Philanthropic Giving Plays Central Role in Comprehensive Wealth Management Approach

A look at potential giving vehicles for individuals

By Kevin McGrath

In 2021, the Giving USA Foundation released its latest findings surrounding philanthropic contributions. Clearly illustrating that individuals are still the largest source of contributions, the report’s findings indicated that individuals gave more than $326.87 billion – more than foundations, bequests and corporations combined. That translates into not only large amounts of individually-driven impacts around the world, but it also illustrates just how vital it is to employ a comprehensive wealth management approach that makes much of that large-scale giving possible in the first place.

Regardless of whether a wealth management plan involves millions of dollars or not, individuals may often fail to see that philanthropic giving is a notable piece of overall wealth management, serving a key role in making sure that long-term aspirations are reached. It’s important that donors employ the best giving vehicle that fits their individual situation and goals.

Donor-advised funds (DAFs) have emerged as one of the most recently preferred charitable giving options, as a DAF allows individuals to deposit funds into an account that can appreciate in value and eventually be granted to charitable causes important to the donor. It leads to an immediate charitable deduction for the contribution and avoids capital gains taxes on appreciated assets.

In exchange for their irrevocable gift, donors gain advisory privileges that enable them to propose grants to qualified charitable organizations and offer guidance on how the gifted funds should be invested and ultimately distributed – a highly welcomed role among today’s donors. Moreover, donors can contribute various types of assets, such as cash, securities, real estate, business equity, restricted stock, and even cryptocurrencies.

Here’s a look at additional options commonly seen in today’s philanthropic ecosystem:

• Private Foundation – A tax-exempt entity that can receive contributions as a charitable organization under Section 501(c)(3) of the Internal Revenue Code.
• Charitable Remainder Trust – A tax-exempt trust that can liquidate an asset to create two interests: income and remainder interest.
• Pooled Special Needs Trust – A trust that combines and invests assets contributed by multiple individuals to generate funds for individuals with disabilities.
• Charitable Lead Trust – A powerful charitable planning tool used to generate charitable deductions for income, gift, or estate taxes. The trust makes distributions to charity, and at the end of the term of the trust, the remaining assets revert to the donor or heirs.
• Pooled Income Fund
• A charitable trust that combines gifts from a number of donors, investing them together to generate income for income beneficiaries and eventually distributions to charitable organizations.
• Charitable Gift Annuity – An effective solution for donors interested in avoiding taxes, generating lifetime income, and supporting the charity of their choosing.
• Flex Giving Account – A workplace giving platform that helps companies deepen their corporate culture, inspiring engaging, community driven philanthropic activities

Regardless of the giving vehicle selected, the overall role of philanthropic giving in wealth management is to serve as one of the key pillars of a clear-cut plan to reach customized goals for the individual or their family.

Kevin McGrath currently serves as senior director at Ren (www.reninc.com), the trusted technology partner to top financial institutions and those of non-profit organizations.