​What to Ask Your Financial Advisor When Making a Charitable Donation

Ryan Brennell |


When you first set out to improve your financial circumstances, you, like most people, were probably focused on creating wealth. But once you achieved a certain level of security and comfort, simply accumulating money began to lose its luster. That's when you started looking at charitable donations. Such endeavors, known as purpose-driven financial planning, would enable you to contribute long-term value and give meaningful context to your wealth-creation efforts.

That said, charitable giving raises many questions, and decisions about legacy and purpose can become emotional. Advisors are there to provide reassurance and guidance to you and your family. Their expertise ensures you connect with the right charities and cultivate a rich, holistic financial life.

Increasing the Impact of Your Giving

Each year, Americans donate more than $300 billion to charities, and most of those gifts come from individuals, according to Amy Pirozzolo, Fidelity Charitable’s vice president of marketing. "By engaging their advisor, donors ensure that their giving is tax-smart and part of their overall approach to managing their wealth," she said. "In other words, that they are giving the right asset at the right time."

Most people default to donating cash, but other assets may offer greater benefits to the receiving organizations. Appreciated securities or IRAs, for example, are just a few cash alternatives that can result in bigger gifts or decreased out-of-pocket costs.

Fred Kaynor, VP of business development and marketing at Schwab Charitable, echoed Pirozzolo’s take. "A recent survey of U.S. donors conducted by Schwab Charitable suggests that almost one-third are still confused about the kind of donation that has the greatest tax benefits for them,” Kaynor told me. “And even though 71 percent know that non-cash assets, like public company stock, are more tax efficient than cash, around the same percentage still give cash.”

Such behaviors don’t make sense from a financial or charitable perspective. "Contributing appreciated, non-cash assets to a donor-advised fund or another public charity generally has the greatest tax benefits for donors," said Kaynor. "It allows them to potentially eliminate capital gains tax on the sale of those assets and increase their giving by as much as 20 percent."

Financial advisors are well-versed in the tax codes and can provide wise counsel on which types of gifts are best suited to your goals. Oftentimes, people donate impulsively without being clear on what they hope to achieve.

5 Questions to Ask Your Advisor

Charitable giving takes on a special significance as high net worth individuals consider their philanthropic and personal legacies. Conversations about familial values are great opportunities for several generations of relatives to convene and discuss their ethical priorities. Financial advisors lend important voices to these conversations because they can recommend strategies for ensuring that the family legacy is tied to effective giving strategies and reputable organizations.



Given the weight of such decisions, it's important that you feel confident in your advisors' abilities to offer useful insights on this topic. The following questions will help you proactively engage your advisor:

1. How will this gift impact my financial security?

Michael Howard, CEO of YouthBridge Community Foundation, recommends asking about the financial impact at the outset. Charitable gifts can signal your considerable generosity, but they shouldn’t destabilize your financial future. Advisors can determine how much you may give without hurting your own positions, and they can offer strategies for achieving your ultimate goals. For instance, you might opt to make a large gift after your death as part of an estate plan. There are many ways to give without sacrificing your own well-being.

2. What are my options for making a charitable donation?

"There are two things a donor should consider when planning their charitable contributions," Pirozzolo said. "How are the contributions in line with their values, and how can they maximize a charitable contribution from a tax perspective, potentially allowing for more funds to go to the causes they care most about?

Instead of selling off securities and donating the after-tax proceeds, you can gift appreciated securities with unrealized long-term capital gains directly to charities or donor-advised funds. An advisor can identify which assets in your portfolio have the greatest appreciation, as these tend to be the most strategic donations.

You might also consider contributing complex assets, such as privately held C- and S-corp stock, limited partnership interests, and publicly traded stocks. "A donor can leverage the value of a seemingly illiquid asset and provide immediate, ongoing support to multiple charities on their own timetable," Pirozzolo said.

3. What are the tax implications of this gift?

Different gifts offer varying tax benefits, so you should verse yourself in the options before making any decisions. Advisors will review your tax returns to identify opportunities to reduce your tax liabilities through charitable giving. The philanthropic strategy they devise might include periodic gifts made throughout the year, several different giving vehicles, and a mix of contribution types.

4. When is the best time to donate?

If you anticipate a major tax event, such as an initial public offering or the sale of a lucrative asset, you should meet with advisors well in advance to determine how it will impact your giving tactics. An advisor may suggest donating a portion of the profits from those assets to minimize your tax burdens and increase your philanthropic impact.

5. Do you recommend using a charitable vehicle?

There are several ways to deliver a gift, including a donor-advised fund, a charitable trust, or a charitable annuity. You should seek clarification on which is best suited to your goals, the benefits of each approach, and how these vehicles might be combined for optimal effectiveness.

When we think of financial advisors, our minds usually jump to investments, insurance, and retirement planning, but they're also key when making charitable contributions. A good advisor can help you clarify why you want to give, what ends you hope your donations will achieve, and how to direct your generosity into the most effective gifts and organizations.

Ryan Brennell is the CEO and co-founder of Gladitood, a crowdfunding platform that helps nonprofits raise funds for their efforts. Born from a 2012 Startup Weekend pitch, Gladitood helps nonprofit organizations across the globe raise the funding they need to create positive change in the world. In addition to running Gladitood, Ryan has personally helped more than 50 nonprofits complete crowdfunding campaigns. He also sits on the executive committee, serves as the vice president of the board of directors, and heads the marketing committee for Microfinancing Partners in Africa.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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