Investing with Charitable Giving in Mind

Avenues for charitable giving today go beyond traditional cash donations made directly to nonprofit organizations. Investment vehicles designed specifically for charitable donations provide opportunities to contribute other financial assets, including securities and property, and might also provide you with certain benefits, such as tax deductions or regular income payments.

However, you might have less control over your funds than you would with other traditional investments. And, as with cash donations, the contributions you make to these accounts are irrevocable and can’t be returned or inherited by your beneficiaries. 

Charitable giving strategies can be complex, so speak with your investment professional to determine which approach is the best fit for your investment portfolio before transferring any assets. You might also want to consult with a tax specialist to be sure you understand the tax implications for any charitable contributions you’re considering.

Potential ways to use investments toward charitable causes include the following:

Charitable Gift Annuities

A charitable gift annuity (CGA) allows you to transfer assets to a qualified nonprofit organization and, in return, receive fixed income payments (annually, quarterly or monthly). Payments to the donor are made for an agreed-upon fixed time period or over the donor’s lifetime and are based on the value of the donated assets, which the organization places in a reserve account. 

The organization stops making payments to the donor after death unless a surviving spouse or beneficiary is named as an annuitant. Once the transfer agreement ends for all beneficiaries, the charity takes full control of the assets.

Charitable Remainder Trusts

Like a CGA, a charitable remainder trust (CRT) provides payments that can be made for a fixed period of up to 20 years or the life of one or more beneficiaries. CRTs also take control of the donated assets once the transfer agreement ends, with the remainder of those assets distributed to designated charities. Unlike CGAs, however, CRTs require you to set up a legal trust. 

There are two types of CRTs:

• Charitable remainder annuity trusts pay out a specific amount every year that's at least 5 percent and no more than 50 percent of the value of the property in the trust when the trust was created.
• Charitable remainder unitrusts pay a percentage of the value of the trust to the beneficiary every year. The donated assets are valued annually, and the payments must be at least 5 percent and no more than 50 percent of the fair market value of the assets.

Donor-Advised Funds

A donor-advised fund (DAF) allows individuals and companies to deposit assets into an account that's maintained and operated by a qualifying 501(c)(3) organization. Then, individuals can recommend grants from their DAF accounts to charitable causes at any time after they’re verified by the sponsoring organization. 

You or your representative have advisory privileges with respect to the distribution of funds, but the sponsoring organization managing a particular DAF has the final say on which charity receives the donations you make and when funds are disbursed. 

Qualified Charitable Distributions

To make a one-time contribution directly to a charitable organization, a qualified charitable distribution (QCD) might be an option. Through QCDs, individuals who are 70 ½ years or older can shift money from their individual retirement accounts directly to an eligible nonprofit. A QCD can also count toward a required minimum distribution from your eligible retirement accounts. 

Eligible individuals may also make a one-time distribution, subject to IRS limits, from their IRA to a CRT or CGA via a QCD.

While charitable giving can have tax advantages, the implications and benefits of any contributions you make will depend on your personal circumstances. Consulting an investment professional and/or tax specialist can help in evaluating whether an opportunity is right for you.