- It’s important to quantify how much clients can afford to give away without jeopardizing their other financial objectives.
- Donating low-cost-basis stock doubles the benefit over donating cash.
- The decision between setting up a private foundation versus a donor-advised fund comes down to tax implications, simplicity and how involved donors want to be.
A common question among high net worth investors is how to be financially strategic when donating to charity. In other words, what’s the best way to maximize philanthropic giving while minimizing the tax impact? As a wealth advisor, you can provide a lot of assistance in this area. Among other things, you can help clients determine how much they can afford to donate, which assets should be given and whether it’s advisable to support a public charity or establish a private family foundation.
To gauge how much a client can afford to give, I suggest using the planning pyramid shown below as a reference. It starts with a “base” portfolio of short-term investments to support near-term spending, followed by the “core,” or the amount of money needed to endow a lifestyle based on conservative return assumptions that take into account poor markets and a long life. Any additional money, which we refer to as “surplus” capital, represents the gifting capacity available for either family or philanthropic pursuits.