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The Pros and Cons of Charitable Giving Strategies 

Donation Concept. The Volunteer Giving a Donate Box to the Recipient. Standing against the Wall

Once you have provided for your own personal expenses and retirement, it may be time to consider how your money could benefit others. 

Giving away some of your money is a great way to support the people and organizations you love. But choosing the right strategy is essential for minimizing your taxes and meeting your personal goals.

Gifting Strategy Overview 

CASH 

 How It Works Pros Cons Traditionally Used For 
You make a donation directly via cash or check. It’s the giving strategy most are familiar with. 
Eligible for income tax benefits in the calendar year of donation (subject to limitations)  Straightforward tax benefits  Simple donation process 

Must acquire and track written record of donation to qualify for tax benefit  Capital gains tax may apply if you liquidate appreciated securities to make the donation 

Those making smaller donations that don’t require liquidating appreciated securities  Those who want a simple donation process 

SECURITIES 

 How It Works Pros Cons Traditionally Used For 
Similar to cash donations, you can also gift different securities to a charity. Stocks are the most commonly gifted securities. 
Eligible for income tax benefits in the calendar year of donation (subject to limitations)  Avoids the capital gains tax you would incur if appreciated securities would need to be liquidated to make a cash donation  If you’ve held a stock for over a year and it has appreciated, you can deduct its fair market value from your taxes 

Must acquire and track written record of donation to qualify for tax benefit  Some charities struggle to liquidate complex or privately-held securities  If you’ve held your stocks for less than a year or they’ve depreciated, the tax benefits don’t apply 

Those who want to maximize their tax benefits and have a portfolio that’s ideal for charitable giving  Those donating to charities that are accustomed to liquidating securities 

QUALIFIED CHARITABLE DISTRIBUTIONS (QCDs) 

How It Works Pros Cons Traditionally Used For 
Funds transfer directly from your individual retirement account (IRA) to a qualifying charity of your choice. 
Lowers adjusted gross income (AGI)  Counts toward your required minimum distributions for the year in which the contributions are made  Reduces the amount of taxable money in the IRA overall 

You must be a certain age to contribute  There are contribution limits  Not all charities qualify to receive QCDs  Not eligible for itemized charitable tax deduction  Must work with your IRA custodian to make your contribution directly from the account  Must acquire and track written record of donation to qualify for tax benefit 

Those who don’t want to or can’t itemize on their taxes but want to lower their required minimum distributions, which counts toward AGI  Those who want to convert their traditional IRA to a Roth IRA at a lower tax rate 

DONOR-ADVISED FUNDS (DAF) 

How It Works Pros Cons Traditionally Used For 
This method allows you to set aside assets in a special account, grow the funds over time, and then grant donations to qualifying charities of your choice at a later date. 
Eligible for income tax benefits in the calendar year assets are deposited  Ability to invest and grow contributions tax-free  Full control over where and when donations are distributed  Ability to pass the account to heirs 

Invested assets are irrevocable  Not all charities qualify to receive donations from a DAF  Minimums are often required to open an account  Asset management fees apply 

Those still developing their philanthropy strategy  Those who want the tax benefits of a donation in a certain calendar year, but distribute the donation at a different time  Those hoping to avoid capital gains tax or estate tax on donations 

POOLED INCOME FUND 

How It Works Pros Cons Traditionally Used For 
This method allows multiple contributors to donate to a special account managed by a nonprofit. The assets can grow over time and pay out dividends to all contributors. After the contributors pass away, the remaining funds go to the managing nonprofit. 
Eligible for income tax benefits in the calendar year assets are deposited  Flexible payout options  Avoid capital gains tax on appreciated securities donated  Assets aren’t considered part of the donor’s estate and avoid probate 

Invested assets are irrevocable  Complex regulations around what types of assets can be donated  Assets aren’t available to the charity during your lifetime 
Those with a modest income who still want to make a charitable impact

CHARITABLE LEAD TRUST (CLT) 

How It Works Pros Cons Traditionally Used For 
Assets in a CLT create income for a charity over the term of the trust. After the term is over or the donor passes away, the remaining assets funnel to non-charitable beneficiaries. 
Eligible for income tax benefits in the calendar year assets are deposited  Charity payment amount, frequency, and duration are flexible  Avoid capital gains tax on any appreciated securities donated  Reduces estate and gift taxes  Ability to see the immediate impact of charitable donations  Ability to pass wealth to heirs 

Invested assets are irrevocable  Heavy administrative demands and upkeep can make it expensive to maintain  Assets are part of your estate and aren’t entirely exempt from estate and gift taxes 

Those that want to pass assets to heirs while reducing the impact of gift and estate taxes  Those who want to see the impact of their charitable giving upfront 

CHARITABLE REMAINDER TRUST (CRT) 

How It Works Pros Cons Traditionally Used For 
Assets housed in a CRT create income for non-charitable beneficiaries over the term of the trust. After the term is over or the donor passes away, the remaining assets funnel to charity. 
Eligible for income tax benefits in the calendar year assets are deposited  Assets aren’t considered part of the donor’s estate and avoid probate  Avoid capital gains tax on any appreciated securities donated  Generates income for you and beneficiaries  Income amount, frequency, and duration is flexible  Assets are generally not subject to gift or estate taxes 

Invested assets are irrevocable  Heavy administrative demands and upkeep can make the account expensive to maintain  Assets aren’t available to the charity during the trust term or your lifetime  The value of the charitable gift could be diminished significantly without proper income planning  CRT benefits won’t be realized with small gifts or estates 

Those with large estates, gifts, or appreciated assets that want to maximize their tax benefits while gifting to a charity  Those who require income for themselves or others, but still want to give 

How to Identify the Right Strategy 

These are only some of the many giving strategies available. The best choice depends on many factors, including your unique financial and philanthropic goals. 

Talk to a financial professional about which giving strategy best suits you.