Charitable giving is a powerful way to make a positive impact on the world, and individuals have various options to contribute while they are alive. Beyond the traditional methods of writing a check or making an online donation, there are innovative ways to give that can leave a legacy. There are diverse avenues through which individuals can support charities during their lifetime, including making charitable organizations beneficiaries of retirement and non-retirement accounts, setting up trusts, utilizing life insurance, and considering Donor Advised Funds.
Direct Contributions and Volunteerism
The most straightforward method of giving to charities during your lifetime is through direct contributions. This includes writing checks, making online donations, or contributing through crowdfunding platforms. Additionally, volunteering time and skills can be a valuable way to support causes that resonate with you. By identifying organizations with a purpose that resonates, you will enjoy donating even more and benefit from feeling the reward of supporting a meaningful cause.
Retirement Account Beneficiaries
Another effective way to support charitable causes is by naming a charitable organization as a beneficiary on your retirement accounts, such as a 401(k) or an IRA. This can be done by filling out a beneficiary designation form provided by the account custodian. By doing so, individuals can ensure that a portion or the entirety of their retirement savings goes to the chosen charity, offering a tax-efficient method of giving. For those who are of Required Minimum Distribution (RMD) age, Qualified Charitable Donations from your retirement accounts satisfy the RMD requirement and reduce your Adjusted Gross Income. This is a good tool to utilize, as you can not only satisfy your RMD, but also support charities of your choosing.
Payable-On-Death (POD) Designations
Like retirement accounts, non-retirement accounts such as savings or brokerage accounts, can also have designated beneficiaries. Through Payable-On-Death (POD) or Transfer-On-Death (TOD) designations, individuals can specify charities as beneficiaries, allowing the assets to transfer directly to the organization upon the account holder’s passing. This approach simplifies the process and avoids probate, so it helps give you peace of mind to have those funds designated for chosen charities.
Charitable Lead Trusts (CLTs)
Conversely, charitable lead trusts (CLTs) allow individuals to support charities during their lifetime while eventually passing the assets to heirs. In a CLT, the charity receives income from the trust for a set period, after which the remaining assets go to the designated beneficiaries. This strategy can be advantageous for individuals who want to support a cause immediately but also provide for their loved ones in the future.
Charitable Remainder Trusts (CRTs)
For those looking to create a lasting impact while still retaining an income stream, charitable remainder trusts (CRTs) can be a viable option. A CRT allows individuals to place assets into a trust, receive income for a specified period or for life, and then have the remaining assets go to the chosen charity. This method provides both philanthropic benefits and potential tax advantages. The utilization of trusts is more sophisticated and requires the assistance of an attorney who is well versed in estate planning.
Life insurance can be a powerful tool for charitable giving. Premiums on life insurance policies are typically a fraction of the death benefit. This tool is popular because it uses the power of leveraging to increase the dollar amount to pass on. By naming a charitable organization as the beneficiary of a life insurance policy, individuals can ensure a substantial future donation to the chosen cause. One needs to go through underwriting, so health status is taken into consideration. That said, some individuals choose to donate existing life insurance policies to charities when their health status may be a barrier to obtaining new life insurance.
Donor Advised Funds (DAFs)
Donor Advised Funds (DAFs) are a flexible and strategic way to give to charities. Individuals can contribute assets to a DAF and receive an immediate tax deduction. They can then recommend grants to their favorite charities over time. DAFs provide a convenient platform for centralized charitable giving, allowing donors to support multiple organizations through a single fund. With DAFs, however, do your research. It recently came to light that many of these funds are supported by anti-LGBTQ organizations. For more information, visit www.financial-planning.com/news/are-christian-donor-advised-funds-anti-lgbtq
Charitable giving is not limited to the act of writing a check. Individuals have a myriad of ways to make a positive impact during their lifetime, ranging from direct contributions and volunteerism to more complex strategies like trust arrangements and life insurance policies. Local organizations such as the Montrose Center, Lazarus House, and Legacy Community Health are charitable favorites that support our LGBTQ community. Whether it’s supporting causes close to the heart or addressing pressing global issues, the power to make a difference lies in the hands of those who choose to give.
Working with a financial-planning professional can help you explore these various avenues, tailor your philanthropy to align with your values, and create a legacy that extends far beyond your lifetime.