Charitable Gifting Strategies for Wealth Transfer and Generational Impact
Author Roy T. Bennett once said, “The greatest legacy anyone can leave behind is to positively impact the lives of others.”
Financial planning is about more than just numbers and strategy—it’s a vision for your life and legacy. Of course, strategy plays a key role in helping you turn that vision into reality.
The generosity that motivates charitable giving fulfills both of these aspects of wealth management. Practically speaking, charitable gifts can be an effective means for accomplishing two important priorities in estate planning: fulfilling philanthropic goals and providing tax efficiencies. With today’s complex financial environment, integrating charitable strategies has become increasingly relevant.
In addition to transferring generational wealth to their children and grandchildren, many of our clients want to leave a legacy in their community. Charitable gifts allow them to accomplish that for specific causes they are passionate about while producing tax benefits in the process.
Importance & Value
Charitable gifting is typically driven by three primary motivations:
- Legacy Building:
Establish enduring support for causes that align with your beliefs and create impact well beyond your lifetime. - Family Engagement:
Use philanthropy as a way to involve children and grandchildren in purpose-driven financial decisions, fostering shared values and generational alignment. - Tax Mitigation:
Potentially reduce income, capital gains, and estate taxes to make your financial plan more efficient while supporting meaningful causes.
Strategic Vehicles for Purposeful Gifting
There are a variety of strategies that may help maximize your impact based on your goals, whether that includes reducing income taxes, leaving a legacy, or simplifying wealth transfer.
The most effective gifting vehicle will depend on the circumstances and priorities of the individual client, as the different options include various upside or downside based on a number of factors. Below are six options to consider when planning a charitable donation.
1. Donor-Advised Funds (DAFs)
Donor-advised funds (DAFs) allow clients to make a gift to a public charity, receive an immediate tax deduction, and then recommend grants over time. They can be particularly effective for clients experiencing a high-income year or seeking to donate complex assets.
Recommended for:
- Individuals seeking a flexible, tax-efficient way to manage charitable giving over time.
- Donors who experience a high-income year and want an immediate tax deduction but prefer to distribute funds to charities gradually.
Potential benefits:
- Immediate tax deduction.
- Flexibility in grant-making.
- Simplifies record-keeping.
2. Charitable Lead Trusts (CLTs)
Charitable lead trusts (CLTs) are irrevocable trusts that pay a fixed income stream to charity for a set period of time, after which the remainder goes to the donor’s heirs or beneficiaries. They are designed as gifts that can benefit both the charity immediately and family members down the road.
Recommended for:
- High-net-worth individuals focused on reducing estate and gift taxes.
- Donors with significant assets looking for strategies to pass wealth to the next generation with minimized tax impact.
Potential benefits:
- Reduces taxable estate.
- Passes assets to heirs at a potentially reduced tax cost.
3. Charitable Remainder Trusts (CRTs)
Charitable remainder trusts (CRTs) are designed similarly to charitable lead trusts, but with the income flow reversed. CRTs provide income to the donor (or another designated beneficiary) for a set period of time. At the end of the term, the remaining assets in the trust are then distributed to a designated charitable organization.
Recommended for:
- Individuals with highly appreciated assets who want to reduce capital gains taxes, generate income, and support charity in the future.
- Retirees or near-retirees who want to convert assets into a lifetime income stream while leaving a charitable legacy.
Potential benefits:
- Income stream for donor or family.
- Partial charitable deduction.
- Avoidance of immediate capital gains taxes on contributed assets.
4. Complex Asset Donations
Complex assets such as real estate, private equity, and closely held business interests can often be donated and may lead to notable tax benefits. Additional examples include artwork, collectibles, digital currencies, venture capital, life insurance policies, and retirement assets.
Recommended for:
- Entrepreneurs or investors with illiquid or appreciated non-cash assets who want to maximize charitable deductions and avoid capital gains taxes.
- High-net-worth individuals with diversified assets seeking tax-efficient charitable giving options beyond cash or publicly traded securities.
Potential benefits:
- Potential avoidance of capital gains taxes and may reduce estate tax liability.
- Full fair market value deduction (subject to IRS limits).
- Opportunity to offload hard-to-sell assets.
5. Qualified Charitable Distributions (QCDs)
Qualified charitable distributions (QCDs) enable individuals aged 70½ and older to transfer up to $100,000 per year directly from an IRA to a qualified charity. These distributions satisfy required minimum distributions (RMDs) and are excluded from taxable income, making them an efficient way to give.
Recommended for:
- Individuals age 70½ or older who have IRAs and want to satisfy required minimum distributions (RMDs) while reducing taxable income.
- Retirees looking to make direct gifts to charities in a tax-efficient way.
Potential benefits:
- Reduces taxable income.
- Counts toward RMDs.
- Simple, direct method for giving.
6. Charitable Gift Annuities (CGAs)
Charitable gift annuities (CGAs) are arrangements where a donor contributes cash or appreciated assets to a charity in exchange for a lifetime fixed income stream.
Recommended for:
- Older donors (typically 65+) who want to make a charitable gift while securing fixed lifetime income payments.
- Individuals seeking a simple, one-time transaction for both philanthropy and financial planning.
Potential benefits:
- Guaranteed income for life.
- Partial charitable deduction.
- Potentially favorable treatment of capital gains (when applicable).
Tax Benefits Overview
| Charitable Strategy | Income Tax Deduction | Capital Gains Avoidance | Estate Tax Reduction |
|---|---|---|---|
| Donor-Advised Funds | Up to 60% of AGI (cash); 30% (assets) | Yes, for donated assets | Indirect |
| Charitable Remainder Trusts | Partial, based on remainder value | Yes, on contributed assets | Indirect |
| Charitable Lead Trusts | Limited | Depends on structure | Yes |
| Qualified Charitable Distributions | No deduction, but reduces taxable income | N/A | Indirect |
| Charitable Gift Annuities | Partial, based on gift amount | Partially, for appreciated assets | Indirect |
Conclusion
Charitable gifting offers opportunities to achieve tax savings and build a philanthropic legacy. Our community of trusted advisors at Moran Wealth Management® can help you explore, identify, and accomplish your charitable goals. Whether you are just starting to consider charitable giving, or already have a history of philanthropy, we can help your ideas take shape and support your goals for leaving a proud legacy.
Why Choose Moran Wealth Management®
At Moran Wealth, our team helps you align your charitable goals with your overall financial strategy, so gifts support both your values and your vision for the future. We collaborate across investment management, estate planning, and tax strategy to help each element work together and promote greater harmony.
From identifying the right vehicles to maximize tax efficiency, to engaging your family in purpose-driven planning, we offer integrated guidance that will help you navigate the future with precision and care.
Your legacy is not just what you leave behind, it’s what you set in motion. Let’s shape it together. Contact – Moran Wealth Management
This material is for educational purposes only and does not constitute tax, legal, or investment advice. Charitable giving strategies involve complex tax and legal considerations. Clients should consult their qualified tax professional or attorney regarding their specific situation. Past outcomes are not indicative of future results. Moran Wealth Management® does not provide legal or tax advice.