Creating a Legacy of Change through Charitable Giving

Creating a Legacy of Change through Charitable Giving

October 26, 2022

Philanthropy today is different than it was in the past. It was once common for donors to distribute their wealth through smaller grants to numerous organizations. Over time, best practices for charitable giving have evolved, and wealthy individuals are instead taking a greater interest in and even taking part in the organizations. Because of this, they are often giving more significant amounts to only a select few organizations.

The idea of giving today is fueled by the desire to improve society. Different people are motivated by various charitable giving opportunities and seeking out the guidance of a financial professional could help you become better educated on which type would work for you.


How it works

There are numerous instruments someone can choose from, for example:

A Donor-Advised Fund (DAF) – A separately identified fund or account is maintained and operated by a “sponsoring organization.” The accounts are composed of contributions made by individual donors. The organization then has control over the funds. But the donor or a representative of the donor has advisory privileges regarding the distribution of the funds or the investment of assets in the accounts. [i]

Private Foundation – A private foundation is created when someone sets up a tax-exempt organization but does not file to be recognized as a public charity. To fund the foundation, you can contribute as much as you like, but you must distribute a minimum of five percent of the value of the charitable assets annually. Keeping the foundation from being a public charity will maintain that tax deductions for donations are capped at 30 percent of the taxpayer’s adjusted gross income (AGI) if the donations are made in cash. The tax deduction is lower at 20 percent of the taxpayer’s AGI if the gifts are appreciated assets or securities. [ii]

Charitable Trusts – The two primary charitable trusts are charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). Both involve putting assets into a trust. With a CLT, the organization you chose receives cash flow from the assets put into the trust each year for a fixed period. The remaining assets can be sent to other beneficiaries. A CRT pays annual distributions to you or particular beneficiaries for a set period of time. The remaining assets are then given to charity. A CRT may be partially tax-deductible right away. [iii] Another advantage of charitable giving, particularly assets that have appreciated significantly, is reducing the size of your overall taxable estate for estate tax planning. If your estate is subject to estate tax after you die, your wealth could take a 40 percent hit.

Charitable Lead Annuity Trusts (CLAT) – The donor of a CLAT can establish a trust with one or more charities as their beneficiaries. The trust then distributes a set annuity amount to charitable organizations selected by the donor over the donor’s life or a specific amount of time. When the CLAT expires, all remaining assets get passed to the remainder beneficiaries without being subject to estate tax. Because of low-interest rates, the CLAT becomes attractive as it accumulates wealth that can be distributed to beneficiaries later.

Qualified Charitable Distributions (QCDs) – If you are itemizing deductions or taking the standard deduction and are 70 ½ and older, you can direct up to $100,000 annually from your traditional IRA to charities through what is called Qualified Charitable Distributions (QCDs). These distributions can be used to satisfy all or part of the donor’s RMD for 2022 and are not considered taxable income for the donor. [iv]

Strategic charitable giving may also provide tax incentives. An example would be if you have appreciated assets over time, like real estate or securities, selling them will incur a capital gains tax liability. However, donating to a qualified charitable organization can potentially avoid capital gains taxes for those assets. The charity receiving the donation will not be liable for the capital gains tax and will also benefit from the fair market value of your gift.

With the proper planning, you can potentially preserve your wealth and estate. Finances are often complicated, and making smart decisions can possibly help to avoid time-consuming and costly mistakes arising from emotional decision-making or just not understanding all that is involved in creating financial strategies. There are tangible benefits to working with a financial professional, including helping you break down retirement planning strategies, assisting with portfolio diversification management, and suggesting appropriate investment approaches. Working with a financial professional who you feel has the experience and knowledge is key to setting up your family for a long-term relationship on the road toward pursuing your philanthropic goals.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.


There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by LPL Financial Marketing Solutions.

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[i]Donor-advised Funds | Internal Revenue Service (

[ii]High-Net-Worth Clients and Charitable Giving | AccountingWEB

[iii]Charitable Trusts | Internal Revenue Service (

[iv]Publication 526 (2021), Charitable Contributions | Internal Revenue Service (