Charitable Giving Strategies for the Savvy Donor

By Martin J. Swiecki, CFP®, CLU

Charitable giving is a powerful way to have a positive impact on the world, while simultaneously pursuing your financial goals. However, with so many deserving causes, complex tax regulations, and unique donor profiles, it can be difficult to identify the most effective charitable giving strategies.

I wrote this article to provide valuable insights for savvy donors, focusing on efficient ways to make donations, uncover tax incentives, and highlight the importance of integrating your charitable giving strategy into your overall financial plan.

Let’s start by exploring various vehicles for charitable giving.

Donor-Advised Funds (DAFs)

Donor-advised funds (DAFs) are charitable giving tools that allow individuals to contribute to a tax-deductible fund operated and managed by a public charity. When you contribute to a DAF, you get an immediate tax deduction and can suggest grants from the fund to be donated to your favorite charities over time.

In most cases, contributions to a DAF are tax-deductible in the year they are made, allowing instant tax savings. Additionally, the income from the invested funds accrues tax-free until it’s given to charities.

Family Foundations

Another effective charitable giving vehicle is a family foundation which is a private charitable organization set up by a family or an individual. Family foundations are legal entities that manage and disseminate funds to charitable causes. It’s a versatile way to give back to the community and simultaneously contribute to causes that are significant to the family.

The tax deductions that are allowed when you contribute to a family foundation are significant. In addition to decreasing your taxable income, the profits from the foundation’s assets grow tax-free until they’re distributed to charity.

Charitable Lead Trusts

Charitable lead trusts (CLTs) are trusts that give a consistent income stream to a charity for a specified amount of time. At the end of the specified payout period, the outstanding assets in the trust are disseminated to the beneficiaries.

Specifically, these are CLT tax incentives:

• Income tax deduction: The current value of the charitable income stream is immediately deductible from the donor’s income.

• Estate tax reduction: CLTs can help decrease the amount of your taxable estate, potentially saving your heirs from paying large estate taxes. 

• Versatility: CLTs allow you specify both the beneficiary of the charitable contribution and the payout period. Therefore, you can easily customize the trust to meet your unique financial and philanthropic goals.

Charitable Remainder Trusts (CRTs)

The final charitable giving vehicle I want to mention is a charitable remainder trusts (CRT). CRTs have two outstanding features: they provide a reliable income stream and also allow you to give the remaining funds to a charity you choose when you or your beneficiary dies. 

The way it works is that, essentially, you donate an asset to charity before that asset is sold, which in turn gives you a charitable tax deduction. By using this strategy, you receive more income over your lifetime than if you had sold the asset yourself. 

Best of all, you get to contribute to a charity you care about.

Required Minimum Distributions (RMDs) as Charitable Gifts

For those aged 73 or older who must take Required Minimum Distributions from their retirement accounts, using these distributions for charitable giving can be an especially tax-efficient strategy. Through what's called a Qualified Charitable Distribution (QCD), you can direct up to $100,000 annually from your IRA directly to qualified charities.

The beauty of this strategy is twofold: 

• The donated amount counts toward your annual RMD requirement 

• The distribution isn't included in your taxable income

This approach can be particularly beneficial if you don't need your full RMD for living expenses and want to minimize your taxable income. By reducing your adjusted gross income, you might also lower your exposure to higher Medicare premiums and reduce the taxation of your Social Security benefits.

Keep in mind that QCDs must be made directly from your IRA custodian to the qualified charity - you cannot receive the funds personally first. Additionally, while you won't receive a charitable deduction for the gift, the tax benefit comes from excluding the distribution from your income entirely.

Incorporating Charitable Giving Into Your Overall Financial Plan

By setting up a charitable giving vehicle like the ones discussed above, you can pursue your financial goals and also make a significant impact on the causes that are most important to you. Charitable giving can be meaningful on its own, but it’s crucial to include your approach in your overall financial plan.

In other words, you never want a charitable giving strategy to be a one-off, where you’re just trying to get an edge on your taxes. Instead, you want to know how it affects the other pieces in your overall plan.

Consider consulting with a financial advisor to discuss how to effectively integrate your charitable giving strategy into your financial plan.

We Can Help

While charitable giving can be both personally fulfilling and financially beneficial, it’s tricky to put all the pieces together yourself.

Our team at The Valletta Group has the knowledge and experience to help you navigate charitable giving complexities. We would be happy to meet with you, review your situation, and determine how we can help you optimize your charitable giving and make sure it’s aligned with your financial plan. 

To schedule a meeting, call (248) 720-1780 or email mswiecki@vallettagroup.com.

About Martin

Martin Swiecki is the Founder and CEO at The Valletta Group, a wealth management firm based in Northville, Michigan, with a quarter century of experience helping individuals and their families navigate life’s transitions. Working closely with business owners and entrepreneurs in the medical, legal, and automotive industries as they pursue their aspirations, Martin leads a team focused on delivering tailored capabilities and services. He loves making a difference in clients’ lives by helping them reach their goals with proper planning and providing comfort and peace that someone is looking out for them.

Since starting his career in 2003, Martin has been focused on listening to his clients, seeking to gain deep insight into who they are and aspire to be—apart from their investments. He founded The Valletta Group to pursue what he believes is “A Better Way” to serve his clients.

The name of the firm, Valletta, holds special significance. Valletta is the capital city of Malta, a small island off the coast of Sicily. When Martin envisioned creating his own firm, he struggled with finding the right name. He didn’t want to use his own name or anything generic. His mother, who moved from Malta to the U.S. in her early 20s, inspired the name. Growing up, Martin and his family would visit Malta every other summer, maintaining a close connection with their heritage. In 2019, Martin took his wife, Jessica, and their two young children, Evelyn and George, to Malta, where they stayed in Valletta. It was during this trip that his wife suggested naming the firm The Valletta Group. The name not only honors Martin’s mother’s perseverance in starting a new life in the U.S. but also serves as a meaningful family tribute and a conversation starter.

Martin holds a bachelor’s degree in engineering graphics and design from Western Michigan University. He earned his CERTIFIED FINANCIAL PLANNER®, CFP® designation in 2011 and became a Chartered Life Underwriter (CLU) in 2006. Outside of work, Martin enjoys spending time with his family, pursuing outdoor activities such as golfing, boating, and fishing. To learn more about Martin, connect with him on LinkedIn.