In Search of the Perfect Gift

As the holiday season and year-end approaches some are beginning their search for the perfect gift. We will leave the selection of the right accessories and experiences for family and friends to others, but would like to share some thoughts on creating more impactful charitable gifts. Coordinating with your portfolio manager to be strategic in sourcing charitable funds may reduce your tax bill, while focusing on how funds will be received and used by organizations may be more inspiring and drive the changes donors are motivated to support.

We often help our clients strategize on the taxoptimized method of sourcing charitable funds. We evaluate strategies, such as bunching multiple years of gifts into a single calendar year, gifting appreciated securities for the double tax benefit, considering qualified charitable distributions from IRAs and charitable trusts to defer taxation on the sale of real estate or other appreciated assets. This planning allows some donors to reduce the after-tax cost of charitable giving, from one dollar for every dollar given to less than 30 cents for each dollar received by charity. With the compelling tax benefits of proper sourcing, it is certainly worth the time to evaluate each circumstance to identify and implement tax-wise strategies.

But ultimately, it is the impact the financial support will have on our favorite causes that is the best part of giving. Just as using the right technique for sourcing charitable dollars can make a dramatic difference, the same is true for how the gift is structured to be received by the charity(ies). Gifts can be restricted for specific purposes or programs within an organization or simply given to the area of greatest need. Similarly, gifts can be structured to benefit an organization over different timeframes. One gift type is not necessarily better than another, but each should be understood as unique tools designed for a specific purpose or outcome.

Immediate giving puts resources to work now. Unrestricted gifts offer leadership flexibility to respond to the organization’s most pressing priorities, from staffing and supplies to emerging community needs. Restricted gifts are designed to meet a clearly defined purpose, such as building capacity at a children’s hospital, providing eye care in rural regions, funding scholarships or maintaining recreational access to clean rivers. Immediate gifts allow donors to see the most visible benefits of their gift in the short term, can address urgent needs and are often very rewarding.

Impact giving provides substantial support over a defined period, often three to five years. It can help a nonprofit launch a program, expand services, hire specialized staff or test an innovative approach. Unlike a single contribution, impact gifts allow leaders the confidence to plan and invest in transformative ideas. Donors, the development team and leaders often collaborate to explore alignment of purpose, feasibility and sustainability, prior to finalizing a gift agreement. It is critical to have a plan to address future funding so a successful program does not face an abrupt financial cliff.

Endowment giving is designed for durability. The initial funds are invested while a stated spending policy provides annual support. Creating or adding to an endowment can sustain a program, faculty position, scholarship or area of greatest need for generations. Because future conditions will evolve, it is especially important to collaborate with the development team and organizational leadership to ensure donor intent can be honored without making the funds difficult to use. Careful attention to the investment policy, spending rules and provisions for changed circumstances help preserve both purchasing power and purpose.

Deferred giving allows donors to make a meaningful commitment today while the charity receives assets in the future through a will, charitable remainder trust or beneficiary designation. This approach may enable a larger gift without compromising current cash flow or financial security. Some arrangements can also provide lifetime income or estate-planning benefits. Because circumstances, laws and organizations change, deferred plans should be coordinated with legal, tax and financial advisors and reviewed periodically.

For many families, the best plan combines multiple approaches. Annual support may address current operations, a multiyear commitment may advance a strategic initiative and a bequest may strengthen the organization for future generations. A coordinated plan can also involve family members, creating shared understanding and encouraging the next generation to participate in philanthropy.

Gifts that are thoughtfully structured in purpose and timing are likely to create the most significant impact and being strategic in sourcing charitable funds frequently allow larger charitable gifts with the same after-tax cost to donors. Reach out to your portfolio manager for support in sourcing charitable funds, discussing the impact of timing or reviewing charitable gift agreements. It would be our pleasure to help you structure the perfect gift.

Disclosure

The views expressed represent the opinion of Ferguson Wellman. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections and other forward-looking statements are based on available information and Ferguson Wellman’s views as of the time of these statements. Past performance may not be indicative of future results. Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational purposes only and not as a substitute for qualified counsel who can determine how this information applies to you. We believe the information provided is from reliable sources but should not be assumed accurate or complete.

Please see additional disclosures.