• Hannah

Maximize Your Generosity

This last year has been one of struggle and scarcity on many fronts. For some, scarcity was tangible in the form of reduced or lost work, difficulty covering bills, and significant financial upheaval. For others, scarcity showed up as fatigue. Daycares were shut down, learning and work became remote activities, and some struggled to stay on top of deadlines while keeping kids engaged. Still, others found scarcity in the form of poor health, both physical and mental. For those who didn't encounter Covid first-hand, there were still the mental setbacks resulting from isolation and important life events that passed without celebration. It has been a hard season for many. Nevertheless, I'm reminded that we also see the best in ourselves and others in times of crisis. As Mister Rogers was known for saying, we see "the helpers" and are reminded that the best path forward is through the help we give and receive within each of our communities.


While it was a challenging year, 2020 also brought out the best in us. According to Schwab charitable, which tracks giving through the Donor Advised Funds it manages, in 2020, donors gave to more than 100,000 charities totaling $3.7 billion. This amounted to an increase of 35% of dollars granted to charities through the Schwab program from the following year. Other institutions that track charitable giving found similar trends, with The Fundraising Effectiveness Project finding a 7.5% increase in year-over-year giving in the first six months of 2020.


When it comes to the study of positive psychology, research has found that while giving is not only good for society; it's also good for our well-being. Numerous studies have found that giving – both of our wealth and our time and energy – makes us happier. In her famed Yale course, The Science of Well-Being, psychologist Laurie Santos notes that something as simple as committing to doing a random act of kindness each day has resulted in higher reported levels of happiness amongst participants in her studies on happiness.


One of the reasons giving can be so impactful when it comes to our personal well-being is that it allows us to express our values in a targeted way. Giving to an organization that does work that we care about often helps us feel as if we are making a meaningful difference in our circle of influence. The belief that we are living a meaningful life is a marker for happiness. Knowing that, it's worth asking if there are ways to maximize our impact, particularly when it comes to financial giving.


One of the easiest ways to maximize our giving is to do so in a tax-efficient manner. Giving to an eligible 501c3 charity is tax-deductible. Still, with the recent increase in the standard deduction, individuals have to give a significant amount to reach the threshold at which they would consider itemizing their deductions and consequently be able to deduct their charitable giving. Because of that, it's worth considering concentrated giving – making elevated donations in certain high-income years to cross that threshold and get the deduction. To assist in executing this strategy, a Donor Advised Fund (or DAF) can be employed. A DAF will allow you to make one large contribution to the account in a given year, claim the entire deduction in the year the contribution is made, and then make separate individual donations to eligible 501c3 charities at later dates as the donor sees fit.


A strategy like this may make sense for someone who likes to make ongoing donations to an organization such as a church or local charity. A DAF allows you to continue that pattern of giving will also benefitting from frontloading those contributions in a single year for tax purposes. Further, an individual may want to consider donating a position in a taxable portfolio with a large gain to their DAF. In doing so, they also donate the gains and avoid recognizing them at a later date, thereby saving even further at tax time. They can then purchase back that position if they so choose, in effect contributing the same amount they might have alternatively contributed in cash but canceling out the gain on the position.


An additional strategy available to retirees facing Required Minimum Distributions (RMDs) is what's known as a Qualified Charitable Distribution by which an individual can directly donate their RMD to a qualified charity. This allows them to get a charitable deduction from what would have otherwise been a taxable distribution from their IRA. This can be a particularly meaningful strategy for those with large RMDs that are not necessary to provide for their current spending level.


To learn more about effective giving and the benefits of giving with regards to well-being, join us for our annual investor conference taking place Saturday, March 27th at 10 am PST/11 am MST. The partners at Sherwood Financial Partners will be discussing our economic outlook, the psychology of reciprocity, as well as financial planning tips for the coming year. You can learn more about the conference and RSVP here.


"2020 Second Quarter Report." Fundraising Effectiveness Project Report 10/06/2020.


“Donor-advised fund donors supported nearly 100,000 organizations with $3.7 billion in grants.” Schwab Charitable. January 26, 2021. https://www.schwabcharitable.org/press-releases/shcwab-charitable-donors-create-record-impact.

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