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A Primer on Philanthropic Vehicles


Looking for new ways to differentiate yourself as an advisor? Philanthropy and charitable giving are important to many of your clients, but are not top-of-mind for many advisors. Helping clients meet their charitable goals is not only the right thing to do, but helping them do it the right way can add significant financial value.

Here are some things to consider as you approach a conversation about giving with your clients.

Types of Gifts

While there are a number of vehicles and techniques that can be incorporated into your client’s estate plan, many clients are focused on how they can contribute while alive.

  • Cash is the most basic donation and is one that most clients are familiar with. As you know, giving in cash entails writing a check to the charity or other tax-qualified organization of your choice. 
  • Appreciated securities. Gifts of appreciated shares of individual stocks, mutual funds, ETFs or closed-end funds can be made to qualified organizations. After contacting the organization directly to confirm that are equipped to accept such gifts, work with your client to facilitate the transfer of the shares from their account to the brokerage account of the organization. This can be a great solution for clients with highly appreciated, low basis holdings. Your client receives the tax benefit of the charitable contribution based upon the market value of the shares at the time the contribution is made. He or she will also not be subject to the capital gains they would incur if the security was sold outright. This can be a sizable amount for securities that have been held for a number of years with an extremely low cost basis.
  • Gifts of other property or assets. Clients can also choose to gift non-securitized assets. In the case of real estate, stock in a privately held business, art or collectibles, the value of the asset at the time of the gift is deductible, like publicly traded securities. Also, like publicly traded securities, the client will not be subject to capital gains tax due on the amount of unrealized appreciation of these assets. Be aware, however that the charity of your client’s choosing needs to be able to take these types of assets as gifts. It is best to work with your client to contact the organization and confirm that this is the case. Generally, you will then need to have a third party conduct an appraisal of the asset to be donated to determine its value. An advantage of donating these types of assets is that this technique can provide liquidity over and above what might be available in the marketplace.

How to Give

  • Giving directly to the organization is perhaps the most common form of giving. When a client’s gift of cash, securities or other assets is made directly to the organization, the organization then takes the cash, or the value realized from the disposal of the assets or securities and put this money to work in line with its mission.
  • Donor advised funds are philanthropic funds established as public charities. Many major custodians, such as Charles Schwab and Fidelity offer a version of these funds that take donor gifts and invest the money on donors’ behalf. Depending upon the fund, donors can choose from investment options offered by the fund or have the money invested in a fashion suggested by an advisor. Donors can usually designate the recipient(s) of their donations: most charitable organizations are eligible, provided that they meet IRS requirements. While not as direct as a cash gift, DAFs allow donors to gift several years’ worth of donations at one time, receiving credit for the gift for tax purposes in the year of the donation, but  spreading their donations over a number of years. The receiving organization benefits from any appreciation in the investment account. This allows clients to “bunch” deductions into specific years in order to ensure they are able to itemize deductions before shifts in tax law occur. In some cases, donor advised funds can also accept non-liquid assets, providing a source of liquidity for donors as well.
  • Qualified charitable distributions are not a philanthropic vehicle, but a way for clients who are required to distribute earnings from their retirement accounts to minimize the tax on their required minimum distributions (RMDs). Clients who might be interested would designate all or a portion of their RMD towards an eligible charitable organization. While they would not receive a deduction for the amount donated, this amount is reduced from the taxable portion of the RMD. The limit on these distributions is $100,000 per year.

The Bottom Line

Working with your clients to fulfill their charitable intentions is a vital service to provide as part of the overall planning and advice services that you offer. Charitable planning can also provide financial benefits in addition to the satisfaction in helping others for your clients.

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