As December 31 approaches, charitable giving becomes top of mind for many individuals. Whether driven by a desire to maximize tax incentives, honor a loved one, or thoughtfully allocate year-end bonuses, this season is a strategic time for philanthropy. For high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, giving often requires careful planning and involves more advanced strategies to make a meaningful impact.

What Is Charitable Giving?

Charitable giving involves donating money, time, or possessions without expecting any personal benefit. While anyone can engage in philanthropy, HNW individuals have unique opportunities to maximize the impact of their contributions, from setting up private foundations to contributing appreciated securities.

Charitable Giving for HNW Individuals

For HNW clients, charitable giving is not just about generosity – it’s an integral part of a comprehensive wealth strategy. A recent study revealed that 90% of HNW investors agree that philanthropy should be woven into their financial planning. With younger generations, like HNW Gen X and Millennial investors, increasingly prioritizing giving, a well-planned strategy becomes even more crucial.

While definitions vary, HNW individuals typically have over $5 million in liquid assets, while UHNW individuals have over $30 million in investable assets.

Their giving strategies often need to account for complex assets and the desire to create long-term impact while considering family and community legacies.

Recent Trends in HNW Philanthropy

The pandemic has amplified the significance of charitable giving. Research shows that over 85% of affluent households maintained or increased their giving during economic uncertainty, reflecting a desire to make a difference even amid challenging times. Interestingly, tax incentives are often a secondary motivation; HNW donors prioritize personal satisfaction and connections to meaningful causes. Many also engage family members in philanthropic discussions, creating a multi-generational commitment to giving back.

Advanced Methods of Family Wealth Philanthropy

HNW individuals have several sophisticated giving options that can maximize their contributions while offering potential tax benefits. Here are four popular strategies:

1. Private Foundations. Private foundations are charitable organizations created by individuals or families. Founders maintain control over assets and grant-making, with foundations required to distribute at least 5% of assets annually. These entities offer estate and income tax benefits:

• Gifts to the foundation can be deducted up to 30% of the donor’s adjusted gross income (AGI).
• Contributions to a foundation upon a donor’s death are estate tax-free.

Foundations are ideal for philanthropists who want to create a legacy, set long-term giving goals, and involve family members in charitable decisions.

2. Donor-Advised Funds (DAFs). DAFs are flexible charitable giving accounts managed by sponsoring organizations. Donors can advise on investments and distributions while benefiting from an immediate tax deduction (up to 60% of AGI for cash gifts). The assets in a DAF grow tax-free, and donors can contribute cash or securities. DAFs are especially useful for “bunching” charitable donations into a single tax year while spreading grants over time.

3. Charitable Trusts. Charitable trusts come in two main forms:

• Charitable Lead Trusts (CLTs): Provide income to charities for a set period, with remaining assets going to beneficiaries. These trusts are effective for transferring wealth while supporting charitable causes.
• Charitable Remainder Trusts (CRTs): Allow donors to receive an income stream for life or a term of years, with the remainder going to a charity. Donors can receive an income tax deduction based on the future value of the gift and potentially bypass estate taxes.

Both trust types are irrevocable and offer a way to balance philanthropy with family wealth planning.

4. Donating Appreciated Stocks. HNW donors can save on capital gains taxes and receive an income tax deduction by donating appreciated securities. This strategy allows charities to benefit from the full value of the gift, tax-free. It’s a win-win approach that enhances the impact of the donation.

Strategic Year-End Giving Ideas

To maximize philanthropic impact before year-end, consider these strategies:

1. Extended Giving. Bunching multiple years of charitable contributions into one year allows donors to maximize itemized deductions. Using a DAF facilitates this, providing immediate tax benefits and the flexibility to allocate grants over future years.

2. Tax-Loss Harvesting. Given market volatility, selling underperforming stocks to offset gains and up to $3,000 of ordinary income is a smart year-end strategy. Donating proceeds from tax-loss harvesting adds another layer of tax efficiency.

3. Qualified Charitable Distributions (QCDs). For clients aged 70½ or older, QCDs are a way to make up to $100,000 in tax-free donations annually from an IRA to qualifying charities. This approach can reduce taxable income and count toward required minimum distributions (RMDs).

Moving Forward with Charitable Giving

Charitable giving can be about much more than making a donation. For many families, it is a reflection of their values, an opportunity to make a meaningful impact, and an important part of the legacy they hope to leave behind. As wealth moves from one generation to the next, bringing children and grandchildren into conversations about generosity, values and the causes that matter most can help carry that legacy forward.

Strategic charitable planning can also play an important role in a family’s overall financial picture. The timing and structure of charitable gifts may create tax advantages, while thoughtful planning can help families give intentionally without losing sight of their other financial priorities.

Making Giving Part of the Bigger Picture

At West Advisory Group, we’ve seen how quickly the priorities and circumstances surrounding retirement can change. We’ve seen market cycles, changes in tax laws, shifting family dynamics and all of the other ebbs and flows that can impact a retirement plan. One thing we’ve learned is that we can’t control everything that happens around us, but we can control how prepared we are for it.

That’s one of the reasons we developed our signature PEAK FORMula™. It’s designed to help our clients coordinate the many moving pieces of retirement, including investments, taxes, cash flow, estate planning, risk management, charitable giving and legacy strategies, all within one comprehensive process.

For those five years or less from retirement, this becomes especially important. You’re transitioning from the accumulation phase of your working life into the distribution phase of retirement, and the questions begin to change. It’s not just about building wealth anymore. It’s about deciding how that wealth will support your life, the people you love and the causes that matter to you.

Our team of experts is perfectly matched to help navigate that transition and bring those pieces together. Through the PEAK FORMula™, charitable giving doesn’t have to be viewed as a separate financial decision. It can become part of a larger strategy for managing your wealth today while intentionally shaping the legacy you want to leave tomorrow.

Because retirement planning isn’t just about what you have, it’s about what you want your wealth to accomplish, for you, for your family, and for the causes that matter most.