How Charitable Giving Affects the Comprehensive Financial Plan

By Jay Mota, CFP®, CDFA®, ChFC®, Prudential – April 22, 2022
 How Charitable Giving Affects the Comprehensive Financial Plan

Clients who are charitably inclined may have different ideas on giving. Depending on where the funds are coming from, it may impact one or more of the six main areas of a comprehensive financial plan.

Retirement Planning

  • Budget for charitable funds: The size of the client retirement funds, as well as how near they are to retirement, will likely play a role in the amount and the ways they are able to give.
  • Gift retirement accounts: Rather than clients naming a relative or friend as the beneficiary of their retirement account, another option is to name a charity, as long as their plan allows it. Since charities can avoid income taxes on retirement accounts while family members cannot, it often makes sense to leave an IRA or 401(k) to charity and non-retirement assets to family.
  • Provide retirement income: Charitable gift annuities and charitable remainder trusts allow clients to give a sizeable amount to charity while still providing for retirement income through annuity payments or annual distributions.


  • Change investment objectives: Managing a philanthropic portfolio may be vastly different from a personal portfolio when it comes to asset allocation and risk tolerance. Studies have shown that donors are often less risky with a philanthropic portfolio than with their personal portfolio.
  • Fund private foundations: Funding a private foundation as a mode of charitable giving means taking on the responsibility of managing and investing the foundation’s principal fund. This will likely require clients to hire an investment advisor and up their investment knowledge.
  • Donate appreciated securities: Donating part of a portfolio can both give an asset to charity and reduce port­folio risk by diversifying without having to sell stocks and incur capital gains tax.

Risk Management 

  • Avoid overspending: While a charitable giving strategy can help maximize donations to charity, it also forces clients to set a charitable budget and avoid donating more than they can give or using improper charitable vehicles.
  • Avoid charity fraud: Research is a huge part of any charitable giving strategy. Recommend that clients get to know the charities they wish to donate to. Developing a strategy also makes it less likely to give impulsive donations to phone or email solicitations, which many scammers use to steal funds from unsuspecting donors.
  • Donate life insurance: Naming a charity as the beneficiary for life insurance is a relatively inexpensive way to donate, as it can leave a large amount to charity while only costing a small amount in premiums.

Estate Planning

  • Give after death: Donating postmortem offers many options, whether leaving an outright bequest in a will or donating life insurance, retirement assets or assets through trusts. This can reduce a taxable estate and help the family avoid income tax on some of the inherited assets.
  • Minimize estate taxes: Charitable giving offers many options for reducing estate taxes for the decedent and family. The use of charitable trusts can even offer income tax benefits and help provide the client or family with a source of income while still donating a large portion of the trust’s assets to charity.
  • Leave a charitable legacy: Having some of the estate’s assets pass to charity can help solidify a charitable legacy and ensure that charitable acts will live on even after death.

Tax Planning

  • Minimize taxes: The use of various charitable giving vehicles can help reduce income taxes (through deductions), estate taxes (by reducing the amount that remains in the taxable estate) and capital gains taxes (by donating appreciated securities or capital gain property).

Net Worth and Cash Flow

  • Budget for planned giving: Planned giving and the budget it requires will be largely determined by net worth and cash flow. Many people choose to give as a percentage of their income, so, in some cases, a charitable giving budget may be directly proportional to cash flow.
  • Determine the best method to give: Net worth and cash flow will be a determining factor in both what and how to give. For example, someone with a low or even average net worth will likely not choose to set up a private foundation. Likewise, someone with a high net worth will likely have avoiding estate taxes as a large factor in their charitable giving strategy and therefore will want to use vehicles such as charitable trusts and annuities that allow them to do that.

Jay Mota

Jay Mota, CFP, CDFA, ChFC, is a financial advisor at Ameriprise Financial Services, LLC. Ameriprise Financial Services is an NJCPA premier partner.

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This article appeared in the Spring 2022 issue of New Jersey CPA magazine. Read the full issue.