The holiday season brings warm feelings and cheer, and also often provides time for families to reflect on a legacy. This is often manifested by thoughts on charitable gifting. Here are ten ways to approach charitable gifting thoughtfully in the coming year.
- Stop Anchoring. Your past giving can become a habit, but maybe it's time to shake things up. Perhaps you've never intentionally planned your charitable gifts and the time is right today; or perhaps you've been giving in the same range for many years and it's time for an update. Step away from what you usually do and ask what's right for now. Perhaps you'll come up with a different number.
- Calculate your gift as a percentage of income. You want a formula that works for you over time. You can take a percent of the money that comes in and gift to causes meaningful to you. Pick a number that works for you: 1%, 3%, 12%...it depends on your own philosophy and capacity to give. Calculate your annual gift based on the percent that feels right. Let's say your family income is $60,000 this year and a 2% commitment feels right to you. That results in a commitment of $1,200.
- Set a BIG HAIRY AUDACIOUS GOAL. Want to throw down the gauntlet? Come up with a number that you never thought was possible and figure out how you can make that happen. Maybe you'd like to give $10,000 to an organization important to you and need 10 years to do it. Make the commitment to yourself this year and mark down $1,000 for your 2014 commitment.
- Double tax advantage. What's better than a charitable gift that multiplies its power with a current tax deduction and reduced future tax liability? If you gift appreciated assets like stocks in taxable accounts that have grown over time, you're doing just that. You would potentially get a charitable deduction and take away future tax liability on realized capital gains. Not sure how to make this happen? We would be happy to coordinate with you and the organization you want to help to take care of the details at your instruction.
- Auto-pilot is your friend. Want to take the guessing out of your gifting game-plan? Set up an automatic draft or bill-pay so that everything works like clockwork. Have you planned for $1,500 to an organization? Would it be easier to pay a $125 per month automatically like a bill? You can work with your bank account's bill-pay feature to set things up.
- Commit of a percent of your assets. Rather than taking a percent of your income, consider giving 1% of your net worth. If your net worth is $2,000,000, your commitment could be $20,000. Then, repeat each year. So if a young family’s $50,000 net worth grows to $60,000 through savings, investment growth, and debt pay down, a $500 donation would grow to a $600 in a new year.
- Plan your legacy. Maybe charitable giving is a reminder that you want to recommitment your long-term plans with a cause in mind. Consider naming that organization as a part of your estate plan or designating a portion of your assets like IRA beneficiaries to a worthy cause. If you have made such a commitment, let the organization know. They will often offer special privileges during your lifetime in appreciation.
- Give real-life lessons with a family commitment. Looking to stretch your gift and bring your family into the equation with important lessons for charity? Come up with a gifting plan that's right for you and ask your family to ramp things up. Let's say that $1,000 is earmarked for a zoo or museum. After a family meeting, would everyone be willing to increase that amount through a personal sacrifice? This might mean that your kids will return recyclables for the year and add that to the annual gift -- say $50 (that's a 5% bump!)? Or possibly 10% of allowances would be added to the family's commitment with your kids' blessing. Maybe everyone agrees to eat out one less time per month. That could be $150 a year on a pizza budget.
- Cost of living adjustment. Give your 2012 gifts a raise that feels right to you. Multiply your gift from last year by 1+ the percent "raise" you'd like to give. Perhaps you gave $500 last year and want to give your favorite charity a 5% raise. That's $500 * 1.05, so you'll pledge $525 this year.
- Establish a Donor Advised Fund. Would you like an immediate tax deduction for a chunk of appreciated assets but not sure what organization will be receiving your gifts? A donor advised fund might be the right vehicle. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.
Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.
Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making a decision. Prior to making a decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.