Charitable Giving Strategies to Match Your Long-Term Goals

Jonathan Mitchell, MBA, CFP®, ChFC®, CPWA®

Wealth Advisor, Director


Let’s examine the benefits of charitable giving and strategies to help optimize donations from you and your family.

Senior man sitting at desk.

As we approach the end of the tax year many are looking for ways to help reduce their tax bill. There is still time to give to charity in a way that  can help maximize your tax deduction for 2023. Proper planning can have a powerful impact on long-term financial health and wellbeing. Whether the goal is greater retirement savings, minimizing taxes, or leaving an estate to heirs, taking decisive action today can go a long way to help build a better financial situation tomorrow. Here, we cover strategies to help maximize the benefits of gifting to charity appropriate to the amount of money you want to give.


Example 1: Retired high-net-worth individual

You have a net worth of $2 million, just retired and sold your home in a high tax state like California to move to a state with no state income tax. This is the final year you pay the high California taxes. This also means that the annual charitable contributions you have been making will have a limited tax benefit, or no benefit at all. With the standard deduction at almost $27,700 for a married couple, the first $27,700 you donate to charity does not impact your tax bill. Here are two excellent ways to donate to charity and maximize your tax deduction.

First, a donor-advised fund (DAF) would allow you to make several years’ worth of contributions during one calendar year to regain the tax deduction benefit. If you typically give away $10,000 per year, you could fund 10 years’ worth of your charitable contributions for a total of $100,000.

In this scenario, you’d receive the full tax deduction in the current year and can distribute from the DAF account to your preferred charities over the course of the next 10 years and beyond. You can also donate highly appreciated stock to your DAF account and receive the charitable deduction for the market value of the stock, meaning you’d never pay the capital gains tax.

Second, if you’re 70½ or older, a gift of a qualified charitable distribution (QCD) from an IRA would satisfy your required minimum distribution (RMD) and be considered a non-taxable distribution. This is an exceptional opportunity to not pay any taxes on IRA distributions. There are a couple of caveats to keep in mind:

  • The gift must be to a public charity and not more than $100,000 per year.
  • QCDs do not require you to itemize deductions to receive the benefit, allowing you to claim the full benefit of the standard deduction.


Example 2: High-net-worth individual saving for retirement

You have a net worth of $20 million and a high level of income. You want to give to charity, save for retirement, and minimize taxes. You might want to consider funding a special type of charitable trust called a net income with makeup charitable remainder unitrust (NIMCRUT), which can be used as a replacement for a retirement plan, without all the normal limitations and restrictions associated with a typical qualified retirement plan.

Here’s how it works: The charitable deduction is received in the year you fund the trust (when your income is likely still very high). Distributions to you from the trust are the lower of 1) a fixed percentage of the value of the trust assets or 2) net income of the trust for the current year. The make-up provision means that when the trust’s net income is less than the fixed percentage of the assets, higher distributions can be made to make-up for this in later years. This make-up provision means (because you can control the amount of income by the selection of investment types) some of the income from the trust is deferred into future years.

You can, for example, invest in high growth non-income producing stocks, which will keep distributions and taxes low while you’re still working. Then, once retired, you can sell assets in the trust to generate capital gains that trigger make-up payments to yourself. When you die the remaining assets go to charity.

With this one instrument you can reduce your taxable income while working (via current charitable deduction), save and invest for retirement, and provide for the charity of your choice at death.


Example 3: Ultra-high-net-worth business owner

You have a net worth of $200 million but $100 million of that is in a private business you built from the ground up. Your children want to continue the business after your death. When you die, your beneficiaries will owe $40 million of estate taxes on the value of the business alone. Your problem is there is not enough cash to pay those taxes without selling the business at fire-sale pricing.

Once again, a type of charitable trust could present an even more efficient solution for this situation. You could fund a charitable remainder trust with your highly appreciated private business stock. This allows a current tax benefit from the charitable contribution, and a stream of income from the trust to you until death.

Combined with a wealth replacement trust (holding a $100 million life insurance policy), it’s possible to provide for charity while taking little or nothing away from the family. At your death, the charity will receive the $100 million private business. This reduces your estate by $100 million, saving the family $40 million in estate taxes. The family receives the $100 million life insurance value which does not incur $40 million of estate taxes because the life insurance passes outside of the estate.

Finally, the charity doesn’t have any interest in keeping private company stock that can’t be sold on the open stock market. So, your children approach the charity offering to buy the stock for $100 million. Thus, you can pass the family business with a full step up in the cost basis to $100 million without incurring $40 million in estate taxes.

The above examples are hypothetical, and every individual’s situation is unique. Proactive planning and working with a financial advisor can help uncover what options are best for you.

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The hypothetical examples above are for illustration purposes only and do not represent actual investments. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements. The ChFC® mark is the property of The American College, which reserves sole rights to its use, and is used by permission.

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