E.43 Charitable Giving Strategies

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

E.43 Charitable Giving Strategies

Key Takeaways Explain This Topic AI

Cash contributions to public charities are deductible up to 60% of AGI; appreciated long-term capital gain property is limited to 30% of AGI at FMV

Contributions to private non-operating foundations are limited to 30% of AGI for cash and 20% of AGI for appreciated property

Excess charitable contributions can be carried forward for up to 5 years

Qualified Charitable Distributions (QCDs) from IRAs allow taxpayers age 70 1/2+ to transfer up to $111,000 (2026) directly to charity tax-free

Donor-advised funds provide an immediate tax deduction with the flexibility to make grants to charities over time

Charitable remainder trusts (CRATs/CRUTs) provide an income stream to the donor with the remainder passing to charity

Last updated: October 2026

Charitable Giving Strategies

Charitable giving not only supports meaningful causes but also provides significant tax benefits when structured properly. Understanding the rules governing charitable contribution deductions is essential for CFP candidates and practitioners alike.

Types of Charitable Organizations

The IRS classifies charitable organizations into two main categories, each with different contribution limits:

Public Charities (50% Organizations)

Public charities are organizations that receive broad public support. They include:

Churches and religious organizations
Educational institutions (schools, colleges, universities)
Hospitals and medical research organizations
Publicly supported charities (Red Cross, United Way, community foundations)
Donor-advised funds (DAFs)
Private operating foundations

These organizations qualify for the highest AGI deduction limits.

Private Non-Operating Foundations (30%/20% Organizations)

Private non-operating foundations typically receive funding from a single source (individual, family, or corporation) and make grants to other organizations rather than directly conducting charitable activities. Examples include family foundations like the Gates Foundation.

These organizations have lower AGI deduction limits.

AGI Limitations by Property Type and Recipient

The deductible amount of charitable contributions is limited based on three factors:

Type of property donated (cash vs. property)
Type of recipient organization (public charity vs. private foundation)
How the property is valued (FMV vs. basis)
Charitable Contribution Limits Summary (2026)

Property Type Public Charities Private Non-Operating Foundations
Cash 60% of AGI 30% of AGI

Ordinary income property (inventory, short-term gain property) 50% of AGI (deduct at basis) 30% of AGI (deduct at basis)

LTCG property - Intangibles (stocks, bonds) 30% of AGI (at FMV) or 50% (at basis) 20% of AGI (must use basis)
LTCG property - Real property 30% of AGI (at FMV) or 50% (at basis) 20% of AGI (must use basis)
LTCG tangible personal property - Related use 30% of AGI (at FMV) 20% of AGI
LTCG tangible personal property - Unrelated use 50% of AGI (at basis only) 20% of AGI (at basis only)
Key Valuation Rules

Ordinary Income Property: Always deducted at the lesser of FMV or adjusted basis . This includes:

Inventory
Short-term capital gain property (held 1 year or less)
Property that would generate ordinary income if sold

Long-Term Capital Gain Property (Appreciated Assets):

General rule: Deduct at fair market value (FMV)
Election available: Taxpayer may elect to deduct at basis to use the higher 50% limit instead of 30%
Private foundations: Must use basis (no FMV election available)

Tangible Personal Property - Related vs. Unrelated Use:

Related use: The charity will use the property for its exempt purpose (e.g., donating artwork to a museum for display) - deduct at FMV

Unrelated use: The charity will sell or use the property for non-exempt purposes (e.g., donating artwork to a hospital that will sell it) - deduct at basis only

5-Year Carryforward Rule

Charitable contributions that exceed the AGI limits in a given year are not lost . Excess contributions can be carried forward for up to 5 years .

Carryforward Rules:

Current year contributions are deducted first
Carryforward contributions are deducted in order (oldest first)
The same AGI limitations apply in carryforward years
Unused carryforwards expire after 5 years

Example: Evelyn has $150,000 AGI and donates $100,000 cash to the Red Cross (a public charity). Her deduction is limited to $90,000 (60% x $150,000). The remaining $10,000 carries forward to the next tax year.

Donor-Advised Funds (DAFs)

A donor-advised fund (DAF) is a charitable giving vehicle administered by a public charity that allows donors to:

Make an irrevocable contribution and receive an immediate tax deduction
Recommend grants to qualified charities over time
Potentially grow the funds tax-free through investment
DAF Benefits
Immediate deduction: Full deduction in the year of contribution (subject to AGI limits)
Flexibility: No deadline to recommend grants to charities
Simplicity: One contribution, multiple grants; simplified record-keeping
Privacy: Grants can be made anonymously

Bunching strategy: Ideal for "bunching" multiple years of contributions into one year to exceed the standard deduction

Bunching Strategy Example

Jenna typically donates $7,000 annually, and her total itemized deductions (including charitable gifts) are $11,000. Since the standard deduction ($16,100 for single filers in 2026) exceeds her itemized deductions, she receives no tax benefit from her charitable contributions.

Solution: Jenna contributes $21,000 to a DAF in 2026, increasing her itemized deductions to about $25,000 (less the 0.5%-of-AGI floor on charitable gifts that applies from 2026). She itemizes for 2026, then takes the standard deduction in 2027 and 2028 while making grants from the DAF to her favorite charities.

DAF Contribution Limits

DAFs are public charities, so they qualify for the higher AGI limits:

Cash: 60% of AGI
Appreciated securities: 30% of AGI at FMV
Charitable Remainder Trusts (CRTs)

A charitable remainder trust (CRT) is a split-interest trust that provides:

Income stream to the donor (or other beneficiaries) for life or a term of years
Remainder interest passes to one or more charities

The donor receives an immediate income tax deduction for the present value of the remainder interest .

Two Types of CRTs

Feature CRAT (Annuity Trust) CRUT (Unitrust)
Payment Fixed dollar amount Fixed percentage of trust value (revalued annually)
Payment fluctuation Remains constant Varies with trust performance
Additional contributions Not allowed Allowed
Best for Donors wanting predictable income Donors wanting inflation protection
CRT Requirements
Annual payment must be at least 5% and no more than 50% of initial FMV
Present value of remainder interest must be at least 10% of initial FMV
Trust term: Life of beneficiary(ies) or fixed term up to 20 years
Calculating the Charitable Deduction

The deduction equals the present value of the remainder interest , calculated using:

Initial fair market value of contributed assets
Annual payment rate
Donor's age (or term of years)
IRS Section 7520 rate (published monthly)

Note: Older donors receive larger deductions because the charity's remainder interest has a higher present value (shorter payout period). Younger donors receive smaller deductions.

Charitable Lead Trusts (CLTs)

A charitable lead trust (CLT) is the opposite of a CRT :

Charity receives income for a specified period
Remainder passes to family members (or returns to the donor)
Two Types of CLTs

Feature CLAT (Annuity Trust) CLUT (Unitrust)
Payment to charity Fixed dollar amount Fixed percentage of trust value
Estate planning benefit Freezes value for gift/estate tax Adjusts with market performance
CLT Tax Treatment
Grantor CLT: Donor receives income tax deduction upfront; pays tax on trust income annually
Non-grantor CLT: No income tax deduction; trust pays tax on income; reduced gift/estate tax on remainder

CLTs are often used for wealth transfer to the next generation with reduced gift and estate taxes.

Qualified Charitable Distributions (QCDs)

A Qualified Charitable Distribution (QCD) allows IRA owners age 70 1/2 or older to transfer funds directly from their IRA to a qualified charity.

2026 QCD Limits

Provision Limit
Annual QCD limit per person $111,000
Married couple (both qualifying) $222,000 total ($111,000 each)
One-time QCD to split-interest entity (CRAT, CRUT, or CGA) $55,000 lifetime
QCD Rules
Donor must be age 70 1/2 or older (not 73, despite RMD age increase)
Must be a direct transfer from IRA to charity (cannot receive distribution first)
QCD satisfies Required Minimum Distribution (RMD) if one is due
No charitable deduction (but amount is excluded from gross income)
Eligible accounts: Traditional IRA, Roth IRA, inactive SEP/SIMPLE IRA
Not eligible: 401(k), 403(b), active SEP/SIMPLE
QCD Benefits
Reduces AGI: Unlike a regular distribution + charitable deduction, a QCD is excluded from income entirely
Helps non-itemizers: Provides tax benefit without itemizing
Reduces AGI-based phaseouts: Lower AGI may improve eligibility for other tax benefits
Reduces Medicare premiums: Lower MAGI may reduce IRMAA surcharges
2025 Reporting Requirement

Beginning in 2025, IRA custodians must report QCDs on Form 1099-R using Code Y in Box 7.

Charitable Gift Annuities

A charitable gift annuity (CGA) is a contract between a donor and a charity where:

Donor makes an irrevocable gift to charity
Charity agrees to pay donor (and possibly another beneficiary) a fixed annuity for life
Key Features
Part of each payment is tax-free return of principal
Donor receives immediate charitable deduction for the gift portion
Rates are typically set by the American Council on Gift Annuities
Under SECURE 2.0, donors can fund a CGA with a one-time QCD up to $55,000 (2026)
Private Foundation Rules

Private foundations face additional rules and limitations:

5% Minimum Distribution Requirement

Private non-operating foundations must distribute at least 5% of net investment assets annually for charitable purposes. This includes:

Grants to public charities
Charitable program expenses
Reasonable administrative costs related to charitable activities
Other Private Foundation Rules

Subject to 2% excise tax on net investment income (reduced to 1.39% if distributions exceed historical average)

Prohibited from self-dealing with substantial contributors
Cannot hold more than 20% of a corporation's stock (combined with disqualified persons)
Subject to additional disclosure requirements
Tax Planning Strategies
Strategy 1: Donate Appreciated Stock

Donating appreciated long-term capital gain stock to a public charity allows the donor to:

Deduct the full fair market value
Avoid capital gains tax on the appreciation
Deduction limited to 30% of AGI (or elect 50% at basis)
Strategy 2: Bunch Contributions with DAF

Use a donor-advised fund to bunch multiple years of charitable giving into a single year to exceed the standard deduction threshold.

Strategy 3: QCD for IRA Distributions

For taxpayers over 70 1/2 who don't need their RMD for living expenses, using QCDs reduces taxable income more effectively than taking a distribution and claiming a charitable deduction.

Strategy 4: CRT for Concentrated Stock

A charitable remainder trust can help diversify a concentrated stock position while:

Deferring capital gains tax
Providing lifetime income
Generating a charitable deduction