You might have heard about the 'Giving Pledge,' the Warren Buffett-led movement encouraging billionaires to give more of their wealth to charity.
While the rest of us aren't at Buffett's level, we can still have an impact in smaller ways: On our families, our communities, and the causes that matter most to us. In fact Americans donated almost $600 billion in 2024, the highest amount ever, according to the report Giving USA.
But making that decision to give is really just the start of your philanthropic journey. There are complicated financial issues to navigate along the way, including how to minimize taxes, maximize impact, and how to structure your giving to do the most good possible.
Some questions for would-be philanthropists to consider:
Which method of giving is best for me?
There are a number of options available. Donating outright is certainly one (and enjoying the resulting tax deductions, assuming the gift is to a 501(c)(3) nonprofit organization).
But you could also go the route of a family foundation – which would give you a high level of control, operate according to your personal values, and involve the entire family (even future generations). Just keep in mind there is significant administration involved, such as tax filings and compliance issues, which could result in headaches along the way.
Another popular avenue is called the donor-advised fund. It frees you from administrative responsibility – typically run by large investment managers like Fidelity – while offering a number of advantages like tax-deductible contributions and tax-free investment growth. A DAF can also help you avoid a capital gains tax hit on appreciated assets (such as stock).
What causes should I support?
That's a highly personal question that only you can answer – maybe you want to help animal rescue operations, or fund hospitals, or stock food banks around the country. But whatever cause has the most meaning for you, there are tools to help: Sites like Charity Navigator and GiveWell compile thorough evaluations about charities' impact.
Generally speaking, you want to support organizations whose dollars are actually going to recipients, rather than being gobbled up by their own administrative costs.
When should I give, and how will taxes impact me?
Leaving a large estate behind, and perhaps gifting your favorite charity with a massive check after you pass, is the dream of many. But there's one big disadvantage: You won't be around to see and enjoy that impact.
That's why the trend of 'giving while living' is also popular – either to family members like your adult children, or to the charitable causes that are close to your heart. For those with substantial assets, probably a combination of the two makes sense.
The larger framework to keep in mind is that estate taxes kick in above $15 million. Generally, charitable bequests are deducted from the value of the estate. Strategic 'giving while living' could also be designed to keep you under that threshold. Remember that the $15 million level is under current federal tax law, which could change in future; also know that individual states may have their own estate tax regulations.
Take the time to plan it out right, and you're essentially multiplying the impact of everything you've accumulated over your life: For yourself, your heirs, and the charities that will be blessed by your gift.