Proper philanthropic financial planning is about more than just writing checks and donating to charities. It’s a strategic approach that intentionally combines your personal values with your financial goals. You can support causes close to your heart while managing your wealth. At its core, philanthropic planning involves making thoughtful decisions about charitable contributions and incorporating them into your overall financial strategy.
This type of planning goes beyond basic donations. It includes creating a structured approach to giving, such as setting up charitable trusts, donor-advised funds, or even private foundations. Who doesn’t want their generosity to have a lasting impact? Charitable wealth planning with an expert at your side allows you to build a giving strategy suited to your financial situation—your contributions should be impactful and sustainable.
Benefits of Philanthropic Financial Planning
Charitable giving and financial planning offer more than just the satisfaction of supporting a good cause. It helps you stay organized and intentional with your giving. Instead of making ad-hoc donations, you can develop a strategy that aligns with your long-term financial goals. This makes your charitable actions more purposeful and can lead to more meaningful results, both for your finances and the causes you support.
Structure and Control
Charitable wealth planning also allows you to structure your giving in the most advantageous ways for you and your chosen charities. For example, you can set up a charitable trust or a donor-advised fund.
This can actually provide ongoing support to the organizations you care about. It would also come with the added benefit of professional management and oversight of the trust or fund. This structured approach helps you maintain control over your contributions while maximizing their impact.
Reduce Your Tax Liability
One of the most appealing aspects is the potential tax savings. When done correctly, philanthropic financial planning can:
- reduce your taxable income
- lower estate taxes
- provide other financial perks
It can help you keep more of your money working for what you care about.
Itemized deductions help your financial planning by reducing your taxable income, which lowers your tax bill. Unlike the standard deduction, which is a fixed amount, itemized deductions let you list specific expenses that qualify under IRS rules.
Creating a Legacy
Another significant benefit is the ability to build a lasting legacy. Most people think about the impact they will leave on the world when they are gone. Through charitable estate planning, you can take measures to ensure that your wealth supports causes you value, even after you’re gone. It reflects what you value most and sets an example for future generations, encouraging them to think about how they can contribute to society.
Charitable Planning Strategies You Should Consider
There are many ways to approach philanthropic planning, and the right strategy depends on the following:
- your financial objectives
- your unique financial situation
- the causes you wish to support
Working with experts can help you decide which options make sense for you.
Establish a Structure with Donor Advised Funds
One of the simplest methods is direct giving. With direct giving, you are donating money, stocks, or other assets directly to a charity. While this is the most straightforward, this approach may not always offer the most tax-efficient or impactful option.
Structured giving offers more control and potential benefits. Charitable wealth planning often involves setting up donor-advised funds (DAFs). You can contribute to the fund, receive an immediate tax deduction, and decide over time which charities to support. This flexibility allows you to be more strategic with your donations.
Create a Charitable Trust
Charitable trusts are another popular tool in philanthropic financial planning. There are two main types: charitable remainder trusts and charitable lead trusts. A charitable remainder trust provides income to you or your beneficiaries for a set period, with the remainder going to a charity.
A charitable lead trust directs income to a charity first, with the remaining assets eventually going to your heirs. Both options offer tax benefits and allow you to support causes while meeting personal financial goals.
Use Gifting in Your Long-term Planning
Charitable estate planning focuses on planning how your assets will be distributed after your lifetime. Bequests, or gifts left in a will, are a common form of charitable estate planning. You can leave specific assets, a set amount of money, 529 plans, or a percentage of your estate to your beneficiaries.
This method ensures your values continue to be reflected in how your wealth is used. It also ensures your wealth is distributed without depleting the value of your estate and burdening your beneficiaries with taxes or fees. It also can help you avoid a public, lengthy and expensive probate process.
Working with a Professional to Incorporate Philanthropic Planning into Your Financial Plans
Collaborating with professionals is often helpful in these scenarios. Financial advisors who specialize in charitable giving and financial planning can give you unique insights into the most effective ways to give based on your unique situation. They can guide you on:
- tax-efficient methods
- help you understand legal implications
- offer advice on how to structure your gifts for maximum benefit
It's especially important for you to work with a fiduciary who can help you navigate capital gains taxes, charitable gifts, and legal roadblocks that can occur during this process.
Regularly reviewing your plan is also important. Life comes with unexpected surprises—your financial situation and interests change. It only makes sense that your charitable planning strategies need adjustments. This ongoing process ensures that your giving remains aligned with your goals and will still be beneficial to your heirs.
Create a Future-Proof Plan for Your Financial Plans
Financial plans should be flexible and use the tax saving tools available to help you and your heirs. With the team at Asset Preservation Wealth and Tax, you’ll have experts by your side. We take a 360-degree approach to holistic financial planning. We consider how each decision affects you and your beneficiaries.
Plan your future with Asset Preservation!
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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