Charitable Giving Strategies

As we come to the end of another calendar year, many people who are fortunate enough to have the ability to give to charity start to think about how best to do so.  In a world where compassion and generosity can spark transformative change, charitable giving has the potential to make a real and lasting positive impact on society, and, if done correctly, can have the dual positive effect of bestowing significant tax-benefits on the individual making the donation.  What is the best way to give so that the charity receives the most possible value from the gift, and works best for the individual making the donation? Both are important aspects of a well- thought-out-and-executed philanthropic strategy.  And while traditional methods of giving remain effective in some scenarios, advanced and more complex strategies that go beyond the conventional can often provide even greater financial advantages to both the donee and the donor.  Here, we will explore three charitable giving strategies that in many cases may provide significant value to both the charity and the Individual.  These three strategies are: the gifting of appreciated assets, the use of Qualified Charitable Distributions (QCDs), and the creation and funding of charitable trusts.

Gifting of Appreciated Assets

For individuals whose investments have grown significantly over the years, the strategy of donating highly-appreciated assets directly to charitable organizations can be a great way to convert financial success into societal impact.  Consider a scenario where an individual purchased $10,000 worth of stock many years ago, and that stock has now appreciated to $50,000.  If the individual were to sell the stock and then donate the proceeds to charity, they would incur capital gains taxes on the $40,000 profit.  Instead, by donating the appreciated stock directly to a qualified charitable organization, the donor not only avoids the capital-gains tax, but, if they itemize deductions on their federal tax return, they can also claim a charitable deduction for the donation, potentially resulting in significant tax savings.  The charity, in turn, can then sell the donated assets without facing capital-gains taxes, maximizing the net impact of the donation.  This strategy is obviously most advantageous when dealing with assets that have experienced substantial appreciation and are held in taxable accounts.

One important thing to keep in mind when considering the donation of appreciated assets, is this: if you don’t itemize deductions, and instead use the standard deduction when filing your federal tax return, your deduction for this donation may be limited, or even reduced to zero.  As such, while donating appreciated assets can be financially rewarding for both the donor and the charity, it requires careful consideration of the specific assets, their current market value, and the donor’s specific tax situation.  In order to ensure optimal results from your gifting strategy, this is something that should be discussed and confirmed with your tax advisor before making any final decisions.

Qualified Charitable Distributions (QCDs)

For individuals aged 70½ or older with Individual Retirement Accounts (IRAs), Qualified Charitable Distributions (QCDs) present a nuanced yet highly-effective method of supporting charitable causes.  In the past few years, we have seen a huge uptick in the use of QCDs, especially as more and more people are using the standard deductions when filing their federal taxes, instead of itemizing deductions as they had in the past. 

The IRS mandates that individuals with traditional IRAs must take required minimum distributions (RMDs) once they reach the age of 73. QCDs allow donors to fulfill these distributions by having funds go directly from their IRA to a qualified charity.  If done correctly, the amount distributed not only goes towards satisfying the RMD, but also escapes taxation, providing a significant double benefit.  Since the distributed amount is excluded from the donor’s taxable income, it can also contribute to reducing the donor’s adjusted gross income (AGI). This, in turn, may lead to lower taxation of Social Security benefits and Medicare premiums, offering additional financial advantages.

While QCDs offer significant tax advantages if done correctly, there are limitations and specific rules that must be followed to take advantage of this strategy.  Currently, the amount that can be given to charity from any one individual in a given year is capped at $100,000.  In addition, it is crucial to understand that in order for this strategy to be effective, the donation has to go directly from the IRA account to the charity, without stopping in a non-IRA bank account or brokerage account first.  If, for example, you distribute money from your IRA, have it sent to your regular non-IRA bank account, and then send it to a charity, the desired benefits of this strategy will be null and void.  Another reason this strategy often fails to deliver on its desired benefits, has to do with timing.  Many people who decide to use this strategy do so too late in the year.  If you write a check from your IRA to a qualified charity, but wait until the end of the year to do so, the charity often does not cash the check until the new year.  In this situation, the donation may count towards the following years RMD (when the check is actually cashed), but it will not satisfy the current year RMD as planned.   

Charitable Trusts

Charitable trusts represent a more sophisticated and versatile approach to charitable giving, providing donors with the ability to support causes while strategically managing their financial legacies.  Assets placed within charitable trusts may contribute to reducing both current income taxes and future potential estate taxes and offer an effective strategy for comprehensive estate planning.  There are two basic types of charitable trusts to consider: Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs).

A Charitable Remainder Trust (CRT), is a type of trust that enables donors to receive an annual income during their lifetime (or for a specific term) from the assets they have donated to charity, and to also receive a current tax deduction for their donation.  Afterward, once the donor has passed, or the specific term has ended, the remaining assets transfer to the designated charity.  Thus, a CRT allows donors to receive regular income from the trust while ultimately benefiting the chosen charity.  This giving strategy can be particularly valuable for individuals seeking to supplement their retirement income, but who are less concerned about passing assets on to their heirs.

By contrast, a Charitable Lead Trust (CLT), provides income to the charity for a predetermined period, after which time the remaining assets are passed on to the donor’s heirs.  A CLT allows for a donor to donate the income from assets that they do not need during their lifetime and to receive a tax deduction for their donations, while still allowing them to pass on the corpus of this investment to their heirs upon their eventual demise.

For very basic CRTs and CLTs, many financial institutions offer standardized prototype charitable trusts that can be set up with just a few questions and signatures.  For those who want more customized and nuanced solutions, the drafting of these documents should be done with a qualified and experienced estate-planning attorney.

In the realm of charitable giving, the artistry lies in not just the act itself, but in the strategic choices made to maximize the positive impact for both the donee and the donor.  Gifting highly appreciated assets, utilizing Qualified Charitable Distributions, and establishing charitable trusts, are powerful tools that can transform generosity into a legacy of lasting change. These advanced strategies not only support charitable causes, but also provide donors with potentially-significant tax advantages and financial-planning benefits.  As the art of giving continues to evolve, consulting with tax, financial and legal professionals remains paramount in ensuring that the strategies one ultimately chooses for one’s charitable giving, are in harmony with one’s specific goals and financial circumstances.


We are not tax-experts and are not offering tax-advice here. Please discuss all tax matters with your tax-consultant and/or attorney before making any decisions.

The commentary on this website reflects the personal opinions, viewpoints and analyses of the Topel & DiStasi Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Topel & DiStasi Wealth Management, LLC or performance returns of any Topel & DiStasi Wealth Management, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Topel & DiStasi Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.