Charitable giving often starts with a simple question: Who or what do you want to support?
The most effective charitable giving strategy depends on what you want to give, when you want to give, how much control you want to retain, and how philanthropy fits into your broader financial and estate plan. For many individuals and families, strategies such as donor-advised funds, gifts of appreciated assets, bunching charitable donations, and private foundations can help turn charitable intent into a more thoughtful, tax-aware giving approach.
Choosing where to give is only one part of the decision. The way a gift is structured can affect its tax treatment, the value that ultimately reaches the charitable organization, and how the gift supports your broader financial and estate planning goals.
There is no single right structure for every donor. Each approach carries different planning considerations, administrative requirements, and levels of flexibility. The following four charitable giving strategies are commonly used by individuals and families who want to give with greater intention.
What Does Charity Mean to You?
The first step can be tougher than it seems: decide what you want your giving to achieve. Some families focus on supporting a few organizations over time. Others prefer to stay flexible or include several generations in their decisions.
Tools like Charity Navigator and the IRS Tax Exempt Organization Search can help you check an organization’s mission, finances, and tax-exempt status.
Benefits of Charitable Giving in a Broader Financial Plan
Most families do not give for the tax benefit alone. They give because a cause, community, or institution matters to them. Still, the way a gift is structured can influence how much ultimately reaches the organization, how the gift fits within the family’s broader balance sheet, and whether it supports long-term estate and legacy goals.
When charitable giving is planned alongside the rest of a family’s financial life, it may help donors:
- Reduce current or future tax liabilities
- Transfer assets during their lifetime as part of a broader estate-planning strategy
- Donate appreciated assets without first realizing the associated capital gain
- Increase the amount ultimately available to the charitable organization
Cash gifts to qualified public charities are generally deductible up to 60% of adjusted gross income, subject to IRS rules and individual circumstances. Gifts of securities held for more than one year may be deductible up to 30% of AGI. Securities held for one year or less may be limited to cost basis.
Charitable Giving Strategies
Charitable giving strategies are not mutually exclusive. Some families use one approach for annual giving, another for appreciated assets, and another for longer-term charitable planning. The right mix depends on timing, asset type, tax considerations, administrative complexity, and the family’s desired level of control.
1. Donor-Advised Funds
Many wealthy families use donor-advised funds, or DAFs, because they are easy to manage and let you choose when and where to send charitable grants.
Contributions may take several forms:
- Cash, typically with a minimum contribution of $5,000
- Public stocks, bonds or mutual funds
- Private stock
- Money from an IRA or 401(k)
- Life insurance
When you contribute to a DAF, you may get a tax deduction that year, but you can choose which charities to support later. This flexibility is helpful if you have a year with higher income or a big financial event.
2. Gifting a Highly Appreciated Asset
For families with concentrated or highly appreciated positions, giving the asset directly can be a more tax-aware way to support a charitable organization. Rather than selling the asset, realizing the capital gain, and then donating cash, the donor may be able to contribute the asset itself.
If the asset has been held for more than one year and is donated to a qualified public charity, the donor may qualify for a federal income tax deduction based on the asset’s fair market value, subject to IRS limits and individual circumstances.
This approach may allow more of the asset’s value to reach the charitable organization while also helping the family manage portfolio concentration, tax exposure, and broader planning goals.
3. Bunching Charitable Donations
Because the standard deduction is higher now, some people find it harder to get extra tax benefits from their yearly charitable gifts.
Bunching charitable donations means grouping several years of planned gifts into one tax year, which may help some donors itemize deductions in that year and use the standard deduction in later years.
This method is helpful if your yearly donations are not enough on their own to make itemizing your deductions worthwhile.
You can also use bunching with a donor-advised fund. You make the bigger donation when it helps most with taxes, then suggest grants to charities over the next few years.
4. Starting a Private Foundation
A private foundation gives a family more control over its charitable goals, grantmaking, and long-term legacy. It can offer some of the same tax benefits as a donor-advised fund, but usually needs more money, time, and management. Families comparing donor-advised funds and private foundations should weigh the trade-offs between flexibility, control, cost, and administrative complexity.
One main drawback is the extra work involved. Private foundations must meet ongoing legal, tax, reporting, and governance rules, which can add cost and complexity. They also usually have to give away at least 5% of their assets each year, as required by the Internal Revenue Code.
For families ready to take on these duties, a private foundation can offer a formal way to give across generations, reduce assets in the estate, and possibly lower estate taxes.
Choosing the Right Strategy
As a starting point, donors seeking simplicity may prefer a donor-advised fund, donors with concentrated appreciated positions may consider giving assets directly, donors near the standard deduction threshold may evaluate bunching, and families seeking a more formal multigenerational structure may consider a private foundation.
The best strategy depends on your tax situation, the kind of assets you want to give, how much control you want, and how giving fits into your overall financial plan.
It’s best to look at all these factors together. For example, you can use a donor-advised fund along with bunching, or use appreciated assets to fund a DAF or a private foundation.
A financial advisor who knows about charitable planning can help you find the approach that fits your family’s financial goals, estate plans, and giving priorities
Partner with Caprock to build a charitable giving strategy that is right for your family.
The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training.
