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How to Build Philanthropic Giving Into Your Financial Plan


Philanthropic giving refers to the allocation of funds or assets towards charitable causes or organizations that align with personal financial goals and values. This is typically structured as long-term support through standing contributions and donations that are built into your estate. And to make philanthropy most successful, it’s important to incorporate it into your overall financial planning. That will help ensure that both you and the beneficiary get the maximum value from your giving. If you want to make philanthropy part of your financial plan, you may consider working a financial advisor. Here are a few things to think about.

What Is Philanthropy?

The basic definition of philanthropy is charitable giving. Any donation to an altruistic or selfless cause is philanthropic. However, from a financial planning standpoint, it’s helpful to think of philanthropy as the structural side of giving. If charity is an individual donation, philanthropy is a practice and plan for ongoing donations.

Practicing effective philanthropy can be complicated. Mechanically, the steps needed to give money to charity are straightforward. Every organization will have a different process for taking funds, but it is typically as easy as sending a check or submitting a payment through their website. 

It’s everything around giving that can be a challenge. Ideally, a philanthropic relationship is long-term. You want to help support an organization for years to come. Generally, the best place to start, is by looking at the charity’s plan: What will they do with this money? What is their plan for growth? How are they using their donations for immediate giving and long-term development?

What to Consider When Creating a Plan for Giving

With philanthropy, it’s easy to simply give as you think of it. You might like to support your university or a specific organization. So you give when they come around to ask for donations. This approach isn’t bad, but it’s far less effective than it could be. Instead, work this giving into your overall financial plan. Budget for regular donations, and plan for that giving ahead of time. 

Taking a premeditated approach will also help considerably with your personal finances, including liquidity and wealth management. For example, by planning for giving ahead of time, you can keep your money invested until its needed and then ensure that it’s liquid in time for your donation. 

A financial plan will also maximize the value of your giving. Organizations can do far more with structural philanthropy than they can with ad hoc charity. Planning around future cash flow empowers organizations to invest, build and hire, and improve how they fulfill their mission overall.  

This is an area where you may want to work with a chartered advisor in philanthropy (CAP). Ideally, a plan for giving will encompass years of financial management. For the right organization, you may want to think about this like setting aside a college fund or building a retirement. You want to work with your advisor to create a long-term plan that will let you build wealth around ongoing contributions, so that both you and the organization can know what to expect in years to come. 

Maximize Your Philanthropy With Tax Benefits

A woman researching ways to maximize her philanthropy through tax benefits.

While the best tax deduction rarely leaves you wealthier than saving the money, a tax deduction does make giving less expensive. So you should not leave that money on the table.

If you’re retired, make sure to look at qualified charitable distributions, or QCDs. This is a process by which your donations count toward your retirement portfolio’s required minimum distribution, allowing a tax-free RMD. And this can save wealthier households significantly on their portfolio taxes.

Beyond that, plan your charitable contributions around your maximum tax benefits each year. For example, if a little extra giving could push you down into a lower tax bracket, it may be worth boosting your donation. Or look into donor-advised funds, which allow you to make a large, tax deductible donation into a fund that can then distribute its assets over time. 

If you’re liquidating assets to make your donation, prioritize those that would trigger higher capital gains taxes (for example those with the lowest cost basis). 

To claim charitable tax deductions you must line-item your taxes, so most of this planning isn’t valuable for anyone who takes the standard deduction. However, for households who file a Schedule A, making the most of your taxes can vastly reduce the effective costs of philanthropy.

Donate Assets, Not Just Cash

Your immediate instinct may be to give cash, and that describes most philanthropic or charitable donations. But many organizations, particularly large or sophisticated ones, operate their own portfolios as well.

For these groups, appreciable assets are often one of the most valuable forms of giving. A donation of securities or other investment products can allow the group to build its wealth over time, funding operations far into the future.

Consider Your Estate Planning

Increasingly, one of the most common requests from large and established organizations has to do with a donor’s will. This is because estate planning can be one of the most valuable ways to give to charity. You can use your estate to pass down not only cash and portfolio assets but also real estate or other forms of property. Some donors, depending on the needs of their family, can even name an organization as the beneficiary under their life insurance policy.

Depending on your situation, estate planning can often be a good way to make a high-value donation to a worthy cause. As with building a long-term plan, speak with your financial advisor about this, because when it comes to funding causes that you care about, estate planning can be the single best thing you can do.

Bottom Line

A financial advisor reviewing a financial plan to help a client establish their philanthropy.

Philanthropic giving is an excellent way to support causes and institutions that you care about. It’s important to establish your philanthropy with a financial advisor, because long-term planning will maximize the value of your donations both to yourself and the recipient. 

Tips for Charitable Giving

  • One of the most effective forms of philanthropy is the charitable trust. This is an entity you set up to help manage long-term donations.
  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: © Bradbury, ©, © Vorona