While the financial-planning sector is chock-full of rules of thumb and industry-accepted guidelines, developing a charitable-giving strategy is one area with too many variables for a legitimate broad-brushed approach to work, experts say.

Veteran financial adviser Donald F. Morgan, who founded Independent Wealth Connections LLC in Spokane Valley four years ago, says that charitable intent must be the focus of any strategy, but beyond that, the number of variables at play makes each situation different. 

“Some people give extraordinary amounts, and some people give next to nothing,” Morgan says. “Some give and don’t deduct and don’t talk about it. Charitable giving is intensely personal.”

P.J. Watters, director of gift planning at the Inland Northwest Community Foundation, of Spokane, says a number of strategies can come into play during estate planning or after a large event, such as receiving an inheritance, selling real estate, or selling a business. Those can have significant tax implications and typically require guidance from financial planners, accountants, and attorneys.

An average donor who isn’t thinking about long-range planning, however, typically takes one of two strategies, whether aware of it or not, Watters says. 

In the first, she says, a donor explores his or her value system and places a certain level of importance on the charitable giving. They look at the full pie of available assets and ask the question, “How big of a slice do I want to give?”

The other approach, she says, more closely parallels Maslow’s hierarchy of needs, a psychological theory that states basic needs must be met before an individual can have confidence, morality, and other attributes. As it pertains to giving, Watters says, those types of givers will donate to charity once everything else is paid for. 

With both types of givers, she says, donations increase during a healthy economy and drop during hard times.

Regardless of strategy, those considering their philanthropic approach should decide ahead of time how much to give and, ideally, what causes to support, rather than responding to requests, Watters says. She says some people grow weary of requests for donations and give begrudgingly when asked, which is part of what gives fundraising a bad name. 

“Those ‘go-away’ gifts don’t help anybody,” Watters says. “Giving should feel good. That feeling should be congruent with your gifts.”

A more detailed—and often, more technical—strategy is needed when involved in estate planning or determining charitable giving’s role in a significant life event. Morgan says there are a number of ways “to do well while doing good,” meaning that a philanthropist can save money on taxes or preserve an income stream while benefitting a charitable cause. 

For example, he says, one stipulation of the Affordable Care Act calls for a higher tax on passive income, such as income from rental properties, for individuals with an adjusted-gross income greater than $250,000. He says that in many scenarios, a person can donate to public nonprofits to get adjusted-gross income below $250,000 and save money.

Also, people 70.5 years old or older are required to take distributions from their taxable retirement accounts. They face an excise tax if they fail to do so. One provision, however, allows for donating retirement-account distributions to a nonprofit without having to pay either an excise tax or income tax. 

Most charities are considered public nonprofits, but the tax rules apply differently to private nonprofits or foundations, which often are characterized as having much of their funding coming from a single source. While the vast majority of nonprofits are public, it’s best to check if there is any question that the organization to which you give is public, both Morgan and Watters say.

In some cases, Morgan says, a person can be better off donating an asset, rather than selling the asset and giving a portion of the proceeds to charity. 

He gives the example of a person who spends his career at a publicly-traded company and receives stock in that company, either as part of his compensation or through a payroll-deduction program. Later in life, if that professional were to sell the stock and donate that money to charity, he would have to pay capital-gains tax on the transaction. However, Morgan says, the person can donate stock outright to a public nonprofit and avoid paying tax on the capital gains. In turn, the benefiting charity can sell the stock without having to pay tax on it, due to its nonprofit status.

Watters says the same is true for other assets, such as income properties or paid-in-full life-insurance policies, which in some cases can be donated through a charitable trust. She says the establishment of a charitable trust requires the assistance of an attorney and an accountant with experience in such matters, adding that she isn’t qualified to give guidance on the specifics of establishing a charitable trust. In general, however, Watters says, establishing such a trust can provide an immediate tax deduction and can preserve an income stream, in some cases. 

For example, she says one client of the Inland Northwest Community Foundation owned rental properties that he was preparing to sell. Rather than selling those properties, that landlord established a charitable trust through which he donated the properties to a charity, yet maintained the income stream. 

“The capital-gains implications were huge,” Watters says, “but with the trust, it was set up giving him a lifetime income stream equal to what he was netting. He takes the money and travels rather than fixing toilets.”

She adds, “When it works, it works really well.”

Tax benefits aside, those who are looking to give long term can establish donor-advised funds, into which they place money that an organization such as a community foundation invests with a larger pool of money from other donors, and the income from those investments is given to the nonprofits designated by those who establish the fund. Such funds allow donors to give in perpetuity.

Watters says that with the Inland Northwest Community Foundation, a donor can establish such a fund for as little as $1,000 a year over a minimum of five years. While many aspects of philanthropy are associated with wealthy families giving large sums, she says donor-advised funds can be set up by a broader demographic of people.

“You’d be surprised,” she says. “I have seen families with very modest means give in this way.”

In some cases, she says, families establish donor-advised funds in an effort to instill philanthropy in their children and to help future generations participate in charitable endeavors.

Morgan points out that charitable intent must be at the root of any giving, and a philanthropist must be confident in the missions of the benefiting organizations. 

“Yes, there are some very cool tax treatments, but once you give, it’s not your money anymore,” he says. “The biggest thing is that it has to be in line with the intent of the donors.”