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MarchHow to Align Your Wealth with Your Values Through Philanthropic Financial Planning
Philanthropic financial planning is about more than just managing your money—it’s a way to reflect your values through your financial decisions. By combining charitable giving with tax-efficient financial strategies, you can support the causes you care about while strengthening your financial plan and building a lasting legacy.
In this article, we’ll explore the key methods of philanthropic financial planning, its benefits, and practical ways to integrate it into your strategy. We’ll also discuss how to inspire the next generation to embrace giving, helping your values and impact span for generations.
How to Incorporate Philanthropic Financial Planning into Your Financial Plan
Integrating charitable strategies into your financial plan is more than just giving—it’s about giving with purpose. Philanthropic financial planning helps you support the causes you care about while meeting key goals, like reducing taxes, building a legacy, and transferring wealth to future generations. Here are effective ways to incorporate philanthropy into your wealth strategy:
- Direct Giving: Make donations directly to charities for an immediate impact.
- Donor-Advised Funds (DAFs): Contribute assets to a tax-advantaged account, allowing you to recommend grants over time while benefiting from tax-free growth.
- Charitable Trusts: Establish trusts to support a cause while reducing estate taxes and providing income benefits for you or your heirs.
- Planned Giving: Arrange future gifts, such as bequests or life insurance, to help your philanthropic goals continue beyond your lifetime.
Each of these methods integrates philanthropic financial planning with your overall wealth goals. By selecting the right approach—or combining multiple strategies—you can maximize your impact and financial plan.
The Benefits of Philanthropic Financial Planning
Individuals account for the majority of charitable giving in the U.S., contributing around 67% of total donations. In 2023, this amounted to an incredible $374.4 billion in personal contributions. Philanthropic financial planning taps into this generosity, offering a way to give intentionally while potentially reaping personal and financial rewards. Key benefits include:
- Personal Fulfillment: brings purpose and satisfaction, turning your wealth into a force for good.
- Family Legacy: instill values of generosity in future generations and create a lasting family tradition of giving.
- Tax Advantages: potential deductions, reduced estate taxes, and other financial benefits that enhance your strategy.
- Community Impact: make a tangible difference by empowering the causes and communities you’re most passionate about.
By blending charitable giving with financial strategy using philanthropic financial planning, you can create a ripple effect that benefits you, your family, and the world around you.
Key Considerations for Integrating Philanthropy into Your Financial Plan
Philanthropic financial planning transforms generosity into a strategic part of your wealth plan. Incorporating charitable giving starts with a few key steps:
- Clarify Your Goals: Identify causes or organizations you care about, whether local or global, to shape a giving strategy that reflects your values.
- Determine Your Capacity: Assess your finances to understand how much you can give while maintaining your financial goals.
- Choose the Right Giving Vehicles:
- Donor-Advised Funds (DAFs): Contribute to a tax-advantaged account for tax-free growth and flexible grant recommendations.
- Charitable Remainder Trusts (CRTs): Provide income to you or your heirs while supporting a charity and offering tax benefits.
- Direct Giving: Make immediate donations for direct impact.
- Involve Your Family: Foster a culture of giving by discussing shared values and creating a family-driven philanthropic vision.
- Seek Professional Guidance: To address financial, tax, and legal complexities, work with a financial advisor who specializes in philanthropy.
With thoughtful planning and the right tools, philanthropy financial planning can enhance your wealth strategy and the causes you support, creating a lasting impact.
Tax-Smart Strategies for Philanthropic Financial Planning
Incorporating tax-smart strategies into your charitable giving can maximize your impact while providing significant tax benefits. From reducing capital gains to lowering estate taxes, thoughtful philanthropic financial planning helps your generosity work harder for you and the causes you support. Common strategies include:
- Donating Appreciated Assets: Donating appreciated assets like stocks or real estate helps avoid capital gains taxes and offers a deduction for their full value, making it a tax-efficient way to give. For example:
You purchased stock for $10,000, which is now valued at $20,000. If you sell the stock outright, you’ll have a $10,000 gain, resulting in a $2,000 capital gains tax. This leaves you with $18,000 to donate or use as you wish.
However, if you donate the stock directly, you avoid the $2,000 capital gains tax and can donate the full $20,000 to the charity of your choice.
- Utilizing Donor-Advised Funds (DAFs): Donor-advised funds provide flexibility and tax benefits, allowing immediate deductions and tax-free growth while recommending grants over time.
- Creating Charitable Trusts: Charitable trusts, like charitable remainder trusts (CRTs), combine giving with financial benefits. They provide income to you or your heirs, reduce estate taxes, and leave a lasting gift to charity.
- Leveraging Qualified Charitable Distributions (QCDs): If you’re over 70½, QCDs let you make tax-free contributions directly from your IRA. These donations count toward your RMDs, lowering taxable income while benefiting charities.
These strategies help you make a greater impact while aligning your giving with a smart financial plan.
Incorporating Philanthropy into Estate Planning
Including charitable donations in your Estate Plan using philanthropic financial planning allows you to allocate a portion of your assets to nonprofits, continuing your impact long after your lifetime. Two key tools to consider are:
- Charitable Lead Trusts (CLTs): Provide income to charities for a set period, with remaining assets going to heirs, reducing estate taxes.
- Charitable Remainder Trusts (CRTs): Generate income for you or your family, with remaining assets benefiting a charity, offering tax and legacy benefits.
By incorporating charitable trusts into your estate plan as part of philanthropic financial planning, you can effectively combine generosity with strategic wealth transfer to your family. For example:
- Reduction in Estate Taxes: Charitable trusts lower your taxable estate, potentially reducing estate taxes and leaving more wealth for your heirs.
- Income for Heirs: Some trusts, like Charitable Remainder Trusts (CRTs), provide income to heirs for a set time before assets go to charity.
- Support for Charities: Direct a portion of your wealth to charitable causes, ensuring your values and legacy continue to make an impact.
- Control and Flexibility: Charitable trusts offer control over how assets are distributed and to which causes, according to your preferences.
- Legacy Creation: Establish a legacy by supporting charities and future generations, reflecting your commitment to making a difference.
- Potential for Growth: Trust assets can grow over time, benefiting both your heirs and your chosen charities.
- Improved Financial Planning: Charitable trusts are a strategic way to manage wealth, offering tax benefits, income, and philanthropic opportunities.
Charitable trusts can help create a legacy that benefits future generations and reflects your commitment to making a lasting impact.
Inspiring the Next Generation to Give
Encouraging younger generations to embrace philanthropy and positive financial habits is one of the most impactful ways to extend your legacy. You can foster a culture of generosity and shared values by involving your family in meaningful discussions and activities surrounding philanthropic financial planning. Here are practical ideas to inspire giving:
- Family Foundations: Establish a foundation to involve everyone in decisions and explore shared values while making a collective impact.
- Joint Donation Decisions: Discuss causes as a family to empower younger generations and teach thoughtful giving.
- Volunteer Activities: Participate in hands-on volunteering to deepen understanding and highlight the value of giving time, not just money.
By fostering a philanthropic mindset, you instill values that last for generations. Encouraging your family to embrace giving ensures that your legacy of generosity continues to grow, creating a ripple effect that benefits communities and causes far into the future.
Make Philanthropic Financial Planning a Part of Your Legacy
Philanthropic financial planning bridges your wealth goals with your desire to make a difference. It’s about giving and creating meaningful impact through thoughtful choices. By integrating charitable giving into your financial plan, you can support causes that matter to you while reducing taxes and building a lasting legacy.
Reflect on your values and the impact you want to create. How can your wealth contribute to a greater purpose? Whether you’re starting your philanthropic financial planning journey or refining your strategy, now is the time to take action.
Ready to explore philanthropic financial planning? Contact us today to learn how the Per Stirling Difference can help you align your wealth with your values. With a commitment to putting your needs first and creating tailored financial strategies, we’ll help you make your generosity a meaningful part of your financial future.
This blog contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this blog will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. (FirmName) does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
Per Stirling does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Sources:
- National Philanthropic Trust. (2024). Charitable giving statistics. National Philanthropic Trust. https://www.nptrust.org/philanthropic-resources/charitable-giving-statistics/#:~:text=Americans%20gave%20$557.16%20billion%20in,4. Accessed Jan. 24, 2025
