation legacy, but ask the fund sponsor whether it has rules about appointing successors. Some fund sponsors allow DAFs to be administered by a successor committee, enabling them to function similar to classic family foundations.

About the Author
Robert G. Collins, CFA is the Executive Director of Christian Legacy Foundation (CLF), Tampa Bay’s Christian community foundation. CLF helps people fund their giving using their business and real estate, what we call Smart Christian Giving®. CLF is one of the fastest growing affiliates of the National Christian Foundation, the largest community foundation in the USA. Bob can be reached at (813) 567-1499 or by email at bob.collins@clfinc.org.