Charitable giving plays a critical role in improving people’s lives around the world. Increasingly, ultra-high-net-worth individuals and families are the ones supplying the funds needed to keep the work going.
According to a 2024 report from data firm Altrata, ultra-high-net-worth individuals account for nearly 40% of all global charitable giving, meaning that less than half a million people in the world provide almost half of all charitable contributions. The impact of giving at this level cannot be overstated. [1]
While charities and society at large benefit greatly from generous gifts, the families and individuals doing the giving benefit immensely as well. Charitable giving is a channel through which the family’s values can be expressed and philanthropic aspirations can be fulfilled, and it also provides significant tax benefits that can aid in preserving wealth across generations—which ideally leads to even more giving in the future.
Charitable giving is meaningful in its own right, but effective giving requires some professional help. As of 2022, there were over 1.5 million charities in the U.S. and 10 million charities worldwide. And, as detailed later in this article, there are a handful of key strategies and vehicles for charitable giving on a larger scale, which provide donors with varying levels of tax benefits and control but also introduce complexities best navigated by accountants, financial advisors and legal experts.
Once a family decides that charitable giving will be a key element of their estate plan, the first step is to clearly define philanthropic objectives and identify the causes and issues that resonate most. Involving advisors and family members in these discussions can help clearly define the purpose and values behind the giving, ensuring the family’s charitable efforts are well-defined, cohesive, focused and impactful.
Involving younger family members is also key to fostering a legacy of giving and social responsibility. By encouraging the next generation to participate in philanthropic discussions and decision-making, the family can impart the values associated with charitable work. This engagement not only educates and inspires younger generations, but also strengthens the family’s commitment to philanthropy across generations.
In short, these early discussions establish the “why to give” and “where to give.”
Next is the how. Choosing the appropriate charitable vehicle is a crucial, if not the most crucial, step in developing the family’s giving strategy. Different vehicles and strategies come with their own unique sets of rules, advantages, and other considerations. Having a clear understanding of the family’s goals and financial situation will determine the most optimal path forward.
The most straightforward option is via direct charitable gifts. Simple and immediate, direct gifts offer tax benefits and allow families to support causes immediately. Cash and property donations are common, but there are also significant tax advantages available, especially when donating appreciated assets, like stocks for instance. Donating an asset that has appreciated substantially in value can allow the family to avoid capital gains taxes while still receiving a charitable deduction for the fair market value of the assets.
When a family scales up their gifts and thinks of charitable giving as more of a long-term, multigenerational endeavor, it may make sense to pursue more advanced charitable vehicles to increase control and tax efficiency.
One example is donor-advised funds (DAFs), which allow a family or individual to donate assets, receive a tax deduction and then make grants to charities over time. Gifts to DAFs are irrevocable, but the donor can invest the money, determine how and when the money is distributed and choose which charities get what.
Private foundations also offer additional control over charitable activities, including the ability to set grant-making policies and support specific causes over time. Private foundations are legal entities – technically a 501(c)(3) organization – that require a formal board of directors, annual tax filings and other administrative tasks associated with running a charitable organization. The added complexities come with added control but also require more administrative work and compliance with IRS regulations.
Finally, charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) are two common charitable trusts that provide tax advantages and allow for strategic wealth transfer. CRTs, for example, can provide income to the family’s beneficiaries for a set period, with the remainder going to charity, offering both income and estate tax benefits. On the other hand, CLTs prioritize charitable payments first, by donating income from the trust to a charitable organization for a specified period then transferring the remaining assets to non-charitable beneficiaries, often family members.
All the above strategies have varying tax benefits and guidelines, which for ultra-high-net-worth families are, of course, significant considerations. Contributions to qualified charities are tax-deductible. But by carefully planning gifts and utilizing unique vehicles and strategies, donors can maximize these deductions and reduce overall tax liabilities often across generations. Consulting with tax professionals and advisors is needed to align broader financial and charitable goals while taking full advantage of available tax incentives.
Charitable giving is inherently rewarding, but it’s not always as impactful and tax-efficient as it could be. Introducing structure and expertise to the giving process can help. By establishing giving goals, seeking professional guidance, choosing the right vehicles and involving family as much as possible, it’s possible to build a charitable giving strategy designed for maximum impact: on charities, on the family’s philanthropic goals and values and on the world.
IMPORTANT DISCLOSURES
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. In addition, information presented in this presentation is believed to be factual and up to date, but Newport Capital Group, LLC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.
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