As we approach the holiday season, it's the perfect time to reflect on your charitable giving and how you can make a greater impact. Giving is not only a way to support causes you care about, but it can also bring you personal fulfillment. In a nation as generous as America, millions contribute to helping those in need—whether in their local communities or around the world. So how can you maximize the effect of your giving?
The Power of Generosity
According to Giving USA's Annual Report on Philanthropy, Americans gave an astounding $557.16 billion to U.S. charities in 2023. From individuals to foundations and corporations, the spirit of giving remains strong.
The 2023 Bank of America Study of Philanthropy highlighted that affluent households, in particular, continue to step up. A whopping 85% of wealthy households gave to charity in 2022, with the average gift rising significantly—19% higher than pre-pandemic levels. To put it into perspective, the average affluent household donated $34,917. These donations were driven primarily by women, who are often the decision-makers in household giving, while younger generations like Millennials and Gen Z are increasingly influencing philanthropy. Younger affluent individuals tend to support environmental causes over traditional ones like religious organizations.
(The Bank of America study defined the affluent as households with a net worth of $1 million or more [excluding the value of their primary home] and/or an annual household income of $200,000 or more.)
Impact Beyond the Wallet
Philanthropy isn’t just about financial contributions—it’s about giving your time and talents too. Volunteering has seen a comeback post-pandemic, with nearly 37% of affluent households contributing their time in 2022. Whether it’s helping at a local food bank, serving on a board, or supporting a religious organization, volunteers are making a significant difference.
And here’s the kicker—those who volunteer are not only more fulfilled but also more likely to give financially. The median donation from volunteers is nearly four times higher than that of non-volunteers. It shows that the deeper the personal investment, the bigger the impact.
How to Choose the Right Charity
With so many causes vying for attention, how do you choose where to give? Here are a few strategies:
Research the Charity: Look into what a charity actually does, who it helps, and how efficiently it operates. Websites like Charity Navigator and GuideStar can give you valuable insight into a charity’s transparency and accountability.
Align with Your Values: Your contributions should resonate with you personally. Does the charity's mission align with your passions? Consider whether it has a measurable impact.
Test the Waters: Volunteering with a charity or attending its events can help you understand its impact better and build a deeper connection.
In 2022, most charitable dollars went to religion (27%), human services (14%), education (13%), grantmaking foundations (11%), and health (10%).
Year-End Giving Strategies to Maximize Your Impact
December is prime time for charitable donations—30% of all giving happens in the last month of the year, with 10% of annual donations coming in the final three days. If you’re still finalizing your giving plans, here are some smart strategies to consider:
Qualified Charitable Distributions from IRAs: If you're over 70½, you can donate up to $105,000 from your IRA as a Qualified Charitable Distribution (QCD). This donation can satisfy your Required Minimum Distribution (RMD), which won’t be reported as taxable income.
Donating Appreciated Securities: If you’ve held investments that have appreciated, consider donating the securities instead of selling them. This strategy could reduce your capital gains tax burden.
Donating Depreciated Securities: On the flip side, if you hold depreciated securities, selling them first could allow you to claim a loss before donating the proceeds. This can offset future capital gains.
Donor-Advised Funds: These funds allow you to set aside money now for future charitable donations, offering flexibility and potential tax benefits. Donor-advised funds are registered 501(c)(3) organizations that can be funded with cash, securities, and other assets. Once your donor-advised account is set up, you can decide over time which charities and causes you’d like the funding to go towards. However, donor-advised funds can be restrictive. Because these funds are often sponsored by a community foundation or non-profit (like a hospital or religious organization), there may be restrictions on where and how your grants are used.
Charitable Trusts: Trusts like Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs) can offer powerful tax advantages while supporting your philanthropic goals over the long term.
Charitable Remainder Trusts: Charitable remainder trusts are irrevocable trusts that let you donate assets to charity and draw annual income for life or for a specific period. You can transfer property, cash, or other assets into an irrevocable trust. The trust pays income to at least one living beneficiary and continues for a specific term or the life of one or more beneficiaries. At the end of the payment term, the remainder of the trust passes to the charitable organization(s).
Charitable Lead Trusts: A charitable lead trust functions as a “freeze device,” effectively locking in the value of assets transferred into the trust. Any appreciation (or depreciation) in the value of these assets during the trust term occurs within the trust and is excluded from additional gifting or estate considerations upon termination of the trust. The trust makes regular payments to a designated charity for a specified period. After the trust term ends, the remaining assets are distributed to non-charitable beneficiaries, typically family members.
Each of these strategies has its own tax implications, so it’s important to consult with your financial advisor or tax professional to make sure you’re maximizing your benefits. CRTs and CLTs involve a complex set of tax rules and regulations. Before proceeding with either trust, consider working with a professional familiar with the relevant rules and regulations.
Final Thoughts: Making the Most of Your Giving
Charitable giving is a deeply personal act that can have profound effects on the world and in your own life. As financial professionals, we’re here to help you incorporate giving into your overall financial strategy, ensuring that your philanthropy has the maximum impact—both for you and the causes you support.
If you're ready to explore how charitable giving can be part of your financial future, give us a call, and let’s set up a time to chat about your 2024 giving goals.
Sources:
1 Giving USA, June 25, 2024 https://cdn.ymaws.com/www.givinginstitute.org/resource/resmgr/gusa/2024_resources/Giving_USA_Press_Release_202.pdf
2 Bank of America Institute, November 10, 2023 https://institute.bankofamerica.com/content/dam/transformation/charitable-affluent-households.pdf
3 Double the Donation, August 2024 https://doublethedonation.com/nonprofit-fundraising-statistics/
4 Nasdaq, March 4, 2024 https://www.nasdaq.com/articles/six-charitable-giving-strategies-for-2024
5 Internal Revenue Service, August 2024 https://www.irs.gov/charities-non-profits/charitable-remainder-trusts
6 The National Law Review, July 19, 2024 https://natlawreview.com/article/rates-decrease-charitable-lead-trusts-will-shine-again
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