The benefits of charitable giving for high-net-worth individuals

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Charitable giving is a powerful way to make a positive impact for the causes that matter most to you. For high-net-worth individuals, it can also be an important part of a wealth planning strategy. Giving to qualifying charities can help you manage your wealth, deliver tax benefits and make a lasting difference in the world.

Here are five key advantages of charitable giving.

1.   Personal fulfillment

One undeniable aspect of charitable giving is the deep sense of personal satisfaction it delivers. Your philanthropy can make a difference in others’ lives by enriching the efforts of charities, foundations and organizations you are passionate about. It can also help you forge a connection with the organization and those impacted by your gift. Knowing that you’ve made a positive change through your donation is fulfilling in itself.

2.   Tax deductions

Another highly attractive benefit of philanthropy is that it can help reduce your income tax burden. By making charitable contributions to qualified organizations, you may be able to deduct a percentage of your adjusted gross income (AGI). While the IRS limits the deduction to 60%* of your AGI, lower limits may apply in certain cases.

By donating certain assets, like stocks, that have risen in value, you could also claim a deduction and minimize capital gains taxes. In some cases, you can also deduct the fair market value of an asset such as real estate or art. Before assuming how charitable contributions might impact your taxes, always consult a tax professional about your unique financial situation. To understand how giving fits in with your overall wealth picture, talk with an experienced financial advisor.

3.   Reduced estate taxes

You can also help make your estate more tax efficient by giving to qualified foundations. Since 501(c)3 charitable organizations are exempt from estate taxes, your gift reduces the size of your taxable estate. This allows you to make a lasting impact for your cause while also benefiting your financial goals.

4. Flexible giving options

Some charitable giving instruments provide both flexibility and structure to high-net-worth donors while reducing tax liabilities. Through a Charitable Remainder Trust (CRT), you can donate income-generating assets to an irrevocable trust, which could reduce your taxable income and capital gains taxes as well as offer you a charitable deduction. All the while, the asset is still giving you income. At the end of a set term, the charity receives the asset.

A Charitable Lead Trust (CLT) is a split-interest trust that lets you donate ongoing income to a charity and receive a tax deduction while at the same time providing immediate support to the organization. The Donor-Advised Fund (DAF) is another flexible donation vehicle that lets you contribute to a fund that is dispersed to a charity over time at your recommendation while giving you immediate tax deductions. These vehicles give you the opportunity to support the causes you care about while also giving you flexibility in your wealth planning.

5. Balance between philanthropy and wealth planning

Through charitable giving, you can make meaningful changes in the world for the causes that are most important to you while building a long-term, tax-efficient position for yourself and your estate. Charitable donations also allow you to align your wealth with your values and create a sustainable financial life for future generations.

The bottom line

Charitable giving is just one aspect of a thoughtful, well-rounded wealth management strategy. When you give back, it’s possible to have it all. That’s because you’ll have the personal satisfaction of doing good for others while receiving tax advantages in the form of deductions or credits that can help offset some of your taxes. If you’re ready to develop your giving strategy, it’s critical to talk to an experienced financial advisor who can offer tailored advice and work with you on how to have the most impact today, tomorrow, and for generations to come.

Sources:

*https://www.irs.gov/publications/p526#en_US_2024_publink100017751

https://www.irs.gov/publications/p526

https://www.irs.gov/charities-non-profits/charitable-remainder-trusts

https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds

https://www.irs.gov/instructions/i5227#en_US_2024_publink10008804

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