Some people like to dismiss, or should we say “write off”, the philanthropic giving of wealthy individuals, saying they’re only motivated by the tax benefits. But in reality, study after study has shown that high-net-worth and ultra-high-net-worth investors are rarely motivated by the short-term gains of a tax write-off. Instead, they prefer to take a long-term view of their philanthropic activity, seeking to optimize those donations in the context of their overall financial goals and legacy planning.

According to a 2022 BNY Mellon Wealth Management Charitable Giving Study, 91% of high-net-worth individuals consider charitable giving opportunities to be an integral part of a well-rounded wealth strategy. And yet, a different study indicates that wealth management professionals have been slow to catch on: 47% of wealthy clients report feeling dissatisfied with how their financial advisor discusses charitable options with them.

At Peak, we never lose sight of our clients’ values or the bigger picture of investment trends. We have years of experience incorporating charitable giving into a wealth management strategy.

Charitable vehicles for HNW investors

Writing an end-of-year check is one way to give to charitable causes, but the list of options has expanded considerably in recent years, especially for high-net-worth individuals.

If you’re looking to align your philanthropic giving with your long-term financial and legacy planning, there are a range of strategies to consider depending on your desired impact. Here are three popular options to consider:

1.    Donor-Advised Funds (DAFs): A donor-advised fund is similar to a charitable investment account, managed by a sponsoring organization. You can contribute cash, securities, or other assets, and then recommend how the money is invested and which charities receive grants. You get the benefits of charitable giving without the hassle of managing a foundation.

2.    Charitable Remainder Trusts (CRTs): A charitable remainder trust lets you donate assets to a trust that ultimately benefits a charity, while still providing your beneficiaries with an income stream for a set period of time.

3.    Foundations: A private foundation is a charitable organization that you, your family, or your business can establish to support the causes that matter most to you. Funded primarily by the founders, the foundation is overseen by a board of directors (often including family members), who decide how the assets are invested and how grants are distributed.

Charitable Giving Strategies for HNW Clients

Although tax savings may not be the overriding motivation for giving, high-net-worth individuals aren’t blind to the financial considerations of how they choose to give, either. Seasoned financial advisors can achieve different outcomes for the client by utilizing strategies such as:

• Extended Giving: This is when a client “bunches” several years’ worth of charitable donations into a single year, which can maximize the tax deduction upfront while still spreading out the actual philanthropic gifts over time. A donor-advised fund is often the ideal tool for this approach, because it can be funded all at once and then distribute grants to charities over time.
• Tax-Gain Harvesting: You may be familiar with “tax-loss harvesting,” a strategy that involves selling investments that have declined in value, so that you can offset capital gains in high-performing parts of your portfolio. Tax-gain harvesting takes a similar approach: By donating highly appreciated assets to a DAF, for instance, you may be able to achieve meaningful impact while avoiding the capital gains tax burden from those assets.
• Qualified Charitable Distributions (QCDs): If you’re over the age of 70 1/2, you’re eligible to make donations directly from your IRA to a qualified charity — up to $100,000 annually — through a Qualified Charitable Distribution. This can be a valuable approach if you’ve reached the age of Required Minimum Distributions but don’t need all of the income. In this scenario, the QCD can act as a portion of your required distribution, saving you from paying taxes on the portion of the RMD you didn’t need. (It’s important to note that QCDs do not qualify as charitable tax deductions, however, and instead function more like a redirection of an RMD.)

Take the next step

With an experienced advisor at your side, it’s worthwhile to sync up your charitable giving with your long-term financial strategy. At Peak, we believe in guiding high-net-worth clients through their charitable giving options by balancing generosity with strategy, ensuring every gift maximizes impact while aligning with their legacy goals.

Let’s have a conversation about how we can help you realize your goals. Reach out today to schedule a meeting.