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Charitable contributions are one way in which you can use your financial wealth to help a worthy non-profit organization of your choice. There are several ways to provide tax-advantaged financial support to a qualified charity, ranging from immediate cash gifts to the use of more complex legal structures. The many options can be overwhelming, especially when you factor in tax implications.

Our goal is to identify an approach that meets our clients’ charitable, financial, and tax goals. We work closely with our clients and their legal and tax advisors to determine which philanthropic strategies best align with their objectives. We consider the client’s financial circumstances and discuss with the client their intentions for the gift.

The following are brief descriptions of the most common giving strategies with which Boston Trust Walden assists its clients.

Outright Gifts

Cash Gift – We will issue a check from the donor’s account payable to the charity, and then remit the contribution on our client’s behalf. We recommend making cash gifts for donations of less than $1,000.

Gift of Appreciated Securities – After identifying the most appropriate stock to use for these donations, we coordinate the donation with the receiving charity. The benefit of using appreciated stock instead of cash is two-fold:

1. For deduction purposes, the gift is valued based on current market prices (as opposed to the amount the donor paid to purchase the stock); and

2. Since the stock is not being sold in order to complete the gift, capital gains are not incurred and taxed to the donor. If and when the charity sells the security, it is generally exempt from capital gains tax.

Conversely, if an appreciated stock was sold and then its proceeds were used to make a cash contribution, the donor would be taxed on the capital gain incurred by that activity, resulting in an expense to the donor or a reduced (after-tax) donation to the charity.

Qualified Charitable Distribution from IRA – When the owner of a Traditional Individual Retirement Account (IRA) turns age 70½, the IRS requires the person to begin taking a Required Minimum Distribution (RMD) each year from the IRA. This RMD is considered taxable income. However, individuals are permitted to distribute up to $100,000 of their RMD directly to a charity reducing their taxable income by the portion of the RMD that was paid to non-profit organizations.

Donor Advised Funds

A Donor Advised Fund (or “DAF”) operates as a pass-through charitable entity, providing even greater efficiency than making outright gifts. DAFs are considered 501(c)(3) charities themselves and are typically funded with appreciated securities, which are sold upon receipt. Donations are then distributed to charities, over time, as the donor sees fit. The funding of the DAF is the point at which the deduction is earned by the donor, and the proceeds of sale of the appreciated stock can be invested within the DAF until needed for grantmaking.

DAFs are typically administered by third party organizations. We can offer clients suggestions on the best fit among providers, taking into account our understanding of the client’s charitable intent. Once the provider is selected and the DAF established, we coordinate the funding of the DAF with assets for future grants.

Many clients use DAFs as a conversation-starter to teach their children about philanthropy. Reviewing annual donations together as a family can be a wonderful way to include the next generation in the fulfilling experience of philanthropy.

Private Foundations

Typically, a private foundation’s funding originates from a family or corporation, which receives a tax deduction for contributions, as opposed to receiving donations from the general public. They can also be legally structured to allow for ongoing existence even after the original donor is no longer involved. In this manner, private foundations establish a philanthropic legacy, the supervision of which may be passed along to future generations. These entities are more complex than Donor Advised Funds and have strict requirements for grantmaking, reporting, and governance. Private foundations are 501(c)(3) charitable organizations and are required to make a certain amount of grants annually. Grants are typically made to other non-profits and to individuals. In addition, private foundations may choose to run programs and provide services directly. Legal assistance is needed to establish a private foundation. Boston Trust Walden can manage the investments for the foundation and help facilitate grantmaking.

Charitable Trusts

Like private foundations, charitable trusts are established through legal documents and have filing and distribution requirements, but charitable trusts are typically less complex to maintain. Charitable trusts can be customized to fulfill the donor’s wishes (within certain parameters). Boston Trust Walden can serve as Trustee of charitable trusts, in addition to providing investment management services. There are two basic types:

Charitable Remainder Trusts – These trusts provide income to individuals – often the donors themselves – for the period of years defined in the trust; upon termination, the remaining principal of the trust is donated to one or more charities. The donor receives a tax deduction based on the present value of the amount the charities are expected to receive at the trust’s termination.

Charitable Lead Trusts – Somewhat the opposite of remainder trusts, lead trusts make annual payments to charities for a fixed period of time; at the end of that period, the remaining assets are usually distributed to one or more non-charitable beneficiaries, such as the donor, a family member, or other individual, in accordance with the donor’s wishes. These trusts provide a means for supporting charitable causes until assets can be directed to heirs. Charitable lead trusts are complicated trust arrangements with different estate, gift, and income tax results depending on the trust terms. We encourage clients to consult with their tax and estate planning attorney when considering establishing charitable lead trusts.

With all the options available, many people realize they need guidance to navigate the charitable giving process. From figuring out the best donation method to actually executing the plan, there are unique considerations for each donor. Boston Trust Walden enjoys helping each one of our clients, in partnership with their legal and tax advisors, to facilitate a fulfilling and prudent charitable giving experience.

Information provided herein is not intended to be used as investment advice, an offer to purchase or sell the securities, or a solicitation or offer to sell investment advisory services. Boston Trust Walden Company, its staff, and affiliates (collectively “BTW”) do not provide tax, accounting, or legal advice. You should consult with your legal or tax advisor prior to taking any action relating to the information contained herein. Opinions expressed may be different from time to time than those presented by different authors or BTW. Data contained herein are derived from sources believed to be reliable at time of publication however, they may not be complete or accurate at all times and we undertake no, obligation to advise you of any changes or to provide an update.

About Boston Trust Walden Company

We are an independent, employee-owned firm providing investment management services to institutional investors and private wealth clients.

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