Choosing the Right Charitable Giving Strategy for Your Goals

Marilyn J. Gentilotti, Esq., CPA, CFP®, CTFA, AEP®               

Vice President and Senior Wealth Planner
Washington Trust Wealth Management

Charitable giving is more than an act of generosity; it’s a planning opportunity. The strategy you choose can influence not only the impact of your gift, but also your tax liability, income plan, and long-term legacy. 

Start with Your “Why”

Before choosing a strategy, step back and consider what you want your giving to accomplish. For some, it’s about immediate impact. For others, it’s about family involvement, long-term legacy, or tax efficiency. Each charitable vehicle offers a different balance of simplicity, control, tax efficiency, and long-term impact. The right choice depends on your goals, the assets you plan to give, and how involved you want to be.

Cash Donations

Writing a check remains the simplest way to give. It’s straightforward, requires no setup, and allows you to respond quickly to causes you care about. If you itemize deductions, you can generally deduct up to 60% of your adjusted gross income (AGI). 

The tradeoff is that cash gifts tend to be less tax-efficient than other strategies. They don’t help you avoid capital gains taxes and don’t offer ongoing planning flexibility or control once the gift is made.

When it works best: When you want simplicity and immediate impact, particularly for smaller or one-time gifts. 

Donor-Advised Funds (DAFs)

A donor-advised fund offers a flexible and tax-efficient way to manage charitable giving over time. You can make a contribution, receive an immediate tax deduction, and then recommend grants to charities whenever you choose. Contributions can include cash, appreciated securities, and other assets, and funds can be invested to grow tax-free.  Contributions to DAFs are generally limited to 60% of your adjusted gross income (AGI) for cash donations and 30% for non-cash donations, with excess amounts eligible to be carried forward for up to five years. 

The key tradeoff is control. Once assets are contributed, they are irrevocably dedicated to charity, and while you can recommend grants, you no longer own the assets.

When it works best: When you want an immediate tax benefit but prefer to distribute gifts gradually over time without the administrative burden of a private foundation. 

Private Foundations

Private foundations provide the highest level of control over your charitable giving. You can define your mission, select board members, make grants, and even run charitable programs or award scholarships. Foundations can also create a lasting family legacy.

That control comes with complexity. Foundations require ongoing administration, regulatory compliance, annual tax filings, and minimum distribution requirements (generally 5% of assets annually). Contribution limits are also lower than for other vehicles. Contributions to private foundations are generally limited to 30% of your adjusted gross income (AGI) for cash donations and 30% for non-cash donations, with excess amounts eligible to be carried forward for up to five years. 

When it works best: When you have significant assets, want full control, and are prepared to manage the administrative and regulatory responsibilities. 

Charitable Trusts

Charitable trusts allow you to integrate philanthropy with income and estate planning.

• A Charitable Remainder Trust (CRT) provides income to you or another beneficiary for life or a term of years, with the remainder going to charity. It can be especially useful for diversifying highly appreciated assets without immediate capital gains taxes.
• A Charitable Lead Trust (CLT) does the reverse: it provides income to a charity for a period, with the remaining assets passing to heirs, often with potential estate tax advantages.

Both structures are irrevocable and require careful setup and ongoing management.

When it works best: When you want to combine charitable giving with income needs or estate planning, particularly if you hold appreciated assets or are focused on transferring wealth efficiently. 

Donating Stock

Donating appreciated securities can be one of the most tax-efficient ways to give. If you’ve held the asset for more than a year, you can generally deduct its full fair market value (up to 30% of AGI) while avoiding capital gains taxes. If the asset has declined in value, however, it’s usually more advantageous to sell it first and donate the proceeds, allowing you to capture the loss.

When it works best: When you hold highly appreciated investments and want to maximize both your tax deduction and your charitable impact. 

IRAs and Qualified Charitable Distributions (QCDs)

IRAs can also play a powerful role in charitable giving. If you’re age 70½ or older, you can make Qualified Charitable Distributions (QCDs) directly from your IRA to a qualified charity. These distributions can count toward required minimum distributions (RMDs) and are excluded from taxable income.

You can also name a charity as the beneficiary of your IRA, allowing the full value of the account to pass tax-free to the organization, which is often more efficient than leaving those assets to heirs.

When it works best: When you want to reduce taxable income in retirement, satisfy RMDs efficiently, or use tax-deferred assets in a more strategic way. 

A Hybrid Option: Charitable Gift Annuities

A charitable gift annuity (CGA) offers a blend of giving and income. You make a donation to a nonprofit and, in return, receive fixed payments for life, with the remainder supporting the charity. A portion of the gift may be tax-deductible, and part of the income stream may be tax-favored. Under current rules, a one-time QCD can also be used to fund a CGA (subject to IRS limits), allowing you to keep the distribution out of taxable income while still creating lifetime income.

When it works best: When you want a predictable income stream, a relatively simple structure, and a way to support charity without the complexity of a trust. 

Rely on Washington Trust Wealth Management 

A thoughtful conversation with your wealth advisor can help ensure your giving strategy not only reflects your values but also fits comfortably within your broader financial plan, so your generosity can have the greatest possible impact. As a community-focused organization, Washington Trust Wealth Management is here to answer your questions and provide guidance to help your donations mean more, go further, and align with your financial goals, tax situation, and philanthropic vision.