by Michael Degenhart
Smart Year–End Giving Options to Explore with Your Donors
While many nonprofits prioritize annual giving campaigns at year end, it’s strategic and increasingly critical for organizations of all sizes and missions to pursue planned and asset-based gifts. What’s more, with an estimated $82 trillion expected to transfer to younger generations over the next 20 to 25 years, the need to educate donors about deferred gifts and tax-smart ways to extend their philanthropy has never been this timely.
If your organization does not have a robust planned giving program, perhaps it’s time consider how to develop a giving culture that supports your long-term sustainability. This can include reviewing your gift acceptance policies, educating staff and frontline fundraisers about various estate giving options, and equipping your advancement team to provide basic information to donors—without overwhelming them with the kind of detailed guidance only legal professionals should provide.
As you communicate with your constituents during year-end giving season and beyond, let this resource prompt valuable conversations with them about gifts that maximize their generosity as well as their tax benefits.
Gifts of Appreciated Assets
Appreciated assets can be likened to a form of “charitable currency.” Donating such assets allows for an immediate income tax deduction at the fair market value without triggering capital gains tax upon the asset’s sale by the tax-exempt charity.
Consider the scenario of a stock purchased for $10,000, now valued at $100,000. By donating it to a nonprofit, an individual receives a charitable income tax deduction of $100,000 and avoids paying capital gains tax on the $90,000 gain, as the organization then handles the asset’s sale.
Most charitable organizations are equipped to accept direct donations of securities or other appreciated assets. Just remember that donations of appreciated assets to public charities are typically limited to 30% of the donor’s adjusted gross income (AGI) with a five-year carryforward. Additionally, if the donor wishes to retain ownership of the asset, there’s no prohibition against repurchasing it with cash (which they might have otherwise used for the charitable gift), effectively resetting the cost basis to the current market value.
Gifts Through a Donor-Advised Fund (DAF)
What if a donor wants a tax deduction in a particular year, but doesn’t want to disburse all the funds to their chosen charities immediately? In this case, a Donor Advised Fund (DAF) offers a convenient solution.
Giving can also align with the donor’s wish to retain an income stream from donated assets while supporting charitable causes.
A DAF is essentially a charitable investment account that operates as a public 501(c)(3). DAFs can have various funding requirements, depending on the entity managing the account; for example, a donor may have no minimum initial contribution, or a modest sum, like $5,000. These funds can be contributed as cash, appreciated assets, collectibles, or other investments, including real estate or illiquid assets. Once the funds are inside a designated DAF account, a donor can attach their name to it or remain anonymous.
The beauty of a DAF is that the donation is considered complete, and the tax deduction is received as soon as the funds enter the account. And since it is a public charity, the subsequent sale of assets within the DAF incurs no tax consequences. While the donation itself is irrevocable, the donor retains the ability to direct tax-free investments of the funds within their DAF account and nominate other public charities to receive grants from it.
Qualified Charitable Distributions from Traditional IRA Accounts
A Qualified Charitable Distribution (QCD) is a donation from a traditional IRA to a qualified charity. While required minimum distributions (RMDs) for traditional IRA funds typically begin at age 72, IRS rules allow those aged 70½ or older to contribute up to $100,000 ($200,000 for couples) directly to public charities without incurring tax liabilities.
For individuals subject to RMDs, a QCD can effectively reduce the taxable income attributed to the distribution (e.g., if your 2023 RMD is $200,000 and you make a $100,000 QCD, you only pay tax on the remaining $100,000). Moreover, under the recently enacted Secure Act 2.0, the annual QCD of $100,000 is scheduled to be indexed for inflation going forward.
Keep in mind, QCDs must be donated directly to end-charities and cannot be directed to a DAF or a private foundation. In addition, as of 2023, individuals older than 70 ½ can use up to $50,000 of their qualified charitable distribution to create a charitable gift annuity (CGA) or a charitable remainder trust (CRT).
Gifts that Provide Income
Giving can also align with the donor’s wish to retain an income stream from donated assets while supporting charitable causes. These vehicles are more intricate but can be advantageous for high-net-worth individuals with both philanthropic and income objectives.
- Charitable Gift Annuity (CGA)
Many prominent charities offer charitable annuities, allowing donors to support the organization, obtain an upfront charitable income tax deduction, and receive a fixed income stream from the charity for one or two individuals, with the remainder interest ultimately benefiting the charity. These agreements can be funded with cash, property, or appreciated securities, and the annuity rate and payment schedule are locked in at the time of the initial gift. Annuity payments are influenced by set rates and the donor’s age at the time of the gift, and the donor receives an income tax deduction based on the estimated amount that will eventually go to the charity after all annuity payments have been made. Depending on the donor’s goal, this could be an appealing way to increase their cash flow through securing fixed payments, while also strategically saving on taxes—especially if they are retired.
- Charitable Trusts
Charitable Remainder Trust (CRT). Like the CGA, the CRT also offers an upfront charitable income tax deduction and a tax-advantaged income stream for a specified number of years or for life. CRTs can be established during one’s lifetime or as part of an estate plan after passing. They can be directly created with a charitable organization (often larger organizations offer CRTs) or established directly by the donor, with multiple charities or a DAF named as remainder trust beneficiaries.
CRTs are frequently utilized as a strategy for diversifying low-basis stock holdings, as donations to a CRT are valued at current market value, and assets are diversified within the CRT without incurring current capital gains tax. The funds are subsequently invested diversely within the CRT, and an annual or quarterly income stream is disbursed to the donor or another designated beneficiary. There are several CRT variations that donors can explore with an attorney or financial advisor.
Charitable Lead Trust (CLT). The inverse of the CRT is the CLT, which can offer fixed payments or variable payments and can have a term of years or a lifetime term. Likewise, CLTs can be created during one’s lifetime or as part of an estate plan upon death. Unlike the CRT, the CLT disburses annual payments to one or more charities, with the remainder interest either reverting to the grantor or more commonly, passing to designated beneficiaries as a longer-term discounted gift. The CLT is a more complex strategy that necessitates both legal and accounting considerations. Depending on how the CLT is structured, it can also provide a substantial upfront income tax deduction.
Estate planning laws are set to change at the end of 2025, making it more expedient for individuals to create or update their plans over the next 24 months. Organizations should connect with key donors who have expressed interest in making a sizable gift and see if a charitable trust is a possibility.
Beneficiary Designations
Donors can name charitable organizations (as well as DAFs) as beneficiaries of their estates, including as contingent beneficiaries for a traditional IRA or other retirement plan. Under the Secure Act 2.0, traditional IRA funds passing to a non-spousal beneficiary are subject to a 10-year deferral period before the total account must be distributed, and the inherited IRA may have RMD requirements for the beneficiary over the 10-year period. All distributions are taxable as ordinary income to the beneficiary.
Estate planning laws are set to change at the end of 2025, making it more expedient for individuals to create or update their plans over the next 24 months.
For individuals with potentially taxable estates (exceeding $12.92 million for individuals or $25.84 million for married couples in 2023), naming a charitable contingent beneficiary for traditional IRA assets can reduce the taxable estate, as donated accounts may be tax-inefficient for a non-charitable beneficiary. As donors develop the habit of reviewing and updating beneficiary designations annually, conversations with them about planned giving can flow more naturally.
This is the season when many donors have charitable giving on their minds. But you don’t have to relegate these important discussions until the end of the calendar year or giving cycle.
Rather, it’s much more fruitful to help donors ongoingly consider smart giving options that amplify the impact of their gifts, yield favorable tax outcomes, and create a philanthropic legacy that aligns with their goals.
Michael Degenhart, Vice President, has more than 25 years of professional experience in development and fundraising with higher education institutions, and formerly served as Assistant Vice President of the Office of Gift Planning at Pennsylvania State University. To connect with Michael about your institution’s planned giving program and objectives, email mdegenhart@grenzglier.com.
